Quiksilver continued to cut costs in the three months until the end of January but that didn't suffice to make the company profitable as its sales declined and the profit margin was hurt by currency exchange rates. The company described the situation as the start of a turnaround, indicating that underlying sales have stabilized, with expansion in footwear and traction in apparel. Andy Mooney, who was still at the helm to discuss the performance, added that the group was enjoying robust sell-through for its spring products and positive response to its fall range.
The group's sales tumbled by 13.7 percent to $340.8 million for the quarter until the end of January, which represents the first quarter of its fiscal year. This amounted to a decline of 4 percent in constant currencies for the group's continuing operations.
Apart from currencies, the turnover was affected by the labor issues in West coast ports, which led to some cancellations in the group's U.S. business. Another issue was the late onset of winter in most of Europe.
The group's gross profit margin shrank by 1.1 percentage point to 49.7 percent for the quarter, due to more discounts and unfavorable exchange rate changes, as well as higher freight and distribution costs related to the ports issue. This was mitigated by the higher proportion of sales through own retail channels.
Operating expenses declined by $20 million in constant currencies. The group's pro-forma adjusted Ebitda landed at $10 million, down from $16 million for the same three months the previous year. Quiksilver ended the period with a net loss from continuing operations of $18.3 million, slightly better than the loss of $21.9 million last year.
The figures for last year included income of $37.6 million from discontinued operations and the figures this year were inflated by a gain of $6.7 million from divested operations. Taking both into account, Quiksilver ended up with a loss of $11.6 million for the quarter this year, against a profit of $16.2 million.
Excluding currency exchange rate changes and discontinued operations, sales of apparel and accessories were off by 7 percent while footwear sales moved up by 8 percent, with increases for all the three brands of the group. In reported terms, footwear sales inched up by $1 million to $89 million and the group's turnover for apparel and accessories reached $251 million, down by 18 percent.
On a comparable basis, in constant currencies and excluding discontinued categories, sales were down by 3 percent for the Quiksilver brand, despite soaring footwear sales. The Roxy brand's turnover declined by 6 percent and the DC brand's sales dropped by 4 percent.
On the same basis, the group's wholesale turnover shrank by 9 percent while retail sales were flat, even though the number of stores increased to 713 at the end of the quarter, which is over 10 percent more than at the same time in 2014. Comparable store sales in company-owned stores fell by 3 percent, with a drop of 5 percent in Europe, the Middle East and Africa (EMEA). Online sales advanced by 20 percent.
The company's turnover for the first fiscal quarter was worst affected in the Americas. Its sales in the region declined by 15.4 percent to $147.8 million, and that still amounted to a decline of 8 percent in constant currencies and for continuing operations. The group said the drop was caused chiefly by apparel.
Sales in EMEA also declined by 15.4 percent in reported terms to $125.8 million, but they dropped by just 3 percent in constant currencies for continuing operations. Wholesale revenues from the region shrank by 6 percent, with declines in apparel for all three brands.
Sales in the Asia-Pacific region sagged by 4.3 percent to $66.6 million in reported terms but increased by 4 percent in constant currencies and for continuing operations.
Sales in emerging markets advanced by 20 percent on the same basis, including double-digit increases in Russia, Brazil and Mexico. In reported terms they crawled up by $1 million to $54 million.
Excluding Russia, Europe saw sell-through and re-orders of spring products advance at a high-single digit rate for apparel and at a mid-single digit rate for footwear. The increases reached solid double-digit rates in Asia-Pacific, both in apparel and footwear.
Then again, re-orders were down at a single-digit rate for apparel in the Americas, which was partly attributed to the situation with West coast ports and weather on the East coast. Re-orders for footwear in the Americas were flat to slightly up.
Orders for next autumn have improved by a mid-single digit from wholesale customers in the Americas, in footwear as well as apparel. Orders from Asia-Pacific are up in the low single digits. European orders are flat in units but down in the mid-single digits in euros, due to the company's pricing strategy.
Mooney said that the company was reinforcing its relationship with specialist retailers in the Americas by opening fewer of its own stores in locations that are important for its partners. At the same time, the company pledged to reduce promotions in its own stores and online. Quiksilver also made it a priority to service wholesale accounts when it faced delivery issues with the port situation.
The publication of the results came after a delay of 12 days, due to an investigation by the group's audit committee. Around the end of February, the group's managers discovered a deficiency in its internal controls related to a quarter-end revenue cut-off issue, meaning that some revenues recorded for the first fiscal quarter of the previous year did not meet the criteria for revenue recognition at that time – and should instead have been recognized for the second quarter.
After the investigation, the company came to the conclusion that the issue did not have a material impact on its previously issued financial statements. The results of the first quarter in fiscal 2014 were adjusted with a sales increase of $2 million.
Quiksilver predicts that its sales for the second quarter, ending in April, will reach about $340 million, which means they will be flat compared with the same period last year in constant currencies and excluding discontinued categories. The gross margin is expected to reach about 48.0 percent. SG&A expenses should add up to about $175 million, while pro-forma adjusted Ebitda should amount to about $8 million.
The company has also revised its outlook for the full fiscal year, based on changes in currency exchange rates since October 2014, as well as extra cost reductions. It expects sales of about $1.38 billion to $1.45 billion, which would would be a rise of about 1 to 6 percent in constant currencies and excluding discontinued categories. The gross margin should reach between 48.5 percent and 50 percent. Pro-forma adjusted Ebitda is expected to be between $70 million and $80 million.
