Quiksilver’s results are lifted by the dollar and emerging markets

Partially lifted by the declining value of the dollar, Quiksilver increased sales by 14.0 percent to $503.3 million in the third quarter ended July 31, beating market expectations of turnover slightly above $472.0 million. In dollar terms, the top line rose strongly in the Asia-Pacific region, while in the Americas both wholesale and retail channels booked double-digit growth rates. On a currency-neutral basis, the sales rise narrowed to 6 percent because of a negative trend in Asia-Pacific.

Net income rose by 26 percent to $10.4 million in the quarter but earnings per share remained stable at $0.06, less than the $0.08 forecast by financial analysts.

European revenues grew by 16 percent to $176.4 million, but at constant currency rates, the growth was only 2 percent. Northern and Eastern European markets supported sales in the region, compensating for weakness in southern Europe and the U.K. The group stressed that the DC brand enjoyed strong momentum in Germany and sees interesting opportunities for the brand in Europe.

Revenues in the Americas rose by 11 percent to $260.2 million, supported by a 21 percent increase in comparable store sales and a 65 percent surge in e-commerce. The company expects overall e-commerce revenues, which are largely handled by its American business, to reach $25 million in the current fiscal year and to nearly double next year.

In the Asia-Pacific region, sales surged by 20 percent to $65.5 million, but at constant foreign exchange rates, they fell by 3 percent. The group indicated that it is making good progress in Taiwan, Indonesia and Singapore and the Japanese market is recovering faster than expected. To bolster its development in the region, Quiksilver has appointed a general manager in South Korea. The company had previously announced the hiring of a general manager for the DC brand in China. The group's Roxy brand is already present in China through a joint venture and its results are not consolidated into the company's accounts. The DC line will be managed separately from the Roxy business and add to Quiksilver's revenues.

During the quarter, the overall sales of the Roxy brand were down slightly, but order in Europe are up by a single-digit rate, Quiksilver grew by a low-single-digit rate and DC was up by 15-20 percent. Quiksilver said that it was encouraged by the performance of the Quiksilver Girls line, which debuted in the spring and is growing faster than expected. The group expects that combined with the women's collection, the new line will generate about $15 million in revenues in the current fiscal year ending in October. The Californian group sees big potential in the line and forecasts strong growth next year.

There is potential for further growth at the upper end of the surf market with Quik's Waterman' Collection, which is called the Premium Collection in Europe. Targeting men above the age of 30, it is now generating sales of $35 million a year. A dedicated store recently opened in Newport Beach, California.

The group announced that orders for the fall/winter collections were up for all brands in the Americas and Europe but were lower for the Asia-Pacific region. Bookings for the spring/summer collections finish at the end of September but all brands are performing well, especially DC. The company indicated that it increased prices for the fall/winter collections to offset higher costs and plans to do the same for the spring/summer collection.

The consolidated gross margin narrowed to 50.7 percent in the third quarter from 52.3 percent a year earlier. The margin decrease was sharpest in the Americas, down by 2.5 percentage points, due to higher sourcing costs and some promotional pricing. Europe and Asia-Pacific reduced their gross margins by about 0.3 points due to higher costs but benefited from favorable currency-hedging contracts.

Selling, general and administrative costs rose to $221.1 million from $193.1 million due to higher expenses in product development and marketing. Pro-forma adjusted earnings before interest and tax (Ebitda) slipped to $52.7 million from $53.5 million and the operating income fell to $33.9 million from $34.4 million.