Quiksilver: Biggest Task Yet With Rossignol Buy

So far, everything Quiksilver Inc. has touched has turned to gold: surf trunks, skater garb, bikinis, golf clothes, shoes, stores.

The Huntington Beach-based company has expanded and acquired companies with seeming ease, surpassing the $1 billion in yearly sales mark last year. All the while, Quiksilver has kept its cool as the king of surfwear.

Now Quiksilver has bigger ambitions,becoming a clothes and sporting goods power on par with the likes of Nike Inc.

In March, Quiksilver made a bold move in that direction by setting out to buy French ski maker Skis Rossignol SA for about $320 million in cash and stock.

The deal stands to be Quiksilver’s biggest buy,and challenge,yet.

The acquisition is rife with concerns.

Rossignol gets about three-quarters of its sales from lower profit skis and other so-called “hard goods.” More profitable apparel makes up 75% of Quiksilver’s sales.

Skis and other hard goods are set to make up a quarter of the combined company, with apparel at half.

And Rossignol is losing money at that. Much of the ski business’s innovation,and profits,are going to more nimble players. As for the mass market, forget about it. Chinese makers have it sown up.

That’s led to a worry that Quiksilver could be paying too much for Rossignol. Quiksilver’s stock dropped 10% on news of the buy and is down 20% since.

“All things considered, we do not feel that Quiksilver got a ‘steal’ in terms of valuation, particularly given the challenges of the hard goods business,” wrote Jeff VanSinderen, an analyst at Los Angeles-based B. Riley, in a recent report.

With its marketing savvy and distribution prowess, Quiksilver could overcome Rossignol’s woes. Or it might not, according to analysts.

“We have some concerns about the acquisition of Rossignol as it could dilute an otherwise fantastic growth story,” wrote Lizabeth Dunn of Prudential Equity Group LLC in a recent report. “Rossignol has shown signs of maturity in recent years with flat sales growth.”

That’s a contrast to Quiksilver, which has been on an extended tear.

The company had sales of $1.3 billion for the 12 months ended Oct. 31, up nearly 30% from a year earlier. For the three months ended Jan. 31, sales grew 34% to $343 million. In March, the company upped its revenue and profit forecast for the year through Oct. 31.

Acquisitions have helped fuel the growth. The bulk of Quiksilver’s buying has been focused on clothes, shoes and stores.

Quiksilver, which declined to comment for this story, has managed to grow on its own with its namesake brand and its Roxy line for girls and young women.

But acquisitions help put growth at a pace that satisfies investors and generates cash for other operations, according to Peter “P.T” Townend, owner of marketing and consulting firm The ActivEmpire Inc. in Huntington Beach.

“Without that growth it would be next to impossible to step up into the world of the Nike and Levi,” Townend said.

Last month, Quiksilver bought Australian surfwear retailer Surfection. Last year, it bought skateboarding shoemaker DC Shoes Inc. of Vista for about $90 million.

Quiksilver’s Rossignol buy stands to be trickier. First, the company will have to figure out what to do with the Rossignol brand, said Mitch Kummetz, an analyst at D.A. Davidson & Co.

“I don’t want to suggest it’s a bad deal,” Kummetz said. “Before they realize all the opportunities (with Rossignol) it’ll take a little longer than it did with DC.”

Quiksilver executives say they plan to apply their design knack to Rossignol, which is nearly 100 years old. Plans call for jackets, ski pants and sweaters with the Rossignol name. There also could be skis under the Roxy name, to appeal to females.

Townend doesn’t see the buy as that much of a stretch. Quiksilver already is “on the mountains” with jackets and other snow clothes, he said. Quiksilver also sells snowboards under the Lib Technologies and Gnu brands, he said.

There are potential upsides. Building Quiksilver’s snow business could help offset the seasonality of its surfwear and other warm-weather offerings. Barron’s went as far as to say Wall Street “has the picture wrong” with its negative reaction to the Rossignol buy.

The deal could spur Quiksilver’s yearly sales to $3 billion in the next few years and start adding to profits this year, Barron’s said.

That’s not to say it’ll be easy. Rossignol’s sales, which were about $625 million for the 12 months ended Sept. 30, have been falling for the past few years. The company’s been restructuring amid challenging weather and competition, including from VF Corp.’s The North Face and Burton Snowboards, which competes with Rossignol in snowboards.

Rossignol makes skis, poles, snowboards and other gear under various brands, such as Rossignol, Lange and Dynastar. It also owns Huntington Beach-based Roger Cleveland Golf Co., which makes clubs and other golf stuff.

But both skiing and golfing haven’t expanded much of late and pale compare to surfwear’s heady growth.

Quiksilver executives, typically darlings of Wall Street, have faced tough questions about the buy.

They balked at the suggestion that buying Rossignol wasn’t the vision of Chief Executive Bob McKnight, who’s spurred Quiksilver’s rise.

