Shares of Quiksilver Inc. lost nearly a quarter of their value Friday after the Huntington Beach, Calif.-based beach-inspired apparel and footwear firm posted a deeper-than-expected third-quarter loss with only nominal progress in its effort to reinvigorate its wholesale operations.
Shares, which peaked in the past year at $9.29 on Nov. 13, pulled back 70 cents, or 24.7 percent, to close Friday at $2.13. Volume was 30.3 million shares, more than 10 times the three-month average of 2.9 million.
Quiksilver has downsized its business, selling the Tony Hawk brand to Cherokee Inc. in January and licensing out the Quiksilver and DC apparel businesses to third parties. It’s also centralized apparel design operations in France and footwear design at its headquarters.
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But the company’s transition made it vulnerable to late deliveries, particularly in the U.S., contributing to a 30 percent reduction in its wholesale revenues to $235 million. The news was better in its direct-to-consumer segment, where store revenues grew 1 percent to $123 million, including a 1 percent increase in same-store sales, and e-commerce revenues rose 10 percent to $35 million.
In the three months ended July 31, the net loss hit $220.1 million, or $1.29 a diluted share, versus net income of $2.1 million, or zero cents, in the 2013 quarter. Eliminating discontinued operations, asset impairment charges of $182.6 million and other one-time items, the loss came to 20 cents a diluted share, 18 cents worse than the 2-cent loss expected, on average, by analysts. Overall revenues slumped 19 percent to $395.7 million versus $488.3 million in the 2013 period. By brand, Quiksilver fell 17 percent to $143 million, Roxy was off 9 percent to $119 million and DC contracted 34 percent to $109 million.
Inventories were down 10.2 percent to $346.1 million while gross margin contracted to 47.8 percent of sales from 49.1 percent.
Jeff Van Sinderen, analyst at B. Riley & Co., maintained his “neutral” rating on the stock while lowering his price target to $4.25 from $4.50. “There were items in the discussion with management that I would consider ‘green shoots,’” he said of the company’s conference call Thursday after the late-afternoon release of the results. “The spring order book shows that the declines are starting to ease and there’s some pretty good activity with DC’s Vulcanized [canvas] shoes. But while their retail business is performing fairly steadily, they need to get sell-through at retail. There’s been an implosion among the surf shops and similar stores in Europe, and they’re shifting their wholesale business to a broader base, stores like Macy’s and Dick’s, and trying to put more value in their pricing. But all three of their brands need to broaden their demographic reach for there to be a substantial turnaround.”
Andrew Mooney, president and chief executive officer, reported progress in rationalizing the company’s selling, general and administrative costs, which fell 1 percent, and inventories, which shrank 10.2 percent, to $346.1 million, on a year-over-year basis.
“The path forward is straightforward,” he told analysts. “We must stabilize North America and Europe wholesale, drive growth in direct-to-consumer in emerging markets and continue to significantly reduce SG&A.”
In the nine months, Quiksilver’s net loss more than quadrupled to $257.8 million, or $1.69 a diluted share, while revenues pulled back 11.2 percent to $1.22 billion. The adjusted loss for continuing operations and excluding special items for restructuring and asset impairment was 44 cents versus an 18 cent loss in the first nine months of last year.