Year in review: The past year saw a series of warnings from Quiksilver sparked in part by integration and sales issues at Rossignol.
The company bought France’s Skis Rossignol SA for $320 million in 2005 with an eye toward turning around the venerable maker of skis and other snow products. Rossignol had been losing money and market share prior to the buy.
Last year, Quiksilver also saw sluggish sales at Cleveland Golf, which it acquired through its Rossignol buy.
Its biggest challenge last year was to cut costs and grow profits at Rossignol, where skis aren’t as profitable as clothes from Quiksilver.
The company cut jobs at Rossignol, installed a new line of executives and designers, consolidated distribution, opened new regional Rossignol offices in the U.S. and France and closed a factory.
Wall Street was able to breathe a little easier after a solid quarterly earnings report for the three months through October, in which Rossignol helped drive sales and profit growth at Quiksilver.
Sales for the quarter were up 22% to $778.4 million. Net income doubled to $64.3 million.
Rossignol sales were up 33% from a year earlier to $70 million.
Sales for the 12 months through January 2007 came in at $2.4 billion, a 20% rise from a year earlier. Net income was down 11% to $76.9 million for the year.
Looking ahead: Quiksilver warned about this year after posting soured results for the January quarter.
The company saw a 2% rise in sales to $552 million for the three months. Net income was down 88% to $2 million on the winter slowdown as well as higher costs.
The drag in sales during the winter sports season was the worst in decades, Chief Executive Bob McKnight said. That resulted in fewer reorders as well as blowouts of unsold products, he said.
“The effects of that can be expected to continue throughout the year,” McKnight said.
More company-owned stores are part of the surfwear maker’s plans. Meanwhile, it continues to look to cut costs. Quiksilver is set to continue consolidating Rossignol’s European warehousing, according to one analyst. Rossignol has gone from 17 offices to three and soon will be down to two.
Quiksilver also expects to shift Rossignol’s production from France to Spain, which should “further reduce overhead costs,” another analyst said.
Wall Street’s take: Not so good.
With hit-or-miss results of late, three analysts downgraded the company after it revised its outlook for the 12 months through January 2008. Shares are off about 26% so far this year and nearly 14% during the past 12 months.
JP Morgan analyst Robert Samuels pulled back his estimates for the 12 months through January and 2008. Guidance is uncertain because many retailers still haven’t placed orders for the next ski season, he said.
The launch of Rossignol clothes may suffer from retailers’ hesitance to add new winter sports clothes after a difficult 2006 season, according to Samuels. And the ski business is getting more competitive as sporting goods makers K2 Inc. and Nike Inc. add to their winter brands, he said.
,Alisha Gomez
WHO’S IN CHARGE
ROBERT
MCKNIGHT
Chairman, chief executive, Quiksilver
Education: bachelor’s in business from USC
Career: Founded company in 1976 with Aussie Jeff Hakman.
Notable: Still finds time to surf with buddies. Delta Tau Delta fraternity brother with SEC Chairman Christopher Cox. Described himself as “spoiled rich kid in college.”
Headquarters: 15202 Graham St., Huntington Beach
Employees: 9,000; 1,686 in OC
Business: surfwear maker
Market value, as of April 2: $1.4 billion
Revenue for 12 months ended Jan.:
$2.4 billion, up 20%
Net income for 12 months ended Jan.:
$76.9 million, down 11%
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Analyst Upgrades Quiksilver, Company ‘Undervalued’
Shares of Huntington Beach-based Quiksilver Inc. rose last week after an analyst upgraded the apparel maker saying it’s undervalued by the market.
Investors might be undervaluing the company because its 2005 acquisition of French ski maker Rossignol has had a “disappointing start,” said Morgan Stanley analyst Brian McGough, according to an Associated Press story.
“With all the talk about Rossignol, people forget that Quiksilver owns some of the most coveted assets in the surf/skate business,” McGough wrote in a research note.
The surfwear maker also owns the Quiksilver, Roxy and DC Shoes brands, which make up 73% of the company’s sales.
The company might be open to considering strategic options if earnings don’t improve, McGough speculated.
“To the extent the earnings rebound does not play out, we think that the potential for value-creating strategic actions is very likely,by either the existing management or a strategic/financial buyer,” he said.
McGough upgraded the stock to “overweight” from “equal-weight” and bumped up its price target to $17 from $13.50.
Shares were trading at about $12 last week. The company counted a recent market value of $1.5 billion.
Quiksilver bought Rossignol in 2005 and spent last year integrating the company. It’s been a rough process for Quiksilver, whose focus has been on turning around Rossignol’s slumping sales.
,Alisha Gomez