Some analysts wondered whether the deal stems from Quiksilver President Bernard Mariette, a longtime friend of the Boix-Vives family, which owned 45% of Rossignol and 63% of its voting rights. Laurent Boix-Vives, chairman of Rossignol, is set to have a “key advisory role” with Quiksilver and Cleveland Golf.

McKnight told analysts in March that he’s been working on the Rossignol buy for the past year and “Bernard has been involved for longer.”

In April, Quiksilver acquired the Boix-Vives family shares and plans to buy the remainder of the company by July 31.

Quiksilver “dove right in” and already is working on Rossignol clothes, which executives say have “tremendous cache,” according to an analyst report.

The “Rossi” brand, as Quiksilver executives refer to it, is set to compete with North Face and Oregon’s Columbia Sportswear Co., they said. It’ll be aimed at an older buyer than Quiksilver caters to, they said.

Other possible plans call for another brand that targets younger buyers, reworking Dynastar and building on Rossignol’s “French cachet” with clothes, Quiksilver said.

The strength of the Rossignol name makes the deal worth it, according to analyst Van Sinderen.

“There is arguably considerable equity in the Rossignol brands, which helps to justify the price,” he wrote.

Quiksilver is a master at managing brands.

It started out with surf trunks in the 1970s and since has gone into watches, shoes, bikinis and golf clothes. All under various names, including Roxy, Raisans, Quiksilver and Fidra, a golf unit that’s set to be paired with Cleveland Golf (see related story, this page).

The deal has a defensive element, too. Quiksilver said Rossignol could help it compete with Nike and VF, which have made inroads into Quiksilver’s world.

In March, VF snatched up surf sandal maker Reef Holdings Corp. of San Diego to add to its roster of outdoor sports apparel makers, including Vans and North Face.

Three years ago, Nike caused a stir when it bought Costa Mesa’s Hurley International LLC, a smaller rival to Quiksilver.

The Rossignol buy again raises a question for Quiksilver: Can it stay cool as it gets bigger?

So far, Quiksilver has grown without putting off cool brand-conscious surf kids. That’s only part of the company’s market, but they fuel Quiksilver’s popularity among older buyers and Middle America.

The risk to Quiksilver’s cool factor with Rossignol is minimal, according to Townend.

The “core surf crowd” typically is “oblivious” to such deals, he said.

“As long as Quiksilver maintains its core credibility through smart marketing and good product, I don’t believe it’s an issue,” Townend said. “If Nike can do it, why can’t Quiksilver? Today, Nike is a far stretch from its original running shoes, just like Quiksilver is a long way from just making a pair of boardshorts.”

Hole in One?

Quiksilver Inc.’s picking up a golf gem in its buy of France’s Skis Rossignol SA: Roger Cleveland Golf Co.

The golf club maker is based in Huntington Beach, just blocks from Quiksilver’s headquarters.

Cleveland Golf, known as one of the best makers of golf wedges and drivers, is “particularly appealing,” said Mitch Kummetz, an analyst at D.A. Davidson & Co. “It could be a solid golf apparel company.”

That’s what Quiksilver says it’s banking on.

The company plans to use Cleveland Golf to make a bigger move in golf clothes.

Until now, Quiksilver’s golf reach has been limited. Its Fidra line, headed by veteran golf designer John Ashworth, is small. Quiksilver doesn’t break out Fidra sales. But in the past, analysts have estimated it at less than $10 million annually.

The buy “greatly increases Quiksilver’s exposure to golf, which was about less than 1% prior to the transaction,” wrote Lizabeth Dunn of Prudential Equity Group.

But it’s still too early to tell how things will play out.

“For the time being (Quiksilver) has told us we’re going to continue as we’ve been going,” said Randy Romberg, a Cleveland Golf spokesman. “Once that sale is complete, then we’re going to get together and see what synergies we have and what makes sense.”

Cleveland Golf has more than 325 workers at its Huntington Beach headquarters and plans to stay there, Romberg said.

The company moved into the newly built offices, which are twice the size of its old headquarters in Cypress, four months ago, he said.

Romberg declined to give Cleveland Golf’s annual sales. Reports have put them in the $160 million range.

The company has been on a tear, growing 20% to 25% per year for the past eight years, Romberg said, despite the slow golf market.

“We’re stealing market share from other people,” Romberg said.

Cleveland Golf was founded in 1979 by namesake Roger Cleveland, and started by making replicas of classic golf clubs from the 1940s and 1950s. Rossignol bought it in 1990.

Cleveland recently signed a multiyear contract extension with No. 1 ranked golfer Vijay Singh.

“Cleveland Golf is sold in every green grass account,” Kummetz said, referring to pro shops and other golf stores. Quiksilver “is acquiring relationships.”

,Jennifer Bellantonio