Quiksilver, Inc. (ZQK)
F4Q2010 Earnings Call Transcript
December 16, 2010 4:30 pm ET
Bruce Thomas – VP, IR
Bob McKnight – Chairman, CEO and President
Joe Scirocco – CFO and COO
Steve Tully – President, Quiksilver Americas
Eric Tracy – FBR Capital Markets
Jeff Van Sinderen – B. Riley
Andrew Burns – D.A. Davidson
Mitch Kummetz – Robert Baird
Taposh Bari – Jefferies & Company
Mili Seoni – JPMorgan
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Thanks, operator. Good afternoon, everyone, and welcome to the Quiksilver fourth quarter fiscal 2010 earnings conference call. Our speakers today are Bob McKnight, our Chairman, President And Chief Executive Officer; and Joe Scirocco, our Chief Financial and Operating Officer.
Before we begin, I would like to briefly review the company's Safe Harbor language. 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, and 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 report on Form 10-K.
All forward-looking statements made on this call speak only as of today's date 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 in electronic form on our website at www.quiksilverinc.com.
With that out of the way, I’d like to turn the call over to Bob McKnight.
Thanks, Bruce. Good afternoon, everyone. And thanks for joining us for our fourth quarter and year-end conference call. I’m very pleased to report exceptional fourth quarter and full fiscal year results. This performance resulted from many factors, but most important is our innovation, execution, developing and delivering great products. Our creative and impactful marketing efforts; we’re taking good care of our customers; and from the efforts of our teams of employees and reps, these talented people who have worked really hard this year; and from a focused business discipline that we’ve made standard practice throughout the year.
After a full year of executing our business plan more efficiently with our leaner and more energized organization, we are very pleased to again deliver financial results that greatly exceeded our prior expectations. Our team executed well in an inconsistent global economic environment.
Let’s now turn to the high-level financial highlights from the fourth quarter. First, pro forma adjusted EBITDA in the quarter was $59 million compared to $50 million in the fourth quarter of fiscal 2009. That’s 19% higher EBITDA despite an 8% revenue decline. The second highlight is our 590 basis point expansion of gross margin to 53.5% compared to 47.6% last year.
Third, the margin story in our regional businesses was especially impressive, as our Americas gross margin improved 960 basis points over the prior year and our gross margin Europe was 60.2% in the fourth quarter. And fourth, in regard to our much improved balance sheet, net debt at quarter’s end was $608 million, reflecting a reduction of $279 million or 31% compared to a year ago.
From a full fiscal year perspective, we greatly exceeded expectations and dramatically improved our operating condition. For the full year, gross margins improved 560 basis points to 52.6% compared to 47.1% in fiscal 2009. Pro forma adjusted EBITDA improved 34% to $214 million compared to $160 million in fiscal 2009 despite a 7% revenue decline. We’ve reduced our debt 30% from over $1 billion to $739 million at the end of the year.
We did a great job of controlling inventory this year, enabling our gross margin expansion. Inventories at the end of the year, like they are today, were clean and current. And receivables have been managed well, as our DSOs have improved five days compared to last year. There are still areas of weakness in some of our markets around the world, but we believe we are now well positioned and more sharply focused.
We’ve also learned over time how to weather inconsistent markets. It is time we begin to transition our business from defense where we restructured operations and refinanced our balance sheet now to offense. And we’ve taken some more important steps to activate this new strategy. We now have a powerful new five-year plan with a view to achieve a much higher standard for our business.
As you all know by now, we just completed a hugely successful 200 million euro offering of senior notes. We use the proceeds of the offering to repay our European term loans and eliminate their required amortization payment, giving us significantly more financial and operating flexibility. This flexibility will enable us over the next few years to invest in the many attractive growth opportunities that we have identified with our own terrific global brands, Quiksilver, Roxy and DC.