Huntington Beach-based Quiksilver Inc. said it got a two month reprieve on a $70 million European line of credit based on what could be the pending sale of its DC Shoes brand.
The announcement came as part of Quiksilver’s results for the three months through January, in which the clothing maker reported a drop in sales and a loss that were better than what Wall Street expected.
Quiksilver said its European lenders pushed back the due date on a line of credit from Saturday to the end of June to “accommodate the timing of a potential transaction.”
In a conference call, Chief Financial Officer Joe Scirocco said he was limited in what he could say about the potential transaction.
He called it an asset sale that is “in the best interest for our future” and said the company’s “course of action” should be set by June.
“What we are after in terms of a strategy is liquidity and improving the capital structure,” he said.
Analysts widely expect Quiksilver to sell its DC Shoes brand to raise money to meet $316 million in debt coming due this year and in 2010.
In conference call questions, analysts outrightly presumed the potential transaction is a sale of DC Shoes.
Scirocco declined to make any direct connection to the skateboarding-inspired brand.
Quiksilver, which designs clothes inspired by surfing, skateboarding and snowboarding, faces a severe retail downturn and a crushing debt from 2005’s $560 million buy of French ski maker Rossignol.
It sold money-losing Rossignol in a $50 million fire sale late last year that did little to alleviate long-term debt incurred to buy the business or short-term borrowing to keep Rossignol afloat before the sale.
The company had $1 billion in short- and long-term debt at the end of January.
Quiksilver had about $120 million in cash on hand, including at its global units, at the end of January, Scirocco said.
The company’s market value is off nearly 90% in the past year to about $145 million.
Quiksilver said in December it was working with lenders in Europe to extend the deadline on a line of credit.
It also said it expected to strike a credit line in Australia and was working on a loan with its U.S. lenders.
The company is near a $22 million secured line of credit in Australia, Scirocco said.
There was no update on financing in the U.S.
During the company’s conference call, Chief Executive Bob McKnight said that in his talks with bankers, “The quality of the Quiksilver brand remains unquestioned.”
A sale of DC Shoes would be a reluctant necessity for Quiksilver. The brand is the fastest growing part of Quiksilver and one of the “best at retail,” McKnight said.
An expansion from shoes to clothes at DC Shoes continues to be well received, he said.
For the three months through January, Quiksilver reported an adjusted loss of $9 million, better than the $12.7 million analysts expected on average.
Sales fell 11% to $443 million, which was better than the $435.7 million analysts expected.
“While our performance in the quarter was in line with our overall expectations, deteriorating macro conditions made for a very difficult operating environment. Weak consumer traffic drove lower sales and margin compression, which resulted in a loss for the quarter,” McKnight said.
The company’s European business was a relative bright spot in the recently ended quarter.
European sales fell 9% to $181.7 million but were flat excluding the effects of the stronger dollar versus the euro.
Sales in the Americas fell 13% to $203.4 million, led by the U.S. downturn.
For the current quarter, Quiksilver said it projects a sales decline percentage in the mid-teens. It didn’t give a profit outlook.
