Quiksilver Scraps 2015 Outlook, Planning Comeback With Improved Supply Chain and Sales

Quiksilver Inc. reported results for its second fiscal quarter of 2015 and rescinded its previously stated financial guidance for the fiscal year. The surf giant noted that it would not provide an outlook for the rest of the fiscal year, according to a company statement that was released on June 9.

The stock for the Huntington Beach, Calif.–based surfwear company declined more than 31 percent on the news. Shares dropped to $0.85 per share on June 9 from $1.24 per share from the previous day, according to Yahoo! Finance.

For Quiksilver’s second quarter, net revenues were down 2 percent, to $333 million, in a constant currency continuing category basis. Net loss was $37.5 million, about the same as last year. Gross margin decreased to 47.1 percent from 48.9 percent. Same-store sales decreased 3 percent at the 719 company-owned stores. E-commerce net revenues were down 6 percent. However, cash flow would remain liquid. Cash at credit facilities was $118 million, according to a company statement.

On a June 9 webcast, Pierre Agnes, the chief executive officer and director who was promoted to lead the company on March 27, apologized for the company’s performance.

“[W]e are falling well short on our goals. Implemented structural changes have not yet brought the expected results. This is largely due to poor execution, which is impacting our on-time deliveries. We are fixing this as we speak, and we are confident the profit improvements will happen,” he said in a transcript from Seeking Alpha.

During the webcast, Agnes forecast that Quiksilver’s Americas region would be profitable in 2016 because the company would import some of the operations style and practices that Thomas Chambolle, who became Quiksilver’s global chief financial officer in March, pioneered in the company’s Europe and Asia/Pacific regions.

Agnes said that the company is looking to solve many of its issues through more efficient operations of its supply chain and its design departments. Instead of having separate systems for its regions in the Americas, Asia/Pacific and Europe, its sprawling operations will function in a global system.

“For apparel and accessories, instead of duplicating steps in each region, we brought our best talents from all around the world to sit under one roof in our campus in France. The team is now a melting pot of Americans, Australians, Japanese and Europeans working together, sharing best practices and focusing on delivering the best product,” Agnes said.

Greg Healy, Quiksilver’s president of its Americas region, said that the North American region is underperforming. He announced two hires to turn the region around. Andrew Bruenjes was appointed the chief financial officer of the Americas region. He previously worked as a chief financial officer for Quiksilver’s Asia Pacific region. Ted Li, former vice president of sales for sports performance brand Oakley, will join Quiksilver as the head of sales in the Americas region.

“[W]e need to focus on the quality of sales in North America to deliver more-profitable margins rather than just focus on top line growth. To that end, our first priority is to earn back the trust and confidence of our core accounts,” Healy said.

In a June 10 retail note, Dave King, an analyst with Roth Capital Partners LLC, advised that while rescinding the full year guidance for 2015 was dramatic, Quiksilver’s situation was not so bad.

“[The second quarter 2015] results fell only a bit short of expectations,” King wrote. “While risk of bankruptcy has seemingly increased, near-term liquidity looks sufficient and … trends should improve based on stronger order