--Company Advances Profit Improvement Plan
Initiatives, Records Non-cash Charge of $182 Million for Goodwill
Impairment--
Quiksilver, Inc. (NYSE:ZQK) today announced financial results
for the fiscal 2014 third quarter ended July 31, 2014.
“We continued to execute against the key initiatives laid out in
our profit improvement plan and to drive growth in our direct to
consumer channels and emerging markets,” said Andy Mooney,
President and Chief Executive Officer of Quiksilver, Inc. “As we
expected, revenues for the third quarter declined in our wholesale
channels in North America and Europe. In addition, late product
deliveries, largely the result of our transition to global demand
planning, negatively impacted our sales performance and gross
margin.
“We are resolving the product delivery issues and already see
improved fulfillment in the Holiday season. We continued to
right-size staffing, redeployed our marketing to invest more in
media and point of sale, improved the quality of distribution in
North America and completed a number of licensing transactions for
peripheral product categories. We are encouraged by the positive
feedback we have received on our Spring 2015 product lines, both
for apparel and footwear.”
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 loss from
continuing operations, pro-forma loss from continuing operations
per share, adjusted EBITDA and pro-forma adjusted EBITDA, for all
periods presented, net revenues in historical and constant
currency, and a definition of the Company’s emerging markets.
Third Quarter Review:
The following comparisons refer to results of continuing
operations for the third quarter of fiscal 2014 versus the third
quarter of fiscal 2013.
Net revenues were $396 million compared with $488
million, and were down 19%, or $96 million, in constant
currency.
- Americas net revenues decreased
27% to $191 million from $261 million, and were down 26% in
constant currency.
- EMEA net revenues decreased 13%
to $143 million from $164 million, and were down 16% in constant
currency.
- APAC net revenues decreased 2%
to $62 million from $63 million, but were up 1% in constant
currency.
Gross margin decreased to 47.8% from 49.1%. The 130 basis
point decline in gross margin reflects increased discounting in the
wholesale channels of certain regions, partially offset by sales
growth in our higher-margin direct to consumer channels.
SG&A expense decreased $2 million to $213 million
from $215 million. The decrease was driven by reduced employee
compensation expenses as a result of lower severance costs.
Asset impairments totaled $183 million compared with $2
million, reflecting a non-cash charge of $182 million in the third
quarter of fiscal 2014 to write-off the carrying value of goodwill
attributable to the Company’s EMEA reporting segment.
Pro-forma Adjusted EBITDA decreased to zero from $53
million.
Net loss from continuing operations attributable to
Quiksilver, Inc. was $220 million, or $1.29 per share, versus
income from continuing operations of $0.2 million, or $0.00 per
diluted share.
Pro-forma loss from continuing operations attributable to
Quiksilver, Inc., which excludes the after-tax impact of
restructuring and other special charges, non-cash asset impairments
and non-cash interest charges, was $35 million, or $0.20 per share,
versus pro-forma income from continuing operations of $13 million,
or $0.07 per diluted share.
Q3 Net Revenue Highlights:
Net revenues from continuing operations by brand and channel for
the third quarter of fiscal 2014 compared with the third quarter of
fiscal 2013 were as follows.
Brands (constant currency):
- Quiksilver decreased $30 million, or
17%, to $143 million.
- Roxy decreased $12 million, or 9%, to
$119 million.
- DC decreased $57 million, or 34%, to
$109 million.
Distribution channels (constant
currency):
- Wholesale revenues decreased 30% to
$235 million.
- Retail revenues increased 1% to $123
million. Same-store sales in company-owned retail stores improved
1%. Company-owned retail stores totaled 658 at the end of the
fiscal 2014 third quarter compared with 632 at the end of the
fiscal 2013 third quarter.
- E-commerce revenues grew 10% to $35
million.
Emerging markets generated net revenue growth of 10% 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. The Company’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 management’s
expectations for the Company’s Profit Improvement Plan and Spring
2015 product lines. These forward-looking statements are subject to
risks and uncertainties, and actual results may differ materially.
The Company 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 the Company’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 the Company’s
Annual Report on Form 10-K and Quarterly Reports on Form 10-Q.
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.
