QUIKSILVER INC.
Costa Mesa, CA
(714) 645-1395

Alexandria, VA, September 12, 1996/FOOLWIRE/ --- Quiksilver Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: QUIK)") else Response.Write("(NASDAQ: QUIK)") end if %> designs and distributes activewear, primarily for young men and boys. The company designs clothing such as surf-wear, swimwear, and T-shirts, and arranges for its manufacture under brands that include Quiksilver, Roxy, Pirate Surf, and Que. Its Raisin subsidiary designs women's and girls' swimwear under the Raisins, Leilani, and Radio Fiji names. Quiksilver and Raisin distribute their products to approximately 9,800 surf shops, specialty stores, and department stores in the United States, South America, Europe, Asia, and Australia.

Quiksilver reported today that consolidated net sales for the third quarter increased 14.7 percent to $49,008,000 as compared with consolidated net sales of $42,738,000 for the same period of the prior year. Consolidated net income increased 10.0 percent to $2,539,000 or 35 cents per common share as compared with $2,308,000 or 33 cents per common share for the same period last year.

Domestic net sales for the quarter increased 3.2 percent to $30,701,000 as compared with $29,750,000 for the same period prior year. European net sales for the third quarter increased 41.0 percent to $18,307,000 as compared with $12,988,000 for the same period of the prior year.

European net sales for the first nine months increased 29.5 percent to $52,485,000 as compared with $40,532,000 for the same period of the prior year.

Reflections on the Third Quarter

At the beginning of the year, the company set a goal of 15-20% sales growth, and has achieved 16.4% sale growth through the first three quarters of 1996. Domestically, the company thought that the boys areas and juniors would be big opportunities for growth. Boys has grown 32% and juniors, which includes the Roxy, Raisin and Radio Fiji lines, has grown 50%. Roxy by itself has had 100% sales growth to date. The company has also controlled expenses according to plan.

Robert B. McKnight, chairman of the board and chief executive officer, indicated that while the quarterly and year-to-date numbers were up over last year's, they were "not up to our usual, recent historical standard." Management has reacted to this, and made changes and improvements necessary to position the company for future positive results.

Consolidated sales increased. Gross profits decreased slightly to 37.1% from 37.7%. Domestic gross profit remained relatively flat at 35.3%. Gross profit for European operations decreased to 40.1% from 42.8%, due primarily close-outs that were taken in Q4 last. Consolidated S,G & A (selling, general and administrative) expenses increased approximately 17.5% to $13.5 million, which was slightly ahead of top-line growth rate, but in line with company's expense plan.

Overall, the company continues to maintain a conservative financial position. As of July, the company had $56 million in working capital. Credit line usage was down, and the equity equaled over $80 million. Accounts receivable increased 27.3% to approximately $46 million, primarily due to normal extended terms for the junior sportswear and swimwear programs, which are growing rapidly. Inventory increased 7% to approximately $34.6 million.

Highlights

Juniors business, which now includes Roxy, Raisins and Radio Fiji, continued to be strong. Shipping was up over 150%, and bookings over 120%. Innovations have kept the lines ahead of the competition in this rapidly growing market. The domestic boys business continues to grow rapidly. Fall bookings are up over 45%.

The company continues to be the primary resource for Nordstrom's, Macy's West, Robinson's May, and Burdine. Additionally, the company has opened an in-store shop at Bloomingdale's in New York City, and Bloomingdales has asked that six additional shops be opened.

Sales for the domestic young mens business was off approximately 15%, due primarily to the closing of several accounts which violated the company's distribution policies. This was done to protect the integrity of the label and to maintain the highest quality distribution.

The company initially thought that it could make up the initial pre-booked deficit in season, but re-orders were below anticipated levels due to poor selling in the early summer season. Overall, holiday pre-booked orders for all domestic divisions are flat to slightly up. This is an improvement compared to the fall season. Delivery will begin in the fourth quarter and be complete in Q1 1997.

European shipping in the third quarter was strong, a continuation of the first half of 1996. The combined spring/summer growth rate was above the company's 20% target, and autumn/winter bookings are up over 20% for 1996.

The spring 1997 line received rave reviews at the Magic trade show in Las Vegas in late August.

