Declines in its equipment businesses erased advances in apparel and dropped Quiksilver to a loss that was in line with analysts' expectations for the second quarter.

In the three months ended 30 April, the Huntington Beach, California-based marketer of surf, skate, board and other active brands registered a net loss of US$4.8m, or $0.04 a diluted share, matching the analyst consensus estimate. In the year-ago quarter, Quiksilver posted net income of $3.7m, or $0.03 a share.

Revenues continued to improve, rising 16.8% in the quarter to $603.8m from $516.9m. Gross profit fell 50 basis points to 44.9% of sales from 45.4%.

The company, which acquired the Rossignol ski brand in July 2005, has warned repeatedly that the hangover from what Robert McKnight Jr, chairman and CEO, called "one of the warmest winters on record" would depress its sales and earnings through 2007 and possibly into its next fiscal year as well.

However, McKnight sounded an optimistic note on the outcome of the second quarter.

"We finished the quarter in line with our revised plan and we are very confident with the direction of our business over the longer term," he said in a release issued late Thursday (7 June).

"While clearly our opportunity, to some degree, is dependent on a normal winter season, we have positioned ourselves for improved results in our Rossignol and Cleveland Golf businesses.

"We have rationalised our infrastructure, streamlined our industrial base and strengthened our organisation," he continued. "At the same time, we are extremely pleased with the strength that continues to be evident in our apparel and footwear operations."

SG&A (selling, general and administrative) expenses climbed to 43.4% of sales from 41.8% a year ago. Much of the increase had previously been attributed to investments in infrastructure and marketing.

Furthermore, the volume of its apparel brands increased in all three of its regions and, helped by favourable foreign currency translation, was up 21.1% to $519.1m overall.

Equipment brand sales, however, were down 4%, to $83.5m, and fell in both the Americas and in Asia/Pacific even as they rose in Europe.

Operating income was sliced by more than half overall, to $8.8m from $18.7m, dropping to $11.9m from $21.7m in the Americas. Operating income was up in Europe, to $14.1m from $12.4m, but Quiksilver's European operations suffered a $2.4m loss, up from a $2.3m loss in last year's quarter.

"We are tremendously pleased with the performance from our core apparel business in each of our territories," commented Bernard Mariette, president.

"Quiksilver, Roxy and DC continue to experience healthy growth and profitability. In order to maximise the financial opportunity associated with the performance of these marquee lifestyle brands, we are working hard to improve our sourcing efficiencies and to implement other cost synergies.

"Over the next few years, our focus will be to complete our transformation from a multi-national company to a truly global organisation and to unlock the associated financial benefits."

In its history to date, Quiksilver has evolved from one of a bevy of beachwear brands with roots in southern California into an operator of numerous brands that address a variety of sports, lifestyles and product categories.

However, its entry into winter sports and golf and the associated move into hard goods have thus far proven problematic.

The company stuck with its earlier guidance for full-year revenues of about $2.5bn and earnings per diluted share of $0.53. Quarterly estimates have been modified, however, with $0.03 a share in profitability shifting to the fourth quarter from the third.

In the six months to date, the company was hit with a net loss of $2.3m, or $0.02 a share, versus net income of $22.3m, or $0.18 a share, in the year-ago period. Revenues turned up 9.3% to $1.16bn from $1.06bn a year ago.
 
By Arnold J Karr.