Huntington Beach-based Quiksilver Inc. isn’t planning to hand Wall Street any big surprises.
The company last week reaffirmed its sales and profit expectations for the three months ending Jan. 31. Eyes are on Quiksilver, the largest maker of surf-inspired clothes, after last year’s big buy of France’s Skis Rossignol SA.
Mixed Signals
In October, Quiksilver warned that profits for the 12 months ended Oct. 31 could come in 11% lower than what Wall Street had expected, in part due to restructuring at Rossignol.
Then in December, Quiksilver reported strong quarterly earnings and profit growth for the first full three months with Rossignol in the fold.
“We have reorganized our company to properly absorb this business and are pleased with the progress we’ve made thus far,” Chief Executive Robert “Bob” McKnight said in a Dec. 16 earnings call.
For the current quarter, Quiksilver expects nearly $22 million in profits, up about 50% from a year earlier. Sales are seen coming in at $530 million to $535 million, versus $343 million a year ago.
But not everyone’s satisfied with the company’s reaffirmation.
Quiksilver used to “beat and raise guidance at every juncture,” analyst Lizabeth Dunn of Prudential Equity Group LLC wrote in a December report.
Analysts are guarded about Rossignol, which was losing money and market share prior to Quiksilver’s buy.
Worried About Profits
The worry is over Rossignol’s effect on profit margins at Quiksilver. Skis and other sporting goods aren’t as profitable as clothes, Quiksilver’s mainstay.
In the quarter ended Oct. 31, Quiksilver’s gross profit margin was 45%, down from 48% a year earlier. The figure also was below what some analysts had expected. Operating margin was 9.8%, also below some estimates.
Rossignol remains “a show-me story,” wrote Joseph Teklits at Wachovia Securities in a December report. It could be several more quarters before the business shows “tangible evidence of a turnaround.”
A bright spot in the recent quarterly results: Rossignol’s gross margin of about 40%. That’s not far off from Quiksilver’s gross margin last year, Teklits said.
It “suggests Rossignol’s low operating margins are a function of high operating expenses, something which we deem fixable,” Teklits said.
Quiksilver won’t see gains from consolidating Rossignol’s plants and administration until later this year, according to Teklits.
The company has been moving to “modernize and streamline” Rossignol’s business, according to McKnight.
Quiksilver hopes to save $25 million within three years, including $10 million from back office and marketing savings, according to Quiksilver President Bernard Mariette.
The measures include cutting about 200 jobs, he said.
Changes at Rossignol
There have been other changes. Quiksilver has installed new executives and a design team at Rossignol. It plans new headquarters for the business in France and the U.S.
Quiksilver has been working to revamp Rossignol’s clothes.
Some Rossignol jackets and other items are set to debut this winter and could “excite the market for things to come,” Mariette said.
The biggest expansion of the line isn’t expected until fall 2007, the company said.
Prudential Equity’s Dunn said in her report that she sees “significant opportunity” in the longer term by “leveraging the Rossignol brand into other categories” along with improving Rossignol’s operations.
“But in the near term, we are concerned about integration hiccups,” Dunn said.
Quiksilver projects yearly sales of $2.25 billion to $2.27 billion with about $105 million in net income. The Rossignol unit is expected to do some $600 million to $620 million in sales, helping to easily top Quiksilver’s prior-year sales of $1.8 billion.
But Rossignol isn’t seen doing much for profits, which were $107 million the prior year.
The year through October continues to look like a “transitional year for the company with essentially flat earnings on 28% sales growth,” Dunn said.
Quiksilver has moved ahead on plans to open a facility this year in Park City, Utah, for Rossignol and its brands, including Dynastar and Lange.
Surf Still Hot
The Utah office could give Quiksilver a “great control boost” as it tweaks Rossignol’s marketing and clothing lines.
“We’re going to build the brand aggressively over the next several years and will do so with a much more efficient structure,” he said.
The company’s bread and butter,clothes and other garb for skate and surf brands such as Roxy and Quiksilver,appear to be “gaining momentum,” Wachovia’s Teklits said.
“The surf/skate industry remains red hot,” he said.
In the October quarter, sales for Quiksilver’s men’s and women’s clothes rose 30% to nearly $200 million.
Analysts are falling back on Quiksilver’s Midas touch with its own brands and acquisitions such as 2004’s buy of DC Shoes Inc.
