Huntington Beach-based Quiksilver Inc. could seek to sell off skis and golf clubs acquired in 2005’s buy of France’s Skis Rossignol SA while still trying to make a go of Rossignol clothes, analysts say.
Earlier this month, Quiksilver Chief Executive Bob McKnight told analysts and investors the company is “looking at all the strategic possibilities” for Rossignol’s struggling business selling skis, snowboards and other gear.
“Everything is on the table,” he said.
The move marks a big change in thinking for Quiksilver, which faced skepticism over its $320 million buy of Rossignol. Analysts dubbed the acquisition a “show me” story.
The goal was to add Rossignol’s winter business to Quiksilver’s sun-drenched clothing business, creating a formidable maker of clothes and sporting goods, along the lines of Nike Inc.
Quiksilver assured a skeptical Wall Street it could bring its design and operations prowess to bear on Rossignol’s bloated, slumping business.
Quiksilver has made strides, but “The key thing is what do you do now?” said analyst Jeff Van Sinderen of B. Riley & Co.
A possible scenario, he said, would be for Quiksilver to hold onto the Rossignol name for clothes and sell off the company’s snow gear and its Huntington Beach-based Cleveland Golf unit.
“In hindsight they would have been better off not to buy Rossignol as far as the hard goods business goes,” Van Sinderen said, referring to ski gear and golf clubs. “It’s been an enormous undertaking.”
Another scenario would be for Quiksilver to sell all of Rossignol and possibly “license back the brand for an apparel line,” wrote analyst Claire Gallacher at Caris & Co.
But Gallacher said she’s not betting on a complete sale.
“We believe Quiksilver would have taken this path from the start and not invested in the restructuring of the hard goods business,” Gallacher said.
For now, Quiksilver hasn’t said more than what was disclosed during its recent conference call.
Skis and golf gear are expected to see a pretax loss of about $50 million this year, McKnight said.
“Rossignol operations have already been streamlined,” he said during the call. “While it sounds really simple, we really just need cooperative weather and some time to place and incubate the apparel piece.”
McKnight said Quiksilver plans to take Rossignol, a “world renown brand,” and “expand its reach and grow it aggressively in soft goods,” industry speak for apparel.
McKnight and Quiksilver President Bernard Mariette, who took a lead role buying and restructuring Rossignol, were traveling and unavailable for this story last week.
Sticking with just Rossignol clothes would be a smart move for Quiksilver, Van Sinderen said.
“There’s no reason why they can’t build a good apparel business with the Rossignol brand,” he said. “If anyone could do it they can.”
Restructuring
The apparel maker has spent the past two years dramatically overhauling Rossignol, including closing a factory, moving headquarters, hiring executives, revamping marketing, consolidating distribution, cutting workers and improving operations.
Rossignol, a 100-year-old company, was dusty when Quiksilver bought it. The company faces competition from K2 Corp., Burton Snowboards and Amer Sport Corp.’s Atomic.
Then this winter hit. Warm weather with little snow crippled ski sales. That slammed Quiksilver since skis already weren’t as profitable as clothes.
“They didn’t believe it could get that bad or have that much of an impact on the overall profitability of the company,” Van Sinderen said. “They were surprised.”
In the quarter ended April 30, Quiksilver posted a loss of $4.8 million,its first quarterly loss since 1992. A year earlier, the company made $3.7 million. Sales were up 17% to $603.8 million, driven by clothes.
“There’s no doubt that weather is a huge challenge,” said analyst Jeff Mintz of Wedbush Morgan Securities. “Weather impacts apparel sales, but the impact is subtle. With ski, the impacts are significant.”
And making skis and other snow gear could be too much of a stretch for Quiksilver, according to Mintz.
There are bigger “capital needs” for snow gear, which requires making products months before you actually sell them, Mintz said, more so than clothes.
“It doesn’t fit with the rest of their business,” he said.
If Quiksilver wants to unload Rossignol’s skis and other gear, it might be good timing, Mintz said.
The company has done some “really good things” to improve Rossignol’s production and warehousing, he said.
“It might be attractive to a private equity player,” Mintz said.
It’s anybody’s guess what Rossignol,either in parts or as a whole,would fetch. The division consists of Rossignol, Cleveland Golf and other brands, such as Dynastar skis.
“In my opinion, they’ll never get near what they paid for it,” Van Sinderen said. “Right now it looks like a difficult business. It’s certainly showing up in their numbers despite all the changes they made.”
Quiksilver may look for two buyers: one for skis and other snow gear and one for Cleveland Golf, which has seen its own challenges, Mintz said.
Sales for Cleveland fell 11% to $62 million for the six months through April.
Quiksilver still is trying to iron things out.
“Cleveland Golf is getting a lot of attention from us right now,” McKnight said.
The company is addressing “operational problems by lengthening product cycles and helping retailers rationalize” their inventories, McKnight said.
Some analysts think Cleveland Golf will be the first to go.
“We expect that Cleveland Golf will be the product of choice to divest given Quiksilver’s interest in Rossignol,” said Gallacher of Caris & Co. “Price wars within the golf club category have pressured profitability with Cleveland Golf for several quarters.”
Quiksilver owns 64% of Cleveland Golf with several former majority owners holding the rest, she said.
“Were Quiksilver to sell Cleveland Golf for an estimated $100 million, we believe Quiksilver would use the funds” to reduce debt, Gallacher said.
Clothes Strong
There are bright spots.
Despite big challenges with Rossignol, Quiksilver continues to see strong sales of its clothing brands, Quiksilver, Roxy girls and DC Shoes, Mintz said.
The brands helped drive sales growth that exceeded analysts’ expectations in the April quarter.
McKnight said that Roxy line of clothes for girls now is “bigger” than the Quiksilver brand in the U.S.
Sales of DC Shoes has doubled after a 2006 reworking of the business acquired in 2004.
Quiksilver has expanded DC into clothes, accessories, women’s clothes and more. Sales were $230 million last year, according to McKnight.
“They seem to have the apparel business nailed,” Van Sinderen said. “It would be a significant positive if they sold Rossignol hard goods to reduce the debt burden on the balance sheet and go back to being an apparel company.”
