Q1 2011 Earnings Call
March 10, 2011 4:30 pm ET
Joseph Scirocco - Chief Operating Officer, Chief Financial Officer and Executive Vice President
Bruce Thomas - Vice President of Investor Relations
Robert McKnight - Co-Founder, Executive Chairman, Chief Executive Officer and President
Steve Tully - President, Women's Division
William Reuter - BofA Merrill Lynch
Mili Seoni - JPMorgan
Taposh Bari - Jefferies & Company, Inc.
Sarkis Sherbetchyan - B. Riley & Co.
Christian Buss - ThinkEquity LLC
Sean Naughton - Piper Jaffray Companies
Jennifer Black - Jennifer Black & Associates
Diana Katz - Lazard Capital
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Thanks, operator. Good afternoon, everyone, and welcome to the Quiksilver First Quarter Fiscal 2011 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'd 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 annual 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 first quarter conference call. I want to start by saying that I've traveled to Quiksilver facilities in Europe, Australasia and across the U.S. in the 11 weeks since our last earnings call, and I'm pleased to report that our product looks great, our marketing efforts are very evident and our employees are particularly energized and engaged. They have come to appreciate our expectations for improved performance as a company, and they continue to strive for higher levels of productivity, and the spirit of Quiksilver is evident in their enthusiasm and passion. It's a pleasure to see competitiveness in our people around the globe. It's a mentality that we try to install in all we do, and it's evident in our financial performance that Quiksilver's committed to improving our performance all around the world.
As such, I'm very pleased to report solid first quarter results that were in all aspects better than we expected when the quarter began. Revenues of $426 million in the first quarter exceeded our plan, and were up in constant currency when compared to the first quarter of 2010. This marks the first time in the last nine quarters that we've grown revenues and constant currency and demonstrates that previous revenue declines are abating.
Gross profit was higher this quarter than it was a year ago, demonstrating that our business is performing better. Gross margin expanded 110 basis points to a Q1 record 52.4% of revenues as we benefited from improvements in our U.S. retail stores and lower levels of discounting in the wholesale channel.
As we planned, pro forma adjusted EBITDA was $28 million in Q1 as we invested in new business initiatives such as our new Quiksilver Girls line, ahead of revenues generation. This result keeps us on track to deliver full year pro forma adjusted EBITDA roughly in line with fiscal 2010. And finally, our net debt at January 31 was $541 million, representing 2.7x pro forma adjusted EBITDA. That's down $237 million over the last 12 months and an improvement on more than one and a half turns of pro forma adjusted EBITDA, reflecting the enormous progress we've made in improving our balance sheet.
Taken together, this solid first quarter performance resulted from many factors. First and most importantly, we continued to develop and deliver innovative, fantastic quality products. Second, we're successfully reaching our consumer base with marketing campaigns that are creative and impactful. Third, we're listening to our customers, taking good care of them and involving them in the process of planning and designing our product ranges. And finally, we've established a standard business discipline of working hard and working smart, leading to very high levels of productivity.
We're seeing clear signs of improvement in many areas of our business and believe we are best positioned to capitalize on growth opportunities in our many markets around the world. It's great to have three strong global action sports brands.
In the Americas, revenues were up compared to the same quarter last year, and the work we've done to improve our U.S. retail store operations over the past 18 months is bearing fruit. The progress we've made is reflected by our solid double-digit positive comps in the quarter. And in wholesale, our outerwear and cold weather apparel and accessories were sold out for the season, and our Canadian business is strong for all three of our brands. We also continue to see strong growth in Latin America. Looking forward, when we finalize our order books for next fall, we expect to see growth in each of our brands compared to last year.