--Company Makes Progress on Profit Improvement Plan Initiatives;

Continues to Reduce Operating Costs--

Quiksilver, Inc. (NYSE:ZQK) today announced financial results for the fiscal 2013 fourth quarter and full year ended October 31, 2013.

“We made solid progress on key elements of our Profit Improvement Plan over the last few months,” said Andy Mooney, President and Chief Executive Officer of Quiksilver, Inc. “During the fourth quarter, we continued right-sizing our global operations, closing underperforming retail stores, trimming our global athlete roster, divesting non-core operations and making important headway in establishing global controls in the supply chain management processes. In November, we acquired full ownership of our high-growth operations in Brazil and Mexico and entered into our first substantial licensing agreement.

“I am pleased that our cost reduction efforts generated an increase of $3 million and $7 million in pro forma adjusted EBITDA for the fourth quarter and second half of fiscal 2013, respectively, versus the comparable prior year periods,” continued Mooney. “While net revenues were lower due to the expected decrease in DC brand sales, we generated higher gross margin and drove down selling, general and administrative expenses.”

As previously announced, the company sold its snowboard business, Mervin Manufacturing, and intends to pursue the divestiture of other non-core businesses. As a result, Quiksilver has reclassified the current and prior year operating results of Mervin and the other non-core businesses as discontinued operations. All of the results presented below represent the company’s continuing operations.

Please refer to the accompanying tables for a reconciliation of GAAP results from continuing operations to certain non-GAAP results from continuing operations, including pro-forma income/(loss), pro-forma income/(loss) per share attributable to Quiksilver, Inc., adjusted EBITDA and pro-forma adjusted EBITDA, for the fourth quarter and full year ended October 31, 2013 and 2012, net revenues in historical and constant currency, and a definition of our emerging markets.

Fiscal 2013 Fourth Quarter Review:

The following comparisons refer to results of continuing operations for the fourth quarter of fiscal 2013 versus the fourth quarter of fiscal 2012.

Net revenues were $476 million compared with $529 million, and were down 9%, or $47 million, in constant currency.

  • Americas net revenues decreased 15% to $223 million from $263 million, and were down 14% in constant currency.
  • EMEA net revenues decreased 6% to $168 million from $179 million, and were down 9% in constant currency.
  • APAC net revenues decreased 4% to $83 million from $86 million, but were up 9% in constant currency.

Gross margin increased to 47.0% of net revenues compared with 45.6%, due to gross margin improvement in the EMEA region, partially offset by a modest decline to gross margin in the APAC region.

SG&A expense decreased $7 million to $220 million from $227 million, primarily due to reduced expenses related to employee compensation, marketing expenses and administrative costs.

Pro-forma Adjusted EBITDA from continuing operations increased to $35 million from $32 million.

Provision for income taxes was $157 million, which included a $157 million charge related to recording valuation allowances against certain deferred tax assets in the company’s EMEA segment, versus benefit for income taxes of $10 million.

Net loss from continuing operations attributable to Quiksilver, Inc. was $175 million, or $1.04 per share, versus net loss from continuing operations attributable to Quiksilver, Inc. of $0.4 million, or $0.00 per diluted share.

Pro-forma loss from continuing operations, which excludes a non-cash tax valuation allowance and the after-tax impact of restructuring and other special charges, non-cash asset impairments, gain on store sale and non-cash interest charges, was $7 million, or $0.04 per share, versus pro-forma income from continuing operations of $8 million, or $0.05 per diluted share.

Fiscal 2013 Q4 Net Revenue Highlights:

Net revenues from continuing operations (in constant currency) by brand and channel for the fourth quarter of fiscal 2013 compared with the fourth quarter of fiscal 2012 were as follows.

  • Brands (constant currency):
    • Quiksilver was flat at $190 million;
    • Roxy was flat at $137 million; and,
    • DC decreased $47 million, or 25%, to $139 million.
  • Distribution channels (constant currency):
    • Wholesale revenues decreased 12% to $353 million;
    • Retail revenues increased slightly to $107 million. Same-store sales in company-owned retail stores were flat. Company-owned retail stores totaled 631 at the end of fiscal 2013 compared with 605 at the end of fiscal 2012; and,
    • E-commerce revenues grew 22% to $16 million.

