Wall Street is already edgy watching Huntington Beach-based Quiksilver Inc. try to right struggling ski brand Rossignol. Now tensions are growing worse amid talk of a slowing economy.
The maker of clothes inspired by surfing and skateboarding has spent the past year looking for ways to improve Rossignol or find a buyer for parts or all of the business.
Company watchers haven’t been dazzled by the progress. Particularly after Quiksilver warned in December that it planned to keep the brand and was expecting to post a “small loss” for the three months through January.
The company’s stock plunged on the news and has continued to slide. Shares are down 48% since October on a recent market value of about $1 billion.
“The stock price reflects frustration with management’s decision to hold onto Rossignol,” said Claire Armstrong Gallacher, analyst at Caris & Co. “The soft economic environment certainly is not helping the situation.”
Jeff Mintz, analyst at Wedbush Morgan Securities, has a “hold” rating on Quiksilver’s stock.
Among his reasons: “The company appears intent on keeping at least the Rossignol equipment business” and it has $1.1 billion in debt.
“We remain firmly on the sidelines with regard to Quiksilver shares,” Mintz said.
The company plans to talk to analysts on Wednesday but was mum on details last week.
Quiksilver executives were unavailable for this story.
The company, which may not have been able to find a buyer for Rossignol, has worked hard to reverse losses from ski and snow gear.
Acquired in 2005
The company bought France’s money-losing Skis Rossignol SA for $500 million in 2005 and made a slew of changes to improve operations, including tweaking marketing, opening a new headquarters, closing factories and trimming workers.
It got hit a year ago when a tough snow season slammed sales.
Quiksilver still is trying to regain momentum. The company posted a net loss of $110.9 million for the three months ended Oct. 31, versus a profit of $65.3 million a year earlier.
The period included a charge related to ski and other equipment, and the sale of Roger Cleveland Golf Co., a Rossignol business.
“The state of the market, along with currency movements over the past year, has negatively impacted both our revenues and profitability,” Quiksilver President Bernard Mariette said during a recent earnings call. “Even so, we continue to believe that the (Rossignol) business will improve over the course of the next two seasons.”
There’s been some progress. The company said it expects to narrow its operating loss for Rossignol snow gear to $20 million this year, from $40 million in 2007.
Caris and Co.’s Gallacher said investors are “definitely disenchanted” with continued losses for Rossignol.
Sales of skis and related equipment dropped 24% to $190 million in the quarter ended Oct. 31.
The slump offset increases the company saw in apparel, which was up 22% to $589 million. Quiksilver’s core clothing brands,Quiksilver, Roxy girls and DC,led apparel sales. Total sales were up 7% to $779 million.
“Frankly, I think investors want to see Quiksilver return to just apparel and footwear,” Gallacher said.
Quiksilver has other plans for now.
The company has said it wants to keep the Rossignol brand for clothes, sales of which are expected to hit $50 million to $60 million in 2008, up from $40 million last year.
“Our underlying belief that the Rossignol brand holds a tremendous and untapped lifestyle opportunity is unchanged,” Mariette said. “We are looking forward to growing the brand with a revitalized marketing effort and into a host of new product categories.”
Quiksilver would benefit more from selling all of Rossignol and licensing back the Rossignol brand if wants to make a clothes push, Caris & Co.’s Gallacher said.
The move would “alleviate much of the risk inherent in owning a ski company” closely tied to weather, Gallacher said.
Sale Still on Table
Quiksilver continues to explore options for Rossignol, which still could include selling the ski portion of the brand, as well as sister brands, such as Dynastar, Lange, Look, Kerma and Risport.
The company already made a move in that direction. It recently sold golf club maker Roger Cleveland Golf Co. to Japanese sporting goods retailer SRI Sports Ltd. for $132.5 million. The company had acquired the business as part of its Rossignol buy.
The money would go to pay down debt and “enables us to better focus on our core opportunities,” Mariette said.
Those include growing its shoe and clothing businesses by expanding into new areas and categories, and opening more Quiksilver stores, Mariette said.
There are other challenges beyond Rossignol. A biggie: the economy.
Pressure could grow worse for Quiksilver this year. The surfwear maker, like other apparel companies, faces a projected slowdown in store sales due to a slowing economy and stalled job growth.
The outlook also has clouded Wall Street’s view of other Orange County apparel brands and retailers, including Costa Mesa-based Volcom Inc. and Anaheim-based Pacific Sunwear of California Inc.
Quiksilver remains undaunted.
“We have seen and overcome difficult market conditions at a variety of points in our history and have always emerged a stronger company,” said Chief Executive Bob McKnight during a recent earnings call.