FINANCIAL TABLES FOLLOW
QUIKSILVER, INC. AND SUBSIDIARIES CONSOLIDATED
STATEMENTS OF OPERATIONS (UNAUDITED)
Third Quarter Nine Months July
31, July 31, 2014
2013
2014 2013
In thousands, except per share amounts
Revenues, net
$ 395,655 $ 488,325 $
1,215,038 $ 1,368,929 Cost of goods sold
206,719 248,479 619,122
703,818
Gross profit 188,936
239,846 595,916 665,111 Selling,
general and administrative expense 212,674 214,722 638,140 653,668
Asset impairments 182,564 2,152
203,408 10,652
Operating
(loss)/income (206,302 ) 22,972
(245,632 ) 791 Interest expense 18,772
20,223 57,467 51,073 Foreign currency (gain)/loss (2,294 )
4,046 1,459 4,436
Loss before (benefit)/provision for income taxes
(222,780 ) (1,297 ) (304,558
) (54,718 ) (Benefit)/provision for
income taxes (636 ) (1,232 ) (6,139 )
8,773
Loss from continuing operations
(222,144 ) (65 ) (298,419
) (63,491 ) (Loss)/income from discontinued
operations, net of tax (34 ) 1,889
30,366 2,473
Net (loss)/income
(222,178 ) 1,824 (268,053 )
(61,018 ) Less: net loss/(income) attributable to
non-controlling interest 2,093 247
10,294 (435 )
Net (loss)/income
attributable to Quiksilver, Inc. $ (220,085
) $ 2,071 $ (257,759
) $ (61,453 ) (Loss)/income
per share from continuing operations attributable to Quiksilver,
Inc.: Basic $ (1.29 ) $
0.00 $ (1.69 ) $ (0.38
) Diluted $ (1.29 ) $
0.00 $ (1.69 ) $ (0.38
) (Loss)/income per share from discontinued
operations attributable to Quiksilver, Inc.: Basic
$ (0.00 ) $ 0.01 $
0.18 $ 0.01 Diluted $
(0.00 ) $ 0.01 $ 0.18
$ 0.01 Weighted average common shares
outstanding: Basic 170,794 167,624
170,337 166,735 Diluted 170,794
190,568 170,337 166,735 Amounts
attributable to Quiksilver, Inc.: (Loss)/income from
continuing operations $ (220,051 )
$ 182 $ (288,125 ) $
(63,926 ) (Loss)/income from discontinued
operations, net of tax (34 )
1,889 30,366 2,473
Net (loss)/income $ (220,085 )
$ 2,071 $ (257,759 )
$ (61,453 ) QUIKSILVER, INC.
AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED)
July 31,
2014 July 31, 2013 In thousands
ASSETS
Current Assets Cash and cash equivalents (includes
restricted cash of $23,897 and $409,167, respectively) $ 107,858 $
471,550 Trade accounts receivable (net of allowance of $63,251 and
$58,734, respectively) 318,296 410,978 Other receivables 27,313
23,057 Income taxes receivable 1,535 2,779 Inventories 346,072
385,394 Deferred income taxes - short-term 9,778 28,086 Prepaid
expenses and other current assets 30,362 35,029 Current assets held
for sale - 23,692
Total Current
Assets 841,214 1,380,565 Fixed assets, net
219,361 227,356 Intangible assets, net 135,627 137,464 Goodwill
80,845 272,417 Other assets 48,759 54,469 Deferred income taxes -
long-term - 118,603 Non-current assets held for sale -
1,653
Total Assets $
1,325,806 $ 2,192,527
LIABILITIES AND
EQUITY
Current Liabilities Accounts payable $ 198,878 $ 237,463
Accrued liabilities 114,906 105,185 Current portion of long-term
debt 28,406 43,153 Debt to be redeemed - 409,167 Liabilities
related to assets held for sale - 2,664
Total Current Liabilities 342,190 797,632
Long-term debt, net of current portion 812,343 807,094 Other
long-term liabilities 33,122 34,800 Deferred income taxes -
long-term 24,004 - Non-current liabilities related to assets held
for sale - 176
Total Liabilities
1,211,659 1,639,702 Equity Common stock
1,740 1,712 Additional paid-in capital 587,506 567,601 Treasury
stock (6,778 ) (6,778 ) Accumulated deficit (533,645 ) (104,774 )
Accumulated other comprehensive income 63,369
75,659
Total Quiksilver, Inc. Stockholders' Equity
112,192 533,420 Non-controlling interest 1,955
19,405
Total Equity
114,147 552,825 Total
Liabilities and Equity $ 1,325,806
$ 2,192,527 QUIKSILVER, INC.