Emerging markets generated net revenue growth of 32% in constant currency.

Fiscal 2013 Full Year Review:

The following comparisons refer to results of continuing operations for the full year of fiscal 2013 versus the full year of fiscal 2012.

Net revenues were $1.81 billion compared with $1.94 billion, and were down 6%, or $110 million, in constant currency.

  • Americas net revenues decreased 7% to $893 million from $961 million, and were down 6% in constant currency.
  • EMEA net revenues decreased 6% to $632 million from $672 million, and were down 7% in constant currency.
  • APAC net revenues decreased 8% to $282 million from $306 million, and were flat in constant currency.

Gross margin decreased slightly to 48.2% of net revenues compared with 48.5%, with gross margin declines on DC brand sales in the Americas wholesale channel, largely offset by gross margin improvement in the EMEA wholesale channel.

SG&A expense decreased $31 million to $858 million from $888 million, primarily due to reduced expenses related to employee compensation, marketing expenses and administrative costs.

Pro-forma Adjusted EBITDA from continuing operations was $118 million compared with $141 million.

Provision for income taxes was $166 million, which included a $157 million charge related to recording valuation allowances against certain deferred tax assets in the company’s EMEA segment, compared with $4 million.

Net loss from continuing operations attributable to Quiksilver, Inc. was $239 million, or $1.43 per share, compared with $18 million, or $0.11 per share.

Pro-forma loss from continuing operations, which excludes a non-cash tax valuation allowance and the after-tax impact of restructuring and other special charges, non-cash asset impairments, gain on store sale and non-cash interest charges, was $38 million, or $0.23 per share, versus pro-forma income from continuing operations of $0.1 million, or $0.00 per diluted share.

Fiscal 2013 Net Revenue Highlights:

Net revenues from continuing operations (in constant currency) by brand and channel for the full year of fiscal 2013 compared with the full year of fiscal 2012 were as follows.

  • Brands (constant currency):
    • Quiksilver decreased 7% to $721 million;
    • Roxy decreased 2% to $511 million; and,
    • DC decreased 8% to $542 million.
  • Distribution channels (constant currency):
    • Wholesale revenues decreased 8% to $1.29 billion;
    • Retail revenues decreased 1% to $447 million. Same-store sales in company-owned retail stores were flat; and,
    • E-commerce revenues grew 25% to $69 million.

Emerging markets generated net revenue growth of 21% in constant currency.

About Quiksilver:

Quiksilver, Inc., one of the world’s leading outdoor sports lifestyle companies, designs, produces and distributes branded apparel, footwear and accessories. The company’s apparel and footwear brands, inspired by a passion for outdoor action sports, represent a casual lifestyle for young-minded people who connect with its boardriding culture and heritage. The company’s Quiksilver, Roxy, and DC brands have authentic roots and heritage in surf, snow and skate. The company’s products are sold in more than 100 countries in a wide range of distribution, including surf shops, skate shops, snow shops, its proprietary Boardriders Club shops and other company-owned retail stores, other specialty stores, select department stores and through various e-commerce channels. Quiksilver’s corporate headquarters are in Huntington Beach, California.

Forward-looking statements:

This press release contains forward-looking statements including, but not limited to, statements regarding divestiture of non-core businesses and management’s expectations for improved sales, efficiency and profitability in the future. These forward-looking statements are subject to risks and uncertainties, and actual results may differ materially. Quiksilver undertakes no obligation to update these statements, which are made only as of the date of this press release. For the factors that could cause actual results to differ materially from expectations, please refer to Quiksilver’s SEC filings and specifically the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Forward-Looking Statements” in Quiksilver’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.

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NOTE: For further information about Quiksilver, Inc., please visit our website at www.quiksilverinc.com. We also invite you to explore our brand sites, www.quiksilver.com, www.roxy.com and www.dcshoes.com.

