Ripping off Band-Aids.
That’s what Quiksilver Inc. Chief Executive Andy Mooney has been doing since taking the helm on a turnaround bid at the Huntington Beach-based action- sports apparel maker and retailer.
The wound might still be a bit raw from last week’s announcement ending a 23-year sponsorship of pro-surfer Kelly Slater, one of the most widely recognized faces in his sport. Slater’s off to work on a new apparel line for Paris-based luxury brand owner Kering, parent of Costa Mesa-based Volcom Inc. and San Clemente-based Electric.
Industry chatter last week portrayed the severed tie as a blow to Quiksilver.
Others saw it differently.
It was “somewhat of a blow,” according to Dave King, senior research analyst at Newport Beach-based Roth Capital Partners.
“There are other surfers that they can really start to emphasize, like a Dane Reynolds,” King said. “Quiksilver talked in the past about how they need to be able to elevate Quiksilver and all three of their brands beyond just surf and action sports—and a single athlete—to something that’s truly aspirational and truly lifestyle.”
Mooney has already taken significant steps to focus on the company’s three core brands: Quiksilver, Roxy and DC Shoes, while re-evaluating a retail distribution strategy that includes 645 company-owned stores. He spent much of the past year bringing on key executives, cutting the company’s roster of sponsored athletes, and shuttering or selling ancillary brands, such as Summer Teeth, VSTR, Quiksilver Women’s, Hawk Designs Inc. GNU and Lib Tech.
It’s all part of the company’s “Profit Improvement Plan” announced last year to double earnings before interest, taxes, depreciation and amortization to about $300 million by 2016.
The company reported adjusted EBITDA of $118 million for fiscal 2013, down from $141 million a year earlier.
Mooney’s initial steps have gotten strong reviews from investors, who have sent the company’s stock up about 36% since January 2013, when he assumed the chief executive duties from founder Bob McKnight, who shifted to the role of executive chairman.
The run-up helped the company to the No.14 spot on this week’s list of the largest publicly traded companies based in Orange County, with a market value of $1.27 billion (see related stories throughout issue; list starts on page 10). It ranked No. 19 last year.
There’s still a ways to go.
Net revenue for the year ended Oct. 31 was off about 6% in constant currency to $1.81 billion. The company swung to an adjusted loss of $38 million, compared to a $100,000 profit in the year-ago period.
Mooney’s next act will focus on responding to the shifts in the action sports industry and certain opportunities left untapped in the broader market via specialty product for retailers, along with new lines.
There are plans for a lower-priced line out of DC Shoes in the $45 to $55 retail price range, a segment the brand has been absent from.
Buzz
What’s gotten a lot of buzz is the rollout of a strategy to deliver unique product to Quiksilver’s multistore retail customers. It’s known in the industry as specific makeup, or SMU. The thinking behind SMU is to give individual retailers unique product for a competitive advantage in the shopping mall. It’s also seen as a way for Quiksilver and others in the action-sports segment to offset the effects of a shrinking base of core or specialty surf and skate shops.
“Increasingly, the multidoor, either mall-based teen retailers in North America—the PacSun, Tilly’s and Zumiez of the world—all of which are very good retailers, along with the bigger-box retailers in Europe, like Decathalon or Sports Direct, what they are really looking for is fashion-right, price-right product on a very fast turn cycle,” Mooney said in a call with analysts last month. “As an organization, we haven’t really been set up to service that channel the way it needs to be serviced in today’s kind of faster-pace, faster-moving environment. We put a lot of energy into that in the last six months.”
Mooney was unavailable to comment for this story, a company spokesperson said.
It’s a page out of the Nike Inc. playbook for Mooney, who was with the Beaverton, Ore.-based brand when its SMU division was created.
It’s working for Nike, with its Nike SB skateboarding and its Costa Mesa-based Hurley International LLC. The result over several years has helped it penetrate the action sports industry and take up shelf space previously allocated to industry brands.
Pacific Sunwear
It also helps to be on trend, which might be why Nike’s brands accounted for 10% of net sales for Anaheim-based retail chain Pacific Sunwear of California Inc. during its fiscal year ended in February, the retailer said in a filing with the Securities and Exchange Commission.
No other brand accounted for more than 10% of Pacific Sunwear’s sales in 2013.
“I think increasingly, the larger retailers aren’t really interested in what our line is,” Mooney said during the call. “What they’re interested in is what their line is. Each of those retailers are increasingly looking for custom-design lines that appeal to both their unique customer as they see it and certainly their business objective.”
Mooney sees success in brands that offer not only function for athletes but fashion for the broader consumer market.
The challenge for Quiksilver is how to
do that without delivering a ding to the brand.
“That’s a dilemma for a lot of companies and not just Quiksilver and its brands,” said Jeff Harbaugh, president of industry consultant Jeff Harbaugh & Associates. “There is a certain group of people who are loyal to Quiksilver, and they’ve gotten older. They’re going to age out, and you have to replace them with younger people. As you get into broader distribution, which everybody is trying to do, it may be that the new customer knows your brand, but they don’t know your story. That can be a problem.”
Mooney appears confident the company can straddle both market groups.
“It is possible to walk and chew gum at the same time,” Mooney said, “because I think, if you look at brands like Nike in their world [and] brands like Vans in our world, I think they do both. They connect to the core, and they’re very connected to the music and arts community, which is something that’s strangely not within our DNA. It has not been as strong a focus for us in the last decade. In some ways, this is deja vu all over again for these brands. We’re just going back to what we did when we first started…we were both functional and fashionable at the same time.”
Case in point: A company doesn’t need hundreds of athletes to tell its story, according to Mooney.
Quiksilver has more than 400 athletes under contract.
“To say that we have too many is a kind of massive understatement, so we’re getting athletes closer to what we believe is the right number,” he said.
Trimming sponsorships and some of the events the company’s involved in has allowed it to increase the amount the company spends on more traditional forms of
marketing, such as print ads, from $10 million to $52 million. The company’s overall annual marketing budget is about $100 million.
The additional funding is expected to be seen as early as this month with efforts to promote the new AG 47 Quiksilver performance boardshort collection among other new products in a push not seen out of the company since Skis Rossignol, the ski brand the company sold in 2008.
And nothing says surf or Quiksilver better than boardshorts, Roth’s King said.
“It’s a surf brand. There’s only a few things that can tell a story around surf to elevate a brand and speak to its DNA, and I would say those things would be boardshorts, surfboards and wetsuits. So it’s exactly what they should be doing. I think it’s going to be important for the Quiksilver brand.”