AND SUBSIDIARIES GAAP TO PRO-FORMA (LOSS)/INCOME FROM
CONTINUING OPERATIONS RECONCILIATION (UNAUDITED)
Third quarter ended Nine months
ended July 31, July 31,
2014 2013
2014
2013 In thousands, except per share
amounts
Net (loss)/income from continuing operations
attributable to Quiksilver, Inc. $ (220,051
) $ 182 $ (288,125 )
$ (63,926 )
Restructuring and other special charges,
net of tax of $82, $2,406, $1,125 and $3,031, respectively
5,055 10,767 18,812 20,417 Non-cash asset impairments, net of tax
of $103, $49, $159 and $741, respectively 180,430 2,103 193,759
9,911 Non-cash interest charges, net of tax of $0 for all periods
- 3,179 - 3,179
Pro-forma (loss)/income from continuing
operations attributable to Quiksilver, Inc.
(34,566 ) 13,052 (75,554 )
(30,419 )
Pro-forma (loss)/income per share from
continuing operations attributable to Quiksilver, Inc.:
Basic $ (0.20 ) $ 0.08
$ (0.44 ) $ (0.18 )
Diluted $ (0.20 ) $ 0.07
$ (0.44 ) $ (0.18 )
Weighted average common shares outstanding:
Basic 170,794 167,624 170,337
166,735 Diluted 170,794 190,568
170,337 166,735 QUIKSILVER, INC. AND
SUBSIDIARIES ADJUSTED EBITDA & PRO-FORMA ADJUSTED EBITDA
RECONCILIATION (UNAUDITED)
Third quarter ended Nine months ended July 31,
July 31, 2014
2013 2014
2013 In thousands
(Loss)/income from continuing operations
attributable to Quiksilver,
Inc.
$ (220,051 ) $ 182 $
(288,125 ) $ (63,926 )
(Benefit)/provision for income taxes (636 ) (1,232 ) (6,139 ) 8,773
Interest expense 18,772 20,223 57,467 51,073 Depreciation and
amortization 15,555 12,921 41,169 37,806 Non-cash stock-based
compensation expense 4,222 4,972 15,810 16,195 Non-cash asset
impairments, net 180,533 2,152
193,918 10,652
Adjusted EBITDA
(1,605 ) 39,218 14,100 60,573
Restructuring and other special charges 1,621
13,293 14,451 23,131
Pro-forma Adjusted EBITDA 16 52,511
28,551 83,704
Definition of Adjusted EBITDA and
Pro-forma Adjusted EBITDA:
Adjusted EBITDA is defined as net income (loss) attributable to
Quiksilver, Inc. before (i) interest expense, (ii) (benefit)
provision for income taxes, (iii) depreciation and amortization,
(iv) non-cash stock-based compensation expense and (v) non-cash
asset impairments, net of non-controlling interest. Pro-forma
Adjusted EBITDA is defined as Adjusted EBITDA excluding
restructuring and other special charges. Such charges include, but
are not limited to, a) gains and losses on early lease
terminations; severance and other termination costs for employees
or independent agents; contractual or other termination costs paid
to sever business relationships with sponsored athletes, vendors,
customers, and other business partners; write-offs of inventory and
other assets devalued as a direct result of restructuring
activities; and other expenses associated with planning and
implementing profit improvement plan activities; and b) other
significant, non-recurring and unusual items. 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, the impact of implementing restructuring
activities, and other significant, non-recurring and unusual items.
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
restructuring and other special charges, as these items 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.
QUIKSILVER, INC. AND SUBSIDIARIES 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
revenues by segment in both historical currency and constant
currency for the third quarter ended July 31, 2014 and 2013 (in
thousands):
Americas
EMEA APAC
Corporate Total
Historical currency (as reported): July 31, 2014 $ 191,357 $
142,553 $ 61,658 $ 87 $ 395,655 July 31, 2013 261,191 163,750
62,769 615 488,325 Percentage decrease -27 % -13 % -2 % -19 %
Constant currency (current year exchange rates): July
31, 2014 191,357 142,553 61,658 87 395,655 July 31, 2013 259,308
170,447 60,916 626 491,297 Percentage (decrease)/increase -26 % -16
% 1 % -19 %
Definition of
emerging markets:
The Company's references to emerging markets in this press
release refer to net revenues generated in Brazil, Mexico, Korea,
China, Indonesia, Taiwan and Russia, collectively.
Quiksilver, Inc.Robert JaffeInvestor
Relations424-288-4098zqk@quiksilver.com