Shares of Huntington Beach-based clothing maker Quiksilver Inc. slumped Friday as investors looked past improving profits and focused instead on the company’s tepid sales outlook for the current quarter.
The company’s stock closed down nearly 12% to a market value of $475 million.
After the close of trading Thursday, Quiksilver forecast another quarter of rising profits as debt and other restructuring lifts the company’s bottom line.
But executives projected another quarter of falling sales for Quiksilver, the largest maker of clothes inspired by surfing, skateboarding and snowboarding.
The company faces a tough clothing market that’s been slow to recover from the downturn.
Quiksilver didn’t give a specific forecast but said for the three months through October it sees a profit in the mid-single-digits on a per share basis.
At 5 cents per share, Quiksilver would earn $7.8 million, more than double what it reported a year earlier.
Analysts on average expect Quiksilver to report a profit of $10.9 million for the current quarter.
Most of Quiksilver’s profit growth has come from reworking debt and other cost cutting.
Sales are another matter.
For the current quarter, Quiksilver said it sees a percentage drop in sales from a year earlier in the mid-teens. At a 5% decline, Quiksilver could see about $500 million in sales.
Analysts are more guarded. On average, they project a 9% drop to $488 million.
Mitch Kummetz of Milwaukee-based investment bank Robert W. Baird & Co. is more pessimistic, figuring on a 15% drop in quarterly sales.
“The company has improved its balance sheet, and its profitability has bounced back, but its revenue outlook remains challenging,” Kummetz said.
On Thursday, Quiksilver reported a profit of $12.5 million before charges for the three months through July. That was up from a profit of $3.7 million a year earlier.
It easily topped the $3.7 million in profits analysts were expecting.
Sales were $441.5 million, down 12% from a year earlier and shy of the $442.9 expected by Wall Street.
While there’s not a lot Quiksilver can do to spur sales, the company continues to dig itself out of a hole it created with 2005’s ill-fated buy of French ski maker Rossignol.
Quiksilver bought money-losing Rossignol for $560 million and sold it in a 2008 fire sale for $50 million.
Lingering debt from the deal coupled with the downturn nearly sunk Quiksilver last year.
The company took another step away from the wreckage with word Thursday that it reworked terms of a $150 million credit line with Bank of America Corp. and General Electric Co.’s GE Capital.
The interest rate on the credit line was cut by about 150 basis points, the company said. Commitment fees to keep the unused line of credit open were cut by 50 basis points.
The reworking came after a debt-for-stock swap by Quiksilver.
In August, Quiksilver exchanged shares for $140 million in debt in a move that bolstered the company’s once crippling balance sheet.
Quiksilver exchanged 31.1 million shares for the debt, which was held by New York-based Rhone Group LLC.
The debt stems from a deal struck with Rhone last year that helped Quiksilver get a U.S. line of credit and consolidate its European debt.
The Rhone financing was seen as a lifesaver for Quiksilver. It’s come at a price—Rhone now owns nearly a third of Quiksilver, up from 16% before the stock-for-debt swap.
Quiksilver now has $843 million in total debt.