Looking Forward

Looking forward to 1997, the company has made changes which it thinks will positively affect sales and earnings. The company has re-structured its domestic young mens M & D department, in order to increase the focus of each designer. Designers in the past had previously been working across multiple divisions, but will now concentrate on only one division. This will give the designers additional time to analyze consumer trends and be more innovative, which ensures a higher level of satisfaction and sell-thru in the market place.

The company continues to make in-roads into major department store with its Quiksilver in-store shops. The company has committed to build shops in Hechts, Macys West and Bloomingdales.

The company believes that its long-term strategy is the correct one. The past development of additional labels will allow the company to grow more consistently. Boys is growing at over 30% a year and this is expected to continue. Accessories is growing at over 30% a year, and this should continue as well. The Juniors business is a "hot market" which has grown exponentially in 1995 and 1996, and is expected to grow at a very high rate into 1997. Mens is expected to start growing again in 1997 with the help of increased distribution and increased in-store shops.

The company has focused its designers more to the young men's market, and moved to spend heavily in computer automation in the company on information systems which will allow accounts, reps and designers to access on-line data 24 hrs./day. The company has made a commitment to substantially improve customer service with additional personnel and systems. It has also made a decision to invest in national advertising to improve brand awareness. The decisions have been made to move Quiksilver to the next level.

Strengths

While the company acknowledges some its weak points for the quarter, it feels that it also must consider the strengths.

- One of the best brands and logos in the industry and the world.

- An authentic brand with roots that mean something to the youth of America.

- World class athletes endorsing the products and sponsorship of key events in its core sports.

- Worldwide brand recognition. Turkey does over $10 million in Quiksilver product.

- New computer systems will one of the best in the retail industry.

- Merchandising and Design as innovative leaders in the field.

- First to bring denim to surfshops, first to introduce flannel to the outer shirt, velour, first to introduce girl board-shirt.

Financially, the company has no long term bank debt, and can raise money when it needs to finance growth.

Diversion

The company has faced a tremendous diversion problem. Diversion occurs when Quiksilver merchandise is diverted from prime retailers and ends up in discounters and chain stores across the U.S. It is the company's obligation and desire to stop the diversion and close accounts which have knowingly diverted the product. In the past twelve months the company has done just that. The company's policing efforts are working, and are helping to stop the loss of $6-8 million of wholesale over the past few seasons, and $2 million for the fall season alone.

Fall Sell-Throughs

Reports from a number of different stores indicate that Quiksilver products are selling well. Knitwear up almost 3 times sales versus last year. Fleece salesare also doing well. T-shirts are just OK, while denim shorts are way off of last year. Baggie is in. Overall, Quicksilver has a strong 3% increase in margin for the period.

Macy's West - up 50% in sales on same stock

Robinsons May - increased 3% in sales on 1.5% less stock

Champs - Quiksilver has blown past Rusty and Billabong in sales volume

Meyer & Frank - seven of eight stores are up in Quicksilver sales. Quiksilver is the

second largest young mens brand behind Levis

Hechts - sales up 38% on flat stock.

Dillards - Sales up 21% on 8% less stock

Demographics of the Teen Market

The country is in the early stages of an 18 year demographic wave of teenagers. After fifteen years of decline, the teenage population will never be bigger than in the next fifteen years, and these teens have huge buying power. Teens spent about $75 billion dollars last year. As the number of teens have grown, the number of stores serving them has decreased. By the company's estimation, over 2600 retail stores did not make it through the last drought, meanwhile, youth fashions are turning red hot.

Quiksilver-Roxy

Roxy is the Quiksilver range for the juniors market, and it focuses on sportswear, activewear, denim and swimwear. Roxy has been outperforming all of the company's expectations, with 100% sales increase in each quarter. With the emergence of a huge teen market, Roxy could easily be as big as Quiksilver young mens in three to five years.

Boardriders Club & Quicksills

The company has 13 Boardriders Clubs open in North America and nine in Europe. It is looking for locations for three to eight more stores. The clubs are reporting over 18% increase in sales in the third quarter. There is also a Roxy store in the works in Hawaii. The company currently has 205 Quicksills.

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