 

QUIKSILVER, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)  

 

  Three months ended   Twelve months ended

In thousands, except per share amounts

October 31, October 31, 2013   2012 2013   2012   Revenues, net $ 475,913 $ 529,230 $ 1,810,570 $ 1,941,849 Cost of goods sold   252,241     287,997     938,139     1,000,530     Gross profit 223,672 241,233 872,431 941,319   Selling, general and administrative expense 220,404 227,361 857,557 888,250 Asset impairments   1,675     6,678     12,327     7,234     Operating income 1,593 7,194 2,547 45,835   Interest expense 20,000 15,354 71,049 60,885 Foreign currency loss/(gain)   319     3,067     4,689     (1,709 )   Loss before provision/(benefit) for income taxes (18,726 ) (11,227 ) (73,191 ) (13,341 )   Provision/(benefit) for income taxes   157,496     (9,738 )   166,220     3,904     Loss from continuing operations (176,222 ) (1,489 ) (239,411 ) (17,245 ) Income from discontinued operations, net of tax   3,647     4,736     6,201     7,263     Net (loss)/income (172,575 ) 3,247 (233,210 ) (9,982 ) Less: net loss/(income) attributable to non-controlling interest   1,463     1,112     645     (774 )   Net (loss)/income attributable to Quiksilver, Inc. $ (171,112 ) $ 4,359   $ (232,565 ) $ (10,756 )   Loss per share from continuing operations attributable to Quiksilver, Inc.: Basic $ (1.04 ) $ (0.00 ) $ (1.43 ) $ (0.11 ) Diluted $ (1.04 ) $ (0.00 ) $ (1.43 ) $ (0.11 )   Income per share from discontinued operations attributable to Quiksilver, Inc.: Basic $ 0.02 $ 0.03 $ 0.04 $ 0.04 Diluted $ 0.02 $ 0.03 $ 0.04 $ 0.04   Weighted average common shares outstanding: Basic 168,796 165,227 167,255 164,245 Diluted 168,796 165,227 167,255 164,245   Amounts attributable to Quiksilver, Inc.: Loss from continuing operations $ (174,759 ) $ (377 ) $ (238,766 ) $ (18,019 ) Income from discontinued operations, net of tax   3,647     4,736     6,201     7,263   Net (loss)/income $ (171,112 ) $ 4,359   $ (232,565 ) $ (10,756 )     QUIKSILVER, INC. AND SUBSIDIARIES INFORMATION RELATED TO OPERATING SEGMENTS (UNAUDITED)     Three months ended   Twelve months ended In thousands October 31, October 31, 2013   2012 2013   2012 Revenues, net: Americas $ 223,204 $ 263,228 $ 893,333 $ 960,719 EMEA 168,317 179,032 631,546 671,991 APAC 83,025 86,357 282,070 305,518 Corporate operations   1,367     613     3,621     3,621   475,913 529,230 1,810,570 1,941,849   Gross Profit: Americas $ 91,882 $ 108,167 $ 370,288 $ 408,361 EMEA 91,222 89,652 358,175 376,929 APAC 40,856 43,296 143,874 156,328 Corporate operations   (288 )   118     94     (299 ) 223,672 241,233 872,431 941,319   SG&A Expense: Americas $ 73,752 $ 88,008 $ 319,736 $ 349,350 EMEA 88,261 82,480 324,346 322,715 APAC 37,624 42,229 146,389 157,145 Corporate operations   20,767     14,644     67,086     59,040   220,404 227,361 857,557 888,250   Asset Impairments: Americas $ 1,182 $ 4,711 $ 9,211 $ 5,267 EMEA 381 560 3,004 560 APAC 112 1,407 112 1,407 Corporate operations   -     -     -     -   1,675 6,678 12,327 7,234   Operating Income/(Loss): Americas $ 16,948 $ 15,448 $ 41,341 $ 53,744 EMEA 2,580 6,612 30,825 53,654 APAC 3,120 (340 ) (2,627 ) (2,224 ) Corporate operations   (21,055 )   (14,526 )   (66,992 )   (59,339 ) 1,593 7,194 2,547 45,835

 

Definition of Emerging Markets:

The company's references to emerging markets in this press release refer to net revenues from continuing operations generated in Brazil, Mexico, Korea, China, Indonesia, Taiwan and Russia, collectively.

