Quiksilver Inc. posted a fourth-quarter loss on accounting and impairment charges while comfortably beating analysts’ estimates and strongly lifting gross margins.
This story first appeared in the December 17, 2010 issue of WWD. Subscribe Today.
In preliminary guidance for 2011, the company projected adjusted earnings in line with the just-concluded year and “slight growth” in revenues after a decline in fiscal 2010.
For the three months ended Oct. 31, the Huntington Beach, Calif.-based marketer of the Quiksilver, Roxy and DC brands reported a net loss attributable to Quiksilver of $22.1 million, or 14 cents a diluted share, versus a loss of $1.8 million, or 1 cent, in the 2009 period. Stripping away $34.4 million in noncash interest charges as well as nonrecurring items tied to restructuring and store impairment, adjusted income from continuing operations was $21.8 million, or 12 cents a share, 5 cents better than the 7-cent profit expected by Wall Street. In the year-ago period, the comparable bottom-line figure was $3.2 million, or 2 cents.
Net sales declined 8.1 percent to $495.1 million from $538.7 million. Revenues decreased in all three of the company’s geographic segments, dropping 7.4 percent in the Americas to $221.8 million; 9.8 percent in Europe to $190.7 million, and 7.2 percent in Asia-Pacific to $80.4 million.
Gross margin rose 590 basis points to 53.5 percent of sales from 47.6 percent a year ago, and business was seen as stabilizing in most geographic markets and product segments.
The company projected modest growth in 2011 sales with its adjusted earnings before interest, taxes, depreciation and amortization for the year roughly in line with the $214.4 million registered for the just-completed 12 months. The full-year estimate came despite expectations of a first-quarter performance marked by a sales decline of about 5 percent and adjusted EBITDA that could be $10 million below the prior-year level.
The bearish forecast for the first quarter was linked to factors including brand development for the Quiksilver Girls collection due in the new year, higher overall marketing spending and foreign currency translation.
Robert McKnight Jr., chairman, president and chief executive officer, told analysts on a late afternoon conference call that he believes the junior market, as represented by the Roxy brand, could be approaching a turnaround.
“Despite our position as the clear market leader, we continue to see fast fashion and price-point driven goods impact the branded segment of the juniors market…although overall we’re seeing that juniors trends in retail are stabilizing across all channels of distribution,” he said. “Declines in the Roxy business are moderate, and it appears they will reach the bottom in fiscal 2011.”
He put Roxy’s annual volume at above $500 million. He and other company officials noted that opportunities for product and geographic expansion could result in the DC brand growing to a $1 billion business.
“We’re looking for the largest growth to come out of the DC brand,” said Joseph Scirocco, chief operating and financial officer. “DC, as we know, is significantly underpenetrated outside the U.S.”
E-commerce business, still in its infancy at under $25 million, is seen growing to 10 percent of overall revenues, or nearly $200 million based on 2010 revenues.
For the full year, Quiksilver had a net loss of $9.7 million, or 7 cents a diluted share, versus a year-ago loss of $192 million, or $1.51, much of it attributable to the discontinued Rossignol operation. Revenues dipped 7.1 percent to $1.84 billion from $1.98 billion in fiscal 2009.
• Burlington Coat Logs Loss: Burlington Coat Factory Investments Holdings Inc. swung to a third-quarter loss as net and same-store sales retreated. In the three months ended Oct. 30, the Burlington, N.J.-based off-price chain had a net loss of $2.8 million versus a $7.5 million profit in the 2009 quarter. Adjusted EBITDA, which removes special charges along with interest, taxes, depreciation and amortization, receded 20.7 percent to $63.2 million from $79.7 million.
Net sales declined 1.6 percent, to $858.2 million from $872.4 million, as comparable-store sales fell 5.6 percent. Burlington, an outerwear specialist, said that unusually warm weather in October and November cut into sales, hurting margins and profitability.
“Following our third-quarter performance, as temperatures returned to normal seasonal levels in November, we are very pleased with the level of comparative-store sales that we have achieved,” said Tom Kingsbury, president and ceo.
Debt net of cash fell slightly from year-ago levels, to $1.22 billion from $1.23 billion.
For the year to date, Burlington reduced its net loss to $38.1 million from $41.9 million in the first nine months of 2009. Sales were up 3.3 percent to $2.48 billion from $2.4 billion a year ago. Prior-year figures were restated to reflect the shift in the company’s financial calendar to adhere to the standard retail schedule.
The company was acquired and taken private by Bain Capital in 2006.
• Retail Stocks Lifted: Investors pushed shares of Aéropostale Inc. up 8.7 percent to $25.61 Thursday following a New York Post report that the company hired investment bank Barclays Capital to ward off any possible suitors. A person familiar with the situation told WWD that the move was “just precautionary” and that Aéropostale had not received any particular interest from a would-be acquirer. Shares of Zale Corp., reportedly seeking to sell its Piercing Pagoda unit, also rose 8.7 percent, to $3.50.
The S&P Retail Index, bolstered in recent months by an unending stream of takeover buzz, rose 1 percent, or 5.24 points, to 507.94, as the Dow Jones Industrial Average gained 0.4 percent, or 41.78 points, to 11,499.25. Other retail gainers included AnnTaylor Stores Corp., 2.4 percent to $27.82; Saks Inc., 1.9 percent to $11.67; Abercrombie & Fitch Co., 1.8 percent to $55.67; Macy’s Inc., 1.8 percent to $25.73; Nordstrom Inc., 1.6 percent to $42.32, and American Eagle Outfitters Inc., 1.6 percent to $15.43.