Quiksilver (ZQK) Surfs Straight Into a Tsunami
Shares of surf and sun apparel retailer Quiksilver (ZQK) plunged over 10% last Friday, after the company reported poor second quarter earnings that spooked investors. Quiksilver reported an adjusted net loss of $0.19 per share, or $32.4 million, down from a loss of $0.03 per share, or $5.1 million, in the prior year quarter. Revenue declined 7% to $458.7 million. Wall Street had expected the company to earn $0.04 per share on revenue of $505.4 million, which it completely missed. Daily Chart
On a constant currency basis, sales at its namesake Quiksilver stores, which sell surf, beach and seasonal apparel, plunged 10%, while Roxy, its female brand, slid 4%. DC, which sells footwear and skate apparel, reported a 1% gain. Quiksilver, Roxy and DC account for 40%, 28% and 28% of the company's top line, respectively. Although sales in the Americas rose slightly, it wasn't enough to offset steep losses in Europe, the Middle East, Africa and the Asia-Pacific region. As a result, global same-store sales declined 4%. Gross margins also decreased from 49.2% to 46.0%, indicating higher markdowns in a desperate bid to generate higher sales volume. Sales in Quiksilver's wholesale business slumped 7% to $344 million, while retail (brick-and-mortar) stores reported a 5% decline to $91 million. However, the company's total store count rose from 549 last year to 564 at the end of the second quarter. E-commerce was a bright spot for the company, with sales rising 31% to $23 million. However, e-commerce only comprises a tiny 5% of the company's top line, indicating that it might have room to grow online while shrinking its brick-and-mortar footprint. Another positive figure was its reduction in SG&A (sales, general and administrative) expenses, which declined from $224 million to $218 million year-on-year, thanks to the company's ongoing efforts to reduce expenses across the board. Quiksilver CEO Andy Mooney, who took over the top position in January, reported that the company's heavy international exposure was weakening gross margins across all three brands. Yet he remained upbeat about the company's longer-term prospects, stating, "We believe that, over time, our new focus and structure will allow us to significantly improve profitability, working capital efficiency and competitive positioning." Mooney, a former Walt Disney (DIS
) executive, stated that the company is in the process of a "multi-year profit improvement plan" focused on growing its three core brands in a "sustainable" manner. Looking forward, Quiksilver sees better growth in the second half of the year, as summer and holiday sales boost demand for its seasonal products. The company noted that adjusted EBITDA is expected to exceed the $91 million it reported for the second half of fiscal 2012. However, capital expenditures are forecast to rise at least 10% during that time. That mixed view should tell investors that it isn't very confident that it can generate enough sales in the summer, which bodes ill for the brand. A dying activewear retailer should be avoided at costs - simply look at the dire fate of Billabong to glance into the possible future of Quiksilver. Other News About ZQK Wipeout: Quiksilver Tumbles 9% on 2Q Miss
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Published on Jun 14, 2013
By Leo Sun