Quiksilver (ZQK, Financial), the self-proclaimed world leading (competes in over 90 countries) outdoor sports life style company, held a conference call on Thursday of last week to discuss third quarter 2011 results. The company designs, develops and distributes branded apparel, footwear, accessories and related products focused on surfing (largely behind “Quiksilver” and “Roxy”), skateboarding (the “DC” brand, which was “way up” in the quarter according to management), and snowboarding. Here are some of the highlights from the Q&A and major developments that are occurring at Quiksilver:
Revenues in the quarter increased 14% to $503.3 million, compared to $441.5 million in the third quarter of fiscal 2010. Through the first nine months of the year, consolidated revenues have increased nearly 5% to $1.4 billion
Net revenues in the Americas increased 11% to $260.2 million in the quarter from $234.6 million in 2010; company-owned retail store comps were up 21% in the third quarter (over 20% in three successive quarters), while the e-commerce business grew 65%. Through the first nine months of the year, revenues increased just under 7% in this region on a year-over-year basis.
As measured in U.S. dollars, European net revenues increased 16% during the third quarter of fiscal 2011 to $176.4 million from $151.7 million in Q3 2010; on a constant currency basis, European segment net revenues increased 2%.
As measured in U.S. dollars, Asia/Pacific net revenues increased 20% in Q3 to $65.5 million, from $54.5 million in 2010; in constant currency, sales decreased 3%.
Gross profit increased 11% to $255.1 million, compared to $230.7 million in the third quarter a year ago. As a percentage of sales, gross margin decreased nearly 160 basis points to 50.68%, driven by higher sourcing costs and promotional spend.
Income from continuing operations, which adjusts for a small gain from discounted ops in 2010, increased more than 25% to $10.7 million in the third quarter. Through the first nine months of the year, continuing operations have produced a loss of nearly $86 million (due to an $81 million operating loss in Asia/Pacific to date), compared to a gain of $14.7 million through the first nine months of 2010 (when Asia/Pacific produced operating income of roughly $3 million).
As CEO Robert McKnight noted on the call, the company is optimistic about their business looking ahead, due to growth in emerging markets and strength in key product lines: “Despite global economic pressures, the product offering and brand equity of our three core businesses, Quiksilver, Roxy and DC, are strong and resonating with consumers around the world. The portion of our revenue generated by our emerging and developing markets is increasing steadily while our channel expansion for DC and category expansion initiatives, such as Quiksilver Girl and Waterman Collections and Roxy footwear, are delivering good initial returns consistent with our longer-term plans.”
This company is interesting for two reasons: first, their brands, specifically Quiksilver, Roxy, and DC, are well known brands among their core customers. Secondly, the company has suffered a short-term setback on an earnings basis due to the Asia/Pacific region, highlighted by a $74 million goodwill impairment charge taken in Q2 as a result of the earthquake and its aftermath.
However, management has set long term financial objectives of “generating annual revenues between $2.5 billion and $3 billion and at least $350 million of annual EBITDA”, compared to peak revenues of $2.26 billion in fiscal 2008. For investors who think this is a reasonable expectation, ZQK might be worth a closer look at 0.25x and 2x estimated sales and EBITDA, respectively.
Revenues in the quarter increased 14% to $503.3 million, compared to $441.5 million in the third quarter of fiscal 2010. Through the first nine months of the year, consolidated revenues have increased nearly 5% to $1.4 billion
Net revenues in the Americas increased 11% to $260.2 million in the quarter from $234.6 million in 2010; company-owned retail store comps were up 21% in the third quarter (over 20% in three successive quarters), while the e-commerce business grew 65%. Through the first nine months of the year, revenues increased just under 7% in this region on a year-over-year basis.
As measured in U.S. dollars, European net revenues increased 16% during the third quarter of fiscal 2011 to $176.4 million from $151.7 million in Q3 2010; on a constant currency basis, European segment net revenues increased 2%.
As measured in U.S. dollars, Asia/Pacific net revenues increased 20% in Q3 to $65.5 million, from $54.5 million in 2010; in constant currency, sales decreased 3%.
Gross profit increased 11% to $255.1 million, compared to $230.7 million in the third quarter a year ago. As a percentage of sales, gross margin decreased nearly 160 basis points to 50.68%, driven by higher sourcing costs and promotional spend.
Income from continuing operations, which adjusts for a small gain from discounted ops in 2010, increased more than 25% to $10.7 million in the third quarter. Through the first nine months of the year, continuing operations have produced a loss of nearly $86 million (due to an $81 million operating loss in Asia/Pacific to date), compared to a gain of $14.7 million through the first nine months of 2010 (when Asia/Pacific produced operating income of roughly $3 million).
As CEO Robert McKnight noted on the call, the company is optimistic about their business looking ahead, due to growth in emerging markets and strength in key product lines: “Despite global economic pressures, the product offering and brand equity of our three core businesses, Quiksilver, Roxy and DC, are strong and resonating with consumers around the world. The portion of our revenue generated by our emerging and developing markets is increasing steadily while our channel expansion for DC and category expansion initiatives, such as Quiksilver Girl and Waterman Collections and Roxy footwear, are delivering good initial returns consistent with our longer-term plans.”
This company is interesting for two reasons: first, their brands, specifically Quiksilver, Roxy, and DC, are well known brands among their core customers. Secondly, the company has suffered a short-term setback on an earnings basis due to the Asia/Pacific region, highlighted by a $74 million goodwill impairment charge taken in Q2 as a result of the earthquake and its aftermath.
However, management has set long term financial objectives of “generating annual revenues between $2.5 billion and $3 billion and at least $350 million of annual EBITDA”, compared to peak revenues of $2.26 billion in fiscal 2008. For investors who think this is a reasonable expectation, ZQK might be worth a closer look at 0.25x and 2x estimated sales and EBITDA, respectively.