“We continue to believe that in the hands of Quiksilver, Rossignol is capable of becoming a global outdoor lifestyle brand generating significant sales growth and double-digit operating margins,” Teklits said.
In October, Quiksilver warned that profits for the 12 months ended Oct. 31 could come in 11% lower than what Wall Street had expected, in part due to restructuring at Rossignol.
Then in December, Quiksilver reported strong quarterly earnings and profit growth for the first full three months with Rossignol in the fold.
“We have reorganized our company to properly absorb this business and are pleased with the progress we’ve made thus far,” Chief Executive Robert “Bob” McKnight said in a Dec. 16 earnings call.
For the current quarter, Quiksilver expects nearly $22 million in profits, up about 50% from a year earlier. Sales are seen coming in at $530 million to $535 million, versus $343 million a year ago.
But not everyone’s satisfied with the company’s reaffirmation.
Quiksilver used to “beat and raise guidance at every juncture,” analyst Lizabeth Dunn of Prudential Equity Group LLC wrote in a December report.
Analysts are guarded about Rossignol, which was losing money and market share prior to Quiksilver’s buy.
Worried About Profits
The worry is over Rossignol’s effect on profit margins at Quiksilver. Skis and other sporting goods aren’t as profitable as clothes, Quiksilver’s mainstay.
In the quarter ended Oct. 31, Quiksilver’s gross profit margin was 45%, down from 48% a year earlier. The figure also was below what some analysts had expected. Operating margin was 9.8%, also below some estimates.
Rossignol remains “a show-me story,” wrote Joseph Teklits at Wachovia Securities in a December report. It could be several more quarters before the business shows “tangible evidence of a turnaround.”
A bright spot in the recent quarterly results: Rossignol’s gross margin of about 40%. That’s not far off from Quiksilver’s gross margin last year, Teklits said.
It “suggests Rossignol’s low operating margins are a function of high operating expenses, something which we deem fixable,” Teklits said.
Quiksilver won’t see gains from consolidating Rossignol’s plants and administration until later this year, according to Teklits.
The company has been moving to “modernize and streamline” Rossignol’s business, according to McKnight.
Quiksilver hopes to save $25 million within three years, including $10 million from back office and marketing savings, according to Quiksilver President Bernard Mariette.
The measures include cutting about 200 jobs, he said.
Changes at Rossignol
There have been other changes. Quiksilver has installed new executives and a design team at Rossignol. It plans new headquarters for the business in France and the U.S.
Quiksilver has been working to revamp Rossignol’s clothes.
Some Rossignol jackets and other items are set to debut this winter and could “excite the market for things to come,” Mariette said.
The biggest expansion of the line isn’t expected until fall 2007, the company said.
Prudential Equity’s Dunn said in her report that she sees “significant opportunity” in the longer term by “leveraging the Rossignol brand into other categories” along with improving Rossignol’s operations.
“But in the near term, we are concerned about integration hiccups,” Dunn said.
Quiksilver projects yearly sales of $2.25 billion to $2.27 billion with about $105 million in net income. The Rossignol unit is expected to do some $600 million to $620 million in sales, helping to easily top Quiksilver’s prior-year sales of $1.8 billion.
But Rossignol isn’t seen doing much for profits, which were $107 million the prior year.
The year through October continues to look like a “transitional year for the company with essentially flat earnings on 28% sales growth,” Dunn said.
Quiksilver has moved ahead on plans to open a facility this year in Park City, Utah, for Rossignol and its brands, including Dynastar and Lange.
Surf Still Hot
The Utah office could give Quiksilver a “great control boost” as it tweaks Rossignol’s marketing and clothing lines.
“We’re going to build the brand aggressively over the next several years and will do so with a much more efficient structure,” he said.
The company’s bread and butter,clothes and other garb for skate and surf brands such as Roxy and Quiksilver,appear to be “gaining momentum,” Wachovia’s Teklits said.
“The surf/skate industry remains red hot,” he said.
In the October quarter, sales for Quiksilver’s men’s and women’s clothes rose 30% to nearly $200 million.
Analysts are falling back on Quiksilver’s Midas touch with its own brands and acquisitions such as 2004’s buy of DC Shoes Inc.
“We continue to believe that in the hands of Quiksilver, Rossignol is capable of becoming a global outdoor lifestyle brand generating significant sales growth and double-digit operating margins,” Teklits said.
