SURF REPORT

Quiksilver Posts 9 Percent Drop in Net Revenue

Surf giant Quiksilver Inc. reported declines of 9 percent in net revenue for its second quarter for fiscal 2014, released on June 2.

The Huntington Beach, Calif.–headquartered company posted net revenues of $408 million for its second quarter, compared with $456 million in the second quarter for fiscal 2013.

Quiksilver’s net loss for the second quarter of fiscal 2014 was $53 million compared to $32 million during the same period.

Same-store sales for Quiksilver’s retail division increased 1 percent for the second quarter, said Andy Mooney, the company’s president and chief executive officer. But the majority of its business—70 percent—is wholesale, and that sector is in turmoil over store closings and heavy competition over sales and promotions.

Store closings for its wholesale partners have been heavy in Europe and America, Mooney said, with 20 percent of its American retail partners shuttering in the past 12 months. “We did not anticipate the decline of storefronts on that magnitude,” he said during a June 2 conference call with Wall Street analysts.

Quiksilver has been struggling against competition from lifestyle retailers such as Hennes & Mauritz (H&M) that have been selling lower-price boardshorts and swimwear.

Mooney said that the company would realign pricing for apparel and footwear. New pricing is forecast to make Quiksilver more competitive while preserving gross margin, and minimizing markdowns and returns. Mooney gave an example on how it will effect boardshorts’ sales.

“We don’t intend to be $20,” he said of Quiksilver’s boardshort price tag. “But we’re going to be much less than $60.” Dave King, a senior research analyst with Roth Capital Partners, said the move had risk. “When you lower price, it may help with volume in the near term. The offset is what happens to perception of the brand,” King said.

Financial-services firm B.Riley & Co. cut its rating of Quiksilver on June 2 to neutral. B.Riley’s Jeff Van Sinderen wrote in a research note that a slowing business noted in earnings reports from major action-sports retailers such as Pacific Sunwear, Zumiez and Tilly’s confirms that business is tough. “As much as we love the [Quiksilver] brands, we feel that management is excellent and the company is making progress on reducing expense levels, the competitive promotional environment is outside of management’s control. … Congruent with this phenomenon, we are resetting our near-term expectations to reflect an extremely myopic/unforgiving market.”

During the conference call, Mooney noted that the company’s Profit Improvement Plan to cut costs and increase efficient business practices was on course. The company also forecast that there will be continued net revenue declines in North America and Europe wholesale business, but there will be increases in its business in emerging markets such as Russia and Brazil.—Andrew Asch

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