While the Quiksilver group remained under pressure in Europe, the board sports company lifted its sales by 2 percent to $512.4 million in the third quarter of its fiscal year, until the end of the July, which was a rise of 8 percent in constant currencies.

European sales dropped by 13 percent to $154.1 million and they were nearly flat in constant currencies, climbing by less than 1 percent. The company indicated that its European turnover had declined by 5 percent in organic terms (although it could not be established precisely what it meant by “organic”). So far this year, Quiksilver's European sales shrank by 5 percent in dollars but they inched up by 2 percent in constant currencies.

Still, the Quiksilver group said that it was more resilient than others in the tough European market, with particular economic tensions in the U.K., France and Spain, which are some of its largest markets. This was partly compensated by continued expansion in north European countries, Germany, Portugal and Italy.

Another encouraging factor is that Quiksilver's comparable store sales increased in Europe for the quarter and for the year so far. The company also thought that it would come out of the market upheavals with stronger relationships with European retailers, such as El Corte Inglés in Spain. While some independent retailers are suffering, Quiksilver remarked that some of the leading accounts were reducing the shelf space allocated to smaller brands and focusing on the strongest brands instead.

However, Quiksilver still had to allow for significant discounts, which hurt the group's European gross margin. It reached 57.2 percent for the quarter, down by 3.1 percentage points compared with the same quarter the previous year. Apart from the discounts, the European gross margin was affected by a higher share of sales to larger accounts. The group's operating margin in Europe shriveled to 4.7 percent, compared with 11.9 percent for the same quarter last year.

As the company's managers pointed out, Quiksilver Europe has taken many measures to mitigate the issues in the market, from the reduction of expenses to a stronger focus on sell-through and a review of banking relationships.

Furthermore, Quiksilver is building on its infrastructure in Europe, with the launch of an ERP system that it has already implemented in the Americas in the second quarter. This is meant to help integrate the group's global operations, to make them more efficient.

The mixed situation in Europe contrasted with a sales increase of 10 percent to $286.1 million in the Americas, which was a jump of 12 percent in constant currencies. Meanwhile, its turnover in the Asia-Pacific region increased by 9 percent to $71.6 million, equivalent to a rise of 13 percent in constant currencies. They were pushed by gains in Japan, Indonesia and other Southeast Asian markets.

While Australia and New Zealand have long accounted for the bulk of the company's sales in Asia-Pacific, Quiksilver has not been immune to the economic issues in these countries and it is relying on Asian markets to kick-start regional expansion. The group spotted particular potential in South Korea, among others.

Quiksilver pointed out that it continued to enjoy strong growth in emerging markets, from Brazil to Russia. Emerging markets contributed $35 million in sales in the quarter, which was a rise of 39 percent in constant currencies.

The group's three leading brands all delivered more sales, led by a 15.5 percent jump for DC in constant currencies, to $168.2 million. The footwear brand's sales were bolstered by the introduction of footwear and apparel ranges in medium-priced stores in the Americas. This compared with a sales increase of 4.6 percent to $131.8 million for Roxy and 3.5 percent to $193.5 million for the Quiksilver brand.

Quiksilver Consolidated Income Statement

(US$ ‘000, Third Quarter ended July 31)

 

2012

2011

% Change

Americas

286,136

260,159

10.0

Europe

154,076

176,438

-12.7

Asia/Pacific

71,623

65,495

9.4

Corporate operations

604

1,225

-50.7

REVENUES

512,439

503,317

1.8

Cost of goods sold

258,951

248,199

4.3

SGA*

225,788

221,172

2.1

Interest expense

14,834

15,663

-5.3

Foreign currency gain

(2,242)

(1,456)

54.0

Minority Interest

151

(306)

-

Income before tax

14,967

19,739

-24.2

Tax

2,508

8,996

-72.1

NET INCOME

12,610

10,437

20.8

Euro/share

0.07

0.06

16.7

*Selling, general and administrative

The group's wholesale business expanded by 4.5 percent for the quarter in constant currencies, but its retail sales advanced by 6.8 percent, including a comparable store sales increase of 4.0 percent and a jump of 180.2 percent in its own online sales to $23.2 million. However, the group's gross margin dipped by 1.2 percentage points to 49.5 percent, mostly due to discounting in Europe, while the gross margin was flat in the Americas and up in Asia-Pacific.

The Quiksilver group took some measures to reduce its expenses, which entailed the departure of 70 employees spread over all regions and should mean annual savings of about $6 million. Quiksilver ended the quarter with income of $12.6 million, up from $10.4 million for the same months last year.