Sep 4, 2008
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Quiksilver posts 3rd-qtr profit, maintains view

Sep 4, 2008

By Alexandria Sage

SAN FRANCISCO, Sept 4 (Reuters) - Quiksilver Inc , the surf-inspired apparel and shoe maker, posted a quarterly profit that beat estimates, and stood by its fiscal-year earnings view, sending shares up 13 percent.

Body Quiksilver Baby SS09

Quiksilver said on Thursday that profit margins were fattened by a higher percentage of sales in Europe and at company-owned retail stores. Results were also helped by a tax benefit.

"We had a pretty decent quarter, given how tough the retail environment is around the world," said Chief Executive Robert McKnight in a conference call with analysts.

It recorded a net profit of $2.9 million, or 2 cents per share, including its discontinued Rossignol ski business, in the fiscal third quarter ended July 31, versus a net loss of $7.9 million, or 6 cents per share, a year earlier.

Consolidated income from continuing operations fell to $33.1 million, or 25 cents per share, from $35.7 million, or 28 cents per share, a year earlier.

Excluding a tax benefit of 3 cents per share, the company earned 22 cents per share, a penny above the average Wall Street estimate, according to Reuters Estimates.

Last month, Quiksilver said it had agreed to sell its underperforming Rossignol ski business to Chartreuse & Mont Blanc, a group led by Rossignol's former CEO, for 100 million euros ($147 million).

The move was a relief to Quiksilver investors, who have complained since the company bought the unit in 2005 that the ski equipment business was a drag on profits and did not fit well with Quiksilver's main strength in apparel.


A bad ski season last year, combined with the deteriorating U.S. economy, hurt sales as merchants sold existing inventory instead of placing new orders.

Proceeds from the Rossignol transaction, due to close in the fall, are expected to pay down debt, which was at $1.07 billion at the end of the third quarter.

"We believe that we have adequate borrowings available to finance the projected working capital requirements of the business, and we plan to use some of this flexibility to realign our current debt structure in the coming months," said Chief Financial Officer Joe Scirocco.

Gross profit margins improved in the third quarter in Quiksilver's main apparel and footwear businesses to 50.4 percent of sales from 47.4 percent a year earlier.

A higher portion of revenues coming from Europe and from company-owned stores, both higher gross margin businesses, helped, as did improved margins at its sourcing operations, where goods are made.

"It should be noted, however, that further gross margin improvements may be more difficult to deliver over the short term due to rising inflation in sourcing countries and pressure on our ultimate selling prices," CEO McKnight said.

Quiksilver, based in Huntington Beach, California, stood by its fiscal-year earnings view of "slightly below" 90 cents per share, including 3 cents from the tax benefit in the third quarter.

Analysts, on average, expected earnings of 86 cents per share, according to Reuters Estimates.

Shares of Quiksilver, down 12 percent since January, rose after hours to $8.13 from a close of $7.19 on the New York Stock Exchange. (Reporting by Alexandria Sage, editing by Richard Chang/Jeffrey Benkoe)

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