Huntington Beach-based Quiksilver Inc.’s uncertain future is spawning a lot of chatter.
Rumors that the clothing maker could sell part or all of the company to a larger competitor are circulating among people in the industry and on message boards and blogs.
There’s gossip that Quiksilver rejected an investment or buyout offer from Nike Inc.
But the most common rumor is that Quiksilver could be looking to sell its DC Shoes Inc. subsidiary to North Carolina’s VF Corp., which owns rival skateboard shoemaker Vans Inc. in Cypress.
A Quiksilver spokesman declined to comment on the speculation.
Usually such chatter would be easily dismissed. But Quiksilver is at a critical point.
The company, best known for surf-inspired clothes under the Quiksilver, Roxy and DC brands, has been working on a turnaround since unloading its struggling Rossignol winter sports unit in a November fire sale.
Lingering debt from 2005’s $560 million buy of Rossignol is weighing heavily on Quiksilver, which has seen its stock fall more than 80% in the past year to a recent market value of about $190 million.
Hired Morgan Stanley
Last year, Quiksilver hired Morgan Stanley to help it raise money, possibly by expanding borrowing with existing lenders or by selling shares to investors or a private equity firm.
Some company watchers now think Quiksilver will have to sell all or part of the company because of its $1 billion in short- and long-term debt as of Oct. 31.
Quiksilver had about $215 million in cash on hand at the end of October.
Last month, the company said it is working with its lenders in Europe to refinance debt, including a $71 million credit line due in March. It also said it expects to strike a $20 million credit line in Australia and is working on a loan with its U.S. lenders.
Earlier this month, Moody’s Corp. lowered Quiksilver’s debt ratings for the second time since November. Quiksilver’s overall credit rating and its probability of default rating sunk deeper into junk bond status.
Moody’s said its outlook on Quiksilver is “negative,” as the company has $400 million in unsecured debt due in 2013 with a quarter of it coming due this year.
The company’s efforts to revive itself come amid the worst retail downturn in recent memory.
Quiksilver’s results for the three months through October came in better than expected with a profit of $41.6 million, excluding a $55.4 million goodwill impairment charge, and a 3% sales gain to $607 million.
But the current quarter through January looks challenging. Quiksilver projects a loss of $12.7 million on a sales gain in the low single digits.
A potential sale of Quiksilver’s DC brand could ease the company’s debt problem.
Wedbush Morgan Securities analyst Jeff Mintz said he hasn’t heard the rumor about Quiksilver shopping DC. But he said a deal could make sense for the company.
“DC is probably the company’s most valuable property and selling it could bring in some much needed cash to pay down debt and put Quiksilver in a stronger financial position,” he said.
Quiksilver bought Vista-based DC Shoes for some $100 million in 2004 and has spent the past few years pumping it up.
“DC was a very good acquisition for Quiksilver,” Mintz said. “At the moment, it is the company’s fastest growing business and one that seems to be least impacted by the consumer slowdown.”
Still, selling the business would be an act of desperation for Quiksilver. DC, which represents about 20% of Quiksilver’s sales, “led the pace” among its brands in the recently ended quarter, Chief Financial Officer Joe Scirocco said in a December conference call with analysts.
“If the company does this, it is essentially telling investors that it plans to grow slowly while paying down debt and trying to improve margins for several years,” Mintz said. “There could be investors who would see that as a positive and a reason to buy the stock.”
VF
Industry sources say there’s a case to be made for and against Quiksilver selling DC. It’s more clear cut why VF would want DC, they say.
VF, which owns Reef Holdings Corp. of Carlsbad along with Vans, would boost its business in the market for clothes and shoes inspired by skateboarding and surfing.
The company also could pull off the deal.
VF had a market value of $6 billion last week and about $225 million in cash on hand at the end of September. It also has $1.3 billion available in lines of credit.
