Quiksilver, Inc. (ZQK)

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Quiksilver, Inc. (ZQK)

F2Q 2014 Earnings Conference Call

June 2, 2014 04:30 PM ET


Robert Jaffe - IR

Andy Mooney - President and CEO

Rich Shields - CFO


Taposh Bari - Goldman Sachs

Erinn Murphy - Piper Jaffray

Christian Buss - Credit Suisse

Dave King - Roth Capital

Jeffrey Van Sinderen - B. Riley

Mitch Kummetz - Robert Baird



Good afternoon, ladies and gentlemen. Thank you for standing by. Welcome to the Quiksilver Incorporated Fiscal 2014 Second Quarter Financial Results Conference Call. At this time all participants are in a listen only mode. Following the presentation we will conduct a question-and-answer session. (Operator Instructions). I would like to remind everyone that this conference is being recorded.

I'd now like to introduce Robert Jaffe, Investor Relations for Quiksilver, who will host this afternoon's call.

Robert Jaffe

Thank you, operator. Good afternoon, everyone, and welcome to the Quiksilver fiscal 2014 second quarter earnings conference call. Our speakers today are Andy Mooney, President and Chief Executive Officer; and Richard Shields, Chief Financial Officer. We are conducting this conference from Quiksilver’s office in Europe where the Company is hosting its spring 2015 sales kickoff meeting with the European sales reps.

Before we begin, I'd like to briefly review the Company's Safe Harbor statement. Throughout our call today, items may be discussed that are not based on historical facts and are considered forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

In particular, statements regarding Quiksilver's business outlook and future performance constitute forward-looking statements. Actual results could differ materially from those stated or implied by these forward-looking statements, as a result of risks, uncertainties and other factors, including those identified in our filings with the Securities and Exchange Commission, specifically under the section titled Risk Factors in our most recent Annual Report on Form 10-K and in our Quarterly Reports on Form 10-Q. All forward-looking statements made on this call speak only as of today's date, June 2, 2014, and the company undertakes no duty to update any forward-looking statements.

In addition, this presentation may contain references to non-GAAP financial information. A reconciliation of non-GAAP financial information to the most directly comparable GAAP financial information is included in our press release, which can be found on our website at www.quiksilverinc.com.

With that, I'd like to turn the call over to Andy Mooney.

Andy Mooney

Thank you, Robert. And welcome everyone, and thank you for joining our call today. I'll begin with comments on our financial performance and then discuss progress made on our Profit Improvement Plan during Q2. Rich will then discuss the Q2 financial results in more detail, and I’ll provide an update on our longer term view on the Profit Improvement Plan.

During Q2 we again witnessed SG&A. Sales in our direct to consumer channels in emerging markets increased. We generated positive comp store growth and improved gross margins. This was more than offset however by decreased revenues in our wholesale channel, particularly in North America and Europe and led to lower pro forma adjusted EBITDA versus prior year.

As mentioned on our Q1 call, our wholesale business in North America and Europe faces multiple challenges of both a systemic and cyclical nature. Our core multi-brand apparel retailers faced competitive challenges from larger vertically integrated players in the lifestyle segment and pure play online retailers in both core and lifestyle segments.

Over the last 12 months in the U.S. alone we have seen approximately 20% of our smaller wholesale accounts close. This trend has also been evident in Europe where smaller core retailers face the added pressures of weak economies and higher youth unemployment. Demand for such snow and skate lifestyle apparel remains robust and demand for Action Sports footwear is particularly strong. In apparel, the demand for lifestyle apparel is increasingly being met by fast-fashion vertically integrated apparel retailers at price points significantly below those currently offered in Action Sports.

Our brands compete well against vertical retailers in our owned and operated retail and e-commerce channels and we have restructured and re-priced the lifestyle component of our apparel offering to be more competitive in both core and lifestyle multi-brand wholesale going forward. We took a significant step forward with our fall ’14 and completely re-engineered the line for spring. But selling for fall ’14 particularly for Quiksilver apparel has been obviously affected by current poor sale through. With 70% of the media being spent in the fall and less inventory in the wholesale channel, we anticipate sales growth for Quiksilver apparel for fall ‘14 to improve, and those improvements to continue on into spring.

As referenced in prior earnings call, the decline in DC footwear is largely a result of poor execution, distribution expansion in the U.S. Again with less inventory in the wholesale channel, sell through for DC footwear is already beginning to improve modestly. But it will be spring ‘15 before the line is fully re-engineered and re-priced.

In contrast to the decline in wholesale sales, our emerging markets and e-commerce channels showed continued strength. And constant currency revenues from the emerging markets increased 28%. E-commerce revenues grew 23% and global same-store sales increased 1%.

Gross margins also increased in Q2, driven by improvements in our wholesale segment and increased sales in our retail and e-commerce channels. We continue to lower SG&A in Q2 by reducing headcount primarily in America’s and in EMEA.

We further trimmed the size of our athlete roster and feel great about the quality of the athletes that we have to work with and are pleased with our plans to support them with increased levels of marketing activation, particularly in digital and social media to extend the reach.

Read the rest of this transcript for free on seekingalpha.com