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 Breaking Headlines

Quiksilver's Earnings Hurt By Rossignol Acquisition

JUNE 09, 2006 -- As expected, Quiksilver's profits nosedived 89.3% in the second quarter due to citing costs from the recently acquired Rossignol business and stock options expenses.

Consolidated net income for 2Q06 was $3.7 million, or 3 cents a share, compared to $34.7 million, or 28 cents, a year earlier. On a fully diluted basis, excluding stock compensation expense and the related tax effect, EPS was $0.06 for 2Q06, in line with the company's previous guidance.

Shares were up around 9 percent in late Friday trading as some Wall Street analysts felt the report eased worries about the integration of its acquisition of mountain sports company Rossignol.

"With the second quarter now passed, guidance reaffirmed and bookings looking good, we are more confident in our 2006 estimates and believe investors should view the results as a green light on Quiksilver shares," CIBC World Markets analyst Dorothy Lakner wrote in a note to clients.

"The 2007 potential is the real reason to own this stock - but at about 11 times earnings, we think now's the time to buy," she added.

"We are encouraged the Rossignol integration is on track and think concerns over sustainable economic growth should be alleviated by continued strong performance in core brands," wrote Cowen & Co analyst Elizabeth Montgomery in a note.

Quiksilver noted that Rossignol's business is seasonal and has a positive effect on 1Q and 4Q when it generates profits, but has a negative effect in 2Q and 3Q during its seasonally low shipping periods. Consolidated net income 2Q06 also included $3.8 million in stock compensation required to be expensed by current accounting standards.

Gross margins actually improved slightly to 45.4% from 43.3%, but SG&A expenses jumped to 41.8% of sales from 32.6%.

Revenues for 2Q06 increased 21% to $516.9 million. Net revenues from Rossignol and Cleveland Golf – acquired in July 2005 - totaled $86.2 million during 2Q06.

“We were pleased to meet our profitability targets for the quarter and we remain confident in our ability to do so for the remainder of the year,” says Robert B. McKnight, Jr., Chairman of the Board and Chief Executive Officer of Quiksilver, Inc. “Our core business is strong, despite some short-term challenges in the Asia-Pacific region. Even with this softness, our diversified business model enabled us to achieve our overall objectives. Additionally,
we are excited that our Rossignol business performed above expectations in the second quarter and that the integration is proceeding smoothly."

By region, revenues in the Americas increased 26% during 2Q06 to $250.0 million from $199.2 million in 2Q05. As measured in U.S. dollars and reported in the financial statements, European net revenues increased 23% from $176.3 million. As measured in euros, European net revenues increased 33% for those same
periods. Asia/Pacific net revenues decreased 4% to $48.2 million from $50.3 million in 2Q05. As measured in Australian dollars, Asia/Pacific net revenues increased 2% for those same periods.

Inventories totaled $402.0 million at April 30, which includes $191.0 million from the newly acquired Rossignol and Cleveland Golf businesses. Inventories related to the company's other businesses grew 19% to $211.0 million from $177.8 million a year earlier. Excluding Rossignol and on a like-for-like basis, average turnover was 3.9x times at April 30, 2006 versus four times at April 30, 2005.

Accounts receivable totaled $483.0 million at April 30, 2006, which includes $123.0 million from the newly acquired Rossignol and Cleveland Golf businesses. Accounts receivable related to the company's other businesses increased 5% to $360.0 million at April 30, 2006 from $342.0 million at April 30, 2005.

Quiksilver reiterated its FY06 annual revenue guidance of $2.25-$2.27 billion and its FY066 annual diluted EPS guidance of $0.87 to $0.88, before stock compensation expense and the related tax effect. Stock compensation expense is expected to reduce FY06 annual diluted EPS by $0.11.

McKnight concluded, "The restructuring of the management team and back office for Rossignol is largely completed. We've eliminated redundancy, done away with the operational silos that limited growth and profitability, streamlined our infrastructure, and consolidated our warehousing and distribution operations. The integration is on plan, our core business remains strong and we are
excto demonstrate the power of our brands to our shareholders over the quarters and years to come."

The company's Quiksilver, Roxy, DC Shoes and Hawk brands are synonymous with surfing, skateboarding and snowboarding, and its beach and water oriented swimwear brands include Raisins, Radio Fiji and Leilani. The Rossignol, Dynastar, Lange, Look and Kerma brands are leaders in the alpine ski market, and the company makes snowboarding equipment under its Rossignol, Dynastar, DC Shoes, Roxy, Lib Technologies, Gnu and Bent Metal labels. The golf business includes Cleveland Golf, as well as Never Compromise putters and Fidra apparel. Gotcha is the Company's surf-based European brand addressing street fashion.


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Sporting goods industry
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Companies
Quiksilver Inc.
CIBC World Markets
Cowen and Company
3Q Inc.
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net revenues
stock compensation expense
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core business
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April
Robert B. McKnight Jr.
Dorothy Lakner
Elizabeth Montgomery





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