Quiksilver triumphs over tough economic conditions

The Quiksilver group ended its fiscal year with a buoyant last quarter, as its sales increased by 10.1 percent to $545.2 million for the three months until the end of October, amounting to a rise of 6 percent in constant currencies. The company's managers hailed the quarterly performance as robust, particularly amid the worrisome economic situation in Europe.

European sales firmed up by 11.4 percent to $212.5 million, equivalent to an increase of 6 percent in constant currencies. The European gross margin slumped by 3 full percentage points to 57.2 percent but its operating income in the region jumped by 45 percent to $30.3 million.

The quarter marked a turnaround in the group's European retail business, since its same-store sales in the region were up for the first time in six fiscal quarters. Quiksilver managers partly attributed this to store upgrades, as seen in Paris Bercy and in Capbreton, in France.

Another example of inspiring retailing is the Boardriders store just opened by the group in Chamonix, on 400 square metres and three levels in a renovated old building, with mountain barn fittings. It is the first mountain store opened and managed by the group to carry all its brands of softgoods and hardgoods, and others are expected to follow. The sixth European Boardriders concept store is set to open in Barcelona next year.

On the wholesale side, the Quiksilver, Roxy and DC brands all lifted their sales in the quarter, enabling the group to enlarge its share in the European boardsports market.

Sales in France, which make up about 40 percent of Quiksilver's European turnover, remained flat in the three months. However, managers were more upbeat about the group's profitable expansion in Germany and its rapid strides in Russia. The company ended the quarter with 15 own stores in the country, another 17 franchises and about 250 retail customers. Due to the economic squeeze in Spain, this country is the only large European market where the Quiksilver Group was weak.

Meanwhile, the group's turnover climbed by 12.6 percent to $249.8 million in the Americas, including an increase of 16 percent in comparable stores sales in the U.S. Unlike the situation at Billabong (see next article), Quiksilver continued to enjoy double-digit growth in comparable retail sales in November. Quiksilver also did well in Latin America, and particularly in Brazil, where it just opened a second store, in Porto Alegre.

Quiksilver will be launching a mountain range at the Outdoor Retailer show in January, catering to a technical category that was previously covered by Rossignol. It is adding technical apparel with a fashion twist for global distribution to its urban and fashion-oriented Quiksilver Woman line, which was first launched in Europe the autumn of 2008. The line still targets mainly the contemporary and independent woman between the ages of 20 and 35, while the younger Roxy line is more colorful, less tailored and more technical.

In the America's, the gross margin lost 1.1 percentage points to 47.0 percent and the operating income decreased by 27 percent to $9.3 million.

As for Asia-Pacific, it reported a 1.8 percent sales increase to $81.8 million for the quarter, but the group's sales in the region fell by 7 percent in constant currencies. Its gross margin shrank by 2.3 percentage points to 52.5 percent in Asia-Pacific, and it suffered an operating loss of $3.0 million in the region, down from operating income of $8.6 million for the same period last year.

The management still regarded this as an encouraging performance, given the economic downturn affecting Australia, weak consumer spending in the country, the strong Australian dollar hitting tourism, and the aftermath of several natural disasters in the region. Again very much unlike the situation at Billabong, the Quiksilver group added that its comparable store sales in Australia had improved in November, after the reporting period.

Overall, the Quiksilver group's gross margin for the quarter fell by 1.6 percentage points to 51.9 percent, chiefly due to higher sourcing costs. Its pro forma adjusted Ebitda reached $57.1 million, which was a drop of 4.0 percent compared with the same period last year. Pro forma income from continuing operations was halved to $10.8 million.

These figures exclude $11.4 million of non-cash asset impairment charges, $8 million of restructuring costs and $76.6 million of income chiefly related to a deal with the French tax authorities around the sale of Rossignol, the French ski company bought by Quiksilver in 2005 and sold at a much lower price three years later. The deal led to a tax benefit of $64.2 million for the quarter, which enabled Quiksilver to report a net profit of $67.9 million for the three months, compared with a net loss of $22.1 million for the same period last year. The company continued to report a loss for the full year, however.

For the full fiscal year, the company saw its sales increase by 6.3 percent to $1.95 billion, which was a rise of 3 percent in constant currencies. The Quiksilver brand's sales were up by 5 percent to $806 million for the year, while DC lifted its sales by 15 percent to $545 million. Roxy's sales contracted by 2 percent to $519 million, but its performance gradually improved and it even managed a sales jump of 10 percent in the last quarter.

European sales reached $761.1 million for the year, which was an increase of 4.4 percent in reported terms but just 1 percent in constant currencies. This compares with a sales jump of 8 percent in the Americas and 5 percent in Asia-Pacific – but again, Asia-Pacific sales decreased by 8 percent in constant currencies.

Pro forma income from continuing operations reached $30.8 million, excluding onetime charges of $52.1 million as well as $69.3 million of income related to the French tax deal. Including all this, the company ended the year with a net loss of $21.3 million, compared with a loss of $9.7 million for the previous fiscal year.