Quiksilver Inc.

LOS ANGELESQuiksilver Inc. will have to continue with its soul searching once it emerges from bankruptcy next month if it wants to succeed with its turnaround.

A Delaware court judge on Thursday confirmed the Huntington Beach, Calif.-based action sports company’s plan for reorganization, paving the way for Quiksilver to get a clean slate as it works to right the business.

The decision is seen by chief executive officer Pierre Agnes as “a new beginning for Quiksilver, Roxy and DC Shoes.”

Quiksilver, which filed for Chapter 11 in September, and now expects to emerge from it sometime around the week of Feb. 8, will reduce its debt load by about $507 million and come out with liquidity of about $90 million. It also has the backing of Oaktree Capital Management which, along with Bank of America, provided $175 million of debtor-in-possession financing.

But much of the company’s battle will be in undoing certain decisions from the past, beginning with its retail footprint, pointed out Americas president Greg Healy.

The company, which as of January had 663 stores globally of which 87 were in the Americas region, has shuttered 29 underperforming stores since its bankruptcy filing. Healy described the review of its retail properties as an “ongoing process.”

“Going forward, one of the great challenges we had in the Americas was over-distribution,” he said. “We see the next year or two as a time that we need to clean up the channel, review the distribution challenges and go back to quality and sales.”

They’re all things Healy described as “brand enhancing” efforts.

The company’s newer Boardriders store format, which has been successful in the European and Asia-Pacific regions, could also prove fruitful for the Americas. It’s too soon to say whether the company would begin rolling that concept out to the Americas region, according to Healy.

Quiksilver is also exercising caution when it comes to the wholesale business, with Healy saying “we really need to take a long hard look at those distribution decisions and exit some of those channels.”

What that means is a greater focus on the core surf-and-skate shops — the bread-and-butter accounts seen as valuable to any company looking to retain brand equity — and less focus on outlets and clearance channels, he said.

“The core channel to this business is first and foremost one of our priorities,” Healy said. “We must succeed in that channel.”

Much of that will come down to differentiation of product, a point referenced multiple times by Quiksilver founder Bob McKnight in an interview with WWD last year, about a month before the company’s bankruptcy filing. McKnight and other industry executives stressed at the time that it was crucial for the industry’s legacy brands to evolve with the competitive landscape and perhaps pare back businesses that had become bloated in more recent years.

“Our world is now not just competition from Billabong, Hurley, etc. — our own tribal brands who do what we do in the surf shops but also with similar product, similar team riders, similar marketing — but there’s a whole new crew in town now that’s also competition: Hollister, American Eagle, H&M, Abercrombie, Lululemon, Under Armour and then all the bigger chains have their own private label,” McKnight said in the interview. “So everyone in the game is doing more and more similar product or similar price points. It’s not that hard to make a board short, Hawaiian shirt or tank so…to me one of the changes is the tribe industry is not as special as it once was.”

Quiksilver said in its annual report, filed with the Securities and Exchange Commission this week, that it expects comparable net revenues and gross margins to continue to be “unfavorable” in the coming quarters, pegging the forecast on late deliveries, exchange rates and its changing distribution strategy.

The company saw net revenue for the 12 months ended Oct. 31 fall 14 percent from a year earlier to $1.35 billion. It also recorded its fifth straight year of losses, which totaled $306.17 million.

Oaktree, according to Healy, is “well capitalized and well experienced in our space,” boosting the company’s confidence in its ability to turn.

The Los Angeles-based asset management firm’s involvement is also notable given the deal it struck in 2013 with Centerbridge Partners to provide long-term financing to Quiksilver rival Billabong International Ltd. The Australia-based surf company had been struggling for some time prior to the deal but in its most recent fiscal year ended in July it notched a profit for the first time since 2011.

Oaktree’s involvement with the two companies led to some speculation last year that there was consideration of a merger of the two brands or at least the opportunity to share resources. On that front Healy declined comment Thursday other than to say, “We’ve got a significant turnaround job to do here within the Quiksilver business and that will be taking 100 percent of our focus.”

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