Huntington Beach-based Quiksilver Inc. had Wall Street worried.
For much of the past year, the surfwear maker was up against one of its biggest tasks yet: turning around France’s Skis Rossignol.
Quiksilver bought the ski maker in 2005 for $320 million. Rossignol had been losing money and market share prior to the buy.
There were other reasons to worry. Rossignol, a 100-year-old family-run brand, was wrought with challenges. There was stale marketing, too many workers, production glitches and operation woes.
Plus, Rossignol’s main sell,skis and other “hardgoods”,aren’t as profitable as clothes, Quiksilver’s mainstay. Analysts saw visions of Rossignol eating into profits.
Quiksilver dug in.
The company saw Rossignol as a way to stretch beyond its core market of clothes inspired by surfing and skateboarding and into winter sports.
There were sweeping changes: new European and North American headquarters for Rossignol, the cutting of hundreds of workers, improved operations, changed product designs and tweaked marketing.
The process hasn’t been so smooth. The past year or so saw a series of warnings from Quiksilver sparked in part by integration and sales issues at Rossignol.
Wall Street is breathing a little easier after a solid October quarter in which Rossignol helped drive sales and profit growth at Quiksilver.
“The actions taken to improve Rossignol’s efficiencies are starting to have a visible impact,” said B. Riley & Co. analyst Jeff Van Sinderen in a recent report.
Quiksilver’s revenue for the quarter ended Oct. 28 was up 22% to $778.4 million, driven by a jump in Rossignol sales, which were $70 million and up 33% from a year earlier.
The company’s net income for the period nearly doubled to $64.3 million.
The results were the first solidly good news out of the Rossignol deal.
Rossignol is “firmly under our belt,” Chief Executive Bob McKnight said, and “will enable us to drive strong, long-term rates of sales and income growth.”
Quiksilver said it’s ahead of its plan to cut $10 million more in costs by 2008. The company also reiterated its outlook for the 12 months through next October and said it expects profits of up to $118 million in the 12-month period. Analysts on average had expected $117 million.
Sales could come in at $2.5 billion, the company said.
There’s still work to do.
This year, Quiksilver is set to continue consolidating Rossignol’s European warehousing, analyst Christine Chen at Pacific Growth Equities LLC said in a recent report.
Rossignol has gone from 17 offices to three and soon will be down to two, she said.
The move “creates cost savings and improved efficiency and service,” Chen said. “The benefits from changes at Rossignol should come to fruition by (the end) of 2007.”
Quiksilver has used its distribution muscle to improve deliveries at Rossignol, which were on schedule in the October quarter and helped boost ski and snowboard sales by 16% to $106 million, Chen said.
Other plans: Quiksilver expects to shift Rossignol’s production from France to Spain, which should “further reduce overhead costs,” B. Riley’s Van Sinderen said.
“The integration of Rossignol remains on track,” he said. “(Quiksilver) is arguably one of the best operators in the lifestyle apparel segment and thus we feel it has a strong chance of making the Rossignol acquisition work.”
Quiksilver has had a Midas touch with other acquisitions.
Vista-based DC Shoes Inc., which the company bought in 2004 and recently overhauled, is “growing rapidly” and “has the potential to post meaningful growth in the future,” Van Sinderen said.
This month, Quiksilver is set to unveil a line of Rossignol clothes, which in the past were limited. The full line is expected to hit in the fall.
“We are particularly excited about the launch,” said Pacific Growth’s Chen, who called clothing an “untapped growth opportunity.”
Rossignol clothes have been “under-marketed” in the past despite the strength of the brand, Chen said.
It “represents a huge opportunity for Quiksilver to enter both the winter sports and outdoor performance apparel markets by relying on the expertise they currently have,” Chen said.
Quiksilver also is leaning on Rossignol to expand its own brands to winter sports.
Last year, the company tested out skis from its Roxy brand for girls and recently expanded its offerings.
“They’re catchy for little girls,” said Tyler Hannon, a salesperson at Sport Chalet in Mission Viejo. “We have a couple of different styles to fit personalities and tastes.”
Roxy’s pink and funky flower graphics “catch people’s attention,” Hannon said.
“They already have their name out there as a good company for other products, which might give them the benefit of the doubt,” he said.
Having Rossignol involved is a plus, according to Hannon. The brand is known for “performance” skis that are lightweight and durable, he said.
Some stores are taking a wait-and-see approach.
REI in Huntington Beach, another seller of skis, snowboards and other sporting goods, so far is just sticking with Rossignol, a trusted ski brand it has carried for many years, supervisor Kevin Yuskoff said.
The shop likes to see how products do and won’t bring something in just because it’s new and trendy, he said.
“Skis are a big investment,” Yuskoff said. “It’s hard for people to experiment with something they’re going to drop $1,000 on.”