  QUIKSILVER, INC. AND SUBSIDIARIES GAAP TO PRO-FORMA RECONCILIATION (UNAUDITED)       Three months ended   Twelve months ended In thousands, except per share amounts October 31, October 31, 2013   2012 2013   2012   Net loss from continuing operations attributable to Quiksilver, Inc. $ (174,759 ) $ (377 ) $ (238,766 ) $ (18,019 )

Restructuring and other special charges, net of tax of $3,486, $1,586, $6,517 and $2,719, respectively

 

9,032 6,223 29,449 15,415

Non-cash asset impairments, net of tax of $388, $233, $1,129 and $265, respectively

1,287 6,445 11,198 6,969 Gain on store sale, net of tax of $(1,819) (2012) - (4,245 ) - (4,245 ) Non-cash interest charges, net of tax of $0 for all periods - - 3,179 - Non-cash tax valuation allowance   157,123     -     157,123     -     Pro-forma (loss)/income from continuing operations (7,317 ) 8,046 (37,817 ) 120   Pro-forma (loss)/income per share from continuing operations Basic $ (0.04 ) $ 0.05 $ (0.23 ) $ 0.00 Diluted $ (0.04 ) $ 0.05 $ (0.23 ) $ 0.00   Weighted average common shares outstanding: Basic 168,796 165,227 167,255 164,245 Diluted 168,796 178,348 167,255 178,907     QUIKSILVER, INC. AND SUBSIDIARIES ADJUSTED EBITDA & PRO-FORMA ADJUSTED EBITDA RECONCILIATION (UNAUDITED)     Three months ended   Twelve months ended In thousands October 31, October 31, 2013   2012 2013   2012  

Net loss from continuing operations

attributable to Quiksilver, Inc.

$ (174,759 ) $ (377 ) $ (238,766 ) $ (18,019 ) Provision/(benefit) for income taxes 157,496 (9,738 ) 166,220 3,904 Interest expense 20,000 15,354 71,049 60,885 Depreciation and amortization 12,977 13,494 49,958 52,418 Non-cash stock-based compensation expense 5,361 5,280 21,556 22,552 Non-cash asset impairments   1,675     6,678     12,327     7,234     Adjusted EBITDA 22,750 30,691 82,344 128,974   Restructuring and other special charges   12,518     1,745     35,649     12,070     Pro-forma Adjusted EBITDA 35,268 32,436 117,993 141,044  

Definition of Adjusted EBITDA and Pro-forma Adjusted EBITDA:

Adjusted EBITDA is defined as net income (loss) from continuing operations attributable to Quiksilver, Inc. before (i) interest expense, (ii) provision/(benefit) for income taxes, (iii) depreciation and amortization, (iv) non-cash stock-based compensation expense and (v) non-cash asset impairments. Pro-forma Adjusted EBITDA is defined as Adjusted EBITDA excluding restructuring and other special charges (including, but not limited to, reserves and other charges associated with restructuring activities, non-operating charges for gains and losses on lease exit activities, as well as severance and other employee termination costs as a result of downsizing and reorganization). Adjusted EBITDA and Pro-forma Adjusted EBITDA are not defined under generally accepted accounting principles (“GAAP”), and may not be comparable to similarly titled measures reported by other companies. We use Adjusted EBITDA and Pro-forma Adjusted EBITDA, along with other GAAP measures, as measures of profitability because Adjusted EBITDA and Pro-forma Adjusted EBITDA compare our performance on a consistent basis by removing from our operating results the impact of our capital structure, the effect of operating in different tax jurisdictions, the impact of our asset base, which can differ depending on the book value of assets, the accounting methods used to compute depreciation and amortization, the existence or timing of asset impairments, the effect of non-cash stock-based compensation expense and restructuring and other special charges. We believe EBITDA is useful to investors as it is a widely used measure of performance and the adjustments we make to EBITDA provide further clarity on our profitability. We remove the effect of non-cash stock-based compensation from our earnings which can vary based on share price, share price volatility and the expected life of the equity instruments we grant. In addition, this stock-based compensation expense does not result in cash payments by us. We remove the effect of asset impairments from Adjusted EBITDA for the same reason that we remove depreciation and amortization as it is part of the non-cash impact of our asset base. We also remove from Pro-forma Adjusted EBITDA the impact of certain reserves and charges associated with restructuring activities, non-operating charges for gains and losses on lease exit activities, as well as severance and other employee termination costs as these costs are not typically part of normal, day-to-day operations. Adjusted EBITDA and Pro-forma Adjusted EBITDA have limitations as profitability measures in that they do not include the interest expense on our debts, our provisions for income taxes, the effect of our expenditures for capital assets and certain intangible assets, the effect of non-cash stock-based compensation expense, the effect of asset impairments and the effect of restructuring and other special charges.

