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.

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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 Quiksilver wipes out on another big miss. Quiksilver Losses Expand to $32 Million Can Quiksilver survive the coming tsunami? Other Stocks in the News Is Intel's Empire About to Strike Back? Is Intel finally "getting" mobile? Will Krispy Kreme's Sugar Rush Last? Can Krispy Kreme continue to rise? Copyright 2013 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.

Published on Jun 14, 2013
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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