Quiksilver’s quarterly sales are lifted by DC

Quiksilver posted higher-than-expected first-quarter results thanks to a strong performance of its DC brand and strong demand for winter sports and technical snowboard apparel. Group revenues fell to $426.5 million in the three months to Jan. 31 from $432.7 million a year earlier but were up in constant currency rates. It is the first time in nine quarters that the top line is higher at homogenous foreign exchanges, lifted by a 15-20 percent increase for DC, flat sales for the Quiksilver brand and a 10-15 percent decline for the women's brand Roxy. DC was underpinned by a strong momentum in Europe as the brand continues to be rolled out in the region.

Sales in the Americas rose to $193.8 million from $187.0 million, lifted by mid-teen growth in comparable store sales. In the wholesale business, the company sold out its outerwear and cold weather apparel and accessories. Sales growth was strong in both Canada and Latin America.

European sales fell to $165.2 million from $177.9 million but were up by 1 percent at similar currency rates. Sales in France, the group's largest European market, were higher. The business area comprising Germany, Austria and Switzerland became the third-largest European market with sales of more than $70 million. The Russian business booked strong wholesale and retail sales, totaling combined sales of $20-30 million with high margins

Sales in the Asia-Pacific region were virtually unchanged, slipping to $67.0 million from $67.1 million, but declined by 8 percent at constant currency rates. Market conditions were difficult in Australia, New Zealand and Japan but the group performed well in Indonesia, China, Taiwan and South Korea.

Orders for the fall/winter collection of the Quiksilver brand are on the rise in the Americas and Europe, indicating an increase in revenues in the second half. The Roxy brand is showing signs of recovery and orders for the fall/winter collection are higher than the previous year in the Americas and Europe.

The group anticipates the Quiksilver and Roxy brands will rise by a low single digit in the full year and DC will grow at a mid-teen rate. DC is expected to be a growth engine for the company. The brand is seen doubling revenues in the next five years largely thanks to its development in Europe and Asia, further growth in apparel and product extensions. DC is still largely a footwear brand but apparel represents about a third of its sales in the U.S. and Europe.

Quiksilver sees the fiscal year ending in October as a transition year after a period of restructuring and forecasts full-year revenues to be slightly above the previous year and adjusted gross operating profits (Ebitda) to be roughly in line with last year. Financial analysts forecast full-year sales at around $1.9 billion and Ebitda at $207 million compared with sales of $1.838 billion and a pro forma adjusted Ebitda of $214 million in the fiscal year ended Oct 31, 2010. The company expects production costs to rise by 5-10 percent in the second half but indicated that its main concern is more the evolution of consumer trends.

Group gross margin rose to 52.4 percent in the first quarter from 51.3 percent a year earlier largely thanks to an improvement in the U.S. retail activity. Europe had the highest growth margin, reaching 58.9 percent against 58.6 percent a year earlier.

Selling, general and administrative costs rose to $210.4 million from $203.2 million as the company continues to invest in activities that still have to yield revenues, such as the Quiksilver women's range, targeting 18-24-year-olds, which has just started to be delivered to clients, and e-commerce. E-commerce is seen generating incremental annual sales of $100 million for the group over the next five year. The company sells online in North America and Europe and is introducing the service in Latin America.

Quiksilver dramatically increased capital expenditure to $18 million in the quarter from $8 million a year earlier largely due to spending on the enterprise resource planning system. In the full year, investments are expected to reach $75-80 million.

The pro-forma loss from continuing operations widened to $7.7 million in the first quarter from $2.5 million a year earlier. The figure excludes $8.6 million of net after-tax charges. Including this amount, the loss from continuing operations was $16.3 million compared with $5.4 million.