SUPPLEMENTAL EXCHANGE RATE INFORMATION(Unaudited)

In order to better understand growth rates in our operating segments, we make reference to constant currency. Constant currency reporting improves visibility into actual growth rates as it adjusts for the effect of changing foreign currency exchange rates from period to period. Constant currency is calculated by taking the ending foreign currency exchange rate (for balance sheet items) or the average foreign currency exchange rate (for income statement items) used in translation for the current period and applying that same rate to the prior period. The following table presents net revenues from continuing operations by segment in both historical currency and constant currency for the three months ended October 31, 2013 and 2012 (in thousands):

 

  Americas   EMEA   APAC   Corporate   Total   Historical currency (as reported): October 31, 2013 $ 223,204 $ 168,317 $ 83,025 $ 1,367 $ 475,913 October 31, 2012 263,228 179,032 86,357 613 529,230 Percentage decrease -15 % -6 % -4 % -10 %   Constant currency (current year exchange rates): October 31, 2013 223,204 168,317 83,025 1,367 475,913 October 31, 2012 260,083 185,496 76,255 634 522,468 Percentage (decrease)/increase -14 % -9 % 9 % -9 %   The following table presents net revenues from continuing operations by segment in both historical currency and constant currency for the fiscal years ended October 31, 2013 and 2012 (in thousands):   Americas EMEA APAC Corporate Total   Historical currency (as reported): October 31, 2013 $ 893,333 $ 631,546 $ 282,070 $ 3,621 $ 1,810,570 October 31, 2012 960,719 671,991 305,518 3,621 1,941,849 Percentage decrease -7 % -6 % -8 % -7 %   Constant currency (current year exchange rates): October 31, 2013 893,333 631,546 282,070 3,621 1,810,570 October 31, 2012 953,500 680,763 282,735 3,657 1,920,655 Percentage decrease -6 % -7 % 0 % -6 %     QUIKSILVER, INC. AND SUBSIDIARIES CONSOLIDATED SELECTED BALANCE SHEET INFORMATION (UNAUDITED)   In thousands   October 31, 2013   October 31, 2012   Cash and cash equivalents $ 57,280 $ 41,823 Trade accounts receivable, net 411,638 410,774 Inventories 337,715 326,877 Lines of credit and long-term debt 831,300 757,969     QUIKSILVER, INC. AND SUBSIDIARIES DISCONTINUED OPERATIONS ADJUSTED EBITDA & PRO-FORMA ADJUSTED EBITDA RECONCILIATION (UNAUDITED)     Fiscal 2013 In thousands Q1     Q2     Q3     Q4     Full Year  

Net income from discontinued operations attributable to Quiksilver, Inc.

$ 439 $ 79 $ 2,036 $ 3,647 $ 6,201 Provision for income taxes 275 49 1,274 2,282 3,880 Interest expense/(income) 6 (45 ) (19 ) 34 (24 ) Depreciation and amortization   276   345     416     507   1,544    

Adjusted and Pro-forma Adjusted EBITDA from discontinued operations

996 428 3,707 6,470 11,601  

Quiksilver, Inc.Robert Jaffe, 424-288-4098Investor Relationszqk@quiksilver.com