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Quiksilver Sees Big Challenges for Small Accounts

First-quarter results lag expectations.

Quiksilver Inc. expects continued pressure on smaller accounts in its wholesale business in mature markets as it continues to gear itself more to special makeup business for its larger customers.

After disclosing first-quarter results which fell below analysts’ consensus estimates on both the top and bottom lines, Andy Mooney, president and chief executive officer of the Huntington Beach, Calif., apparel and footwear firm, told analysts on a conference call, “I think increasingly the larger retailers aren’t really interested in what our line is. What they are interested in is what their line is. Each of those retailers are increasingly looking for custom designed lines that appeal to both their unique consumer as they see it and certainly their business objectives.”

Reflecting on his two decades with Nike, he noted that stores veered toward products they could sell exclusively so “they could control their own margin destiny. That’s now become the norm, that every retailer in the mall is looking down the mall to see what their competitor has from the same brand and if they have something similar they’re not that interested in carrying the brand.”

That’s translating into heavier reliance on special makeup and later commitments of open-to-buy from stores, he noted, and increasing the pressure on suppliers to bring products to market faster and make appropriate changes in their supply chains.

 

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In the three months ended Jan. 31, the company posted net income of $15.4 million, or 9 cents a diluted share, versus a loss of $31.1 million, or 19 cents, in the comparable quarter last year. Stripping out discontinued operations, such as the divested Mervin and Hawk businesses, gains attributable to their divestitures and other items, the adjusted loss was 10 cents a diluted share, 4 cents deeper than the consensus estimate and compared to a 16-cent loss in the prior-year quarter.

Revenues were down 4.8 percent to $392.6 million from $412.2 million with Quiksilver brand revenue down 6 percent to $163 million, Roxy brand revenue up 5 percent to $117 million and DC revenue down 4 percent to $102 million. Volumes declined in all three global regions, with the steepest drop in the Americas, its largest market, where revenues fell 5.2 percent to $173.2 million. Gross margin was unchanged at 50.9 percent of sales.

The company reduced expenses at a more rapid pace than its sales declined. The combination of costs of goods sold and selling, general and administrative expenses was down 5.3 percent to $396.6 million.

“We feel very good about our direct-to-consumer business and we feel very good about our emerging markets business and are anticipating continued strength in those sectors,” Mooney said. “We see continued headwinds in the smaller account base, our wholesale markets, particularly in North America and [Europe, the Middle East and Africa]. And all of the data that we’ve got on our current position suggests that we’re either holding market share or, in the case of Roxy, I would say growing market share….But we’re continuing to see system contraction within [the specialty] channel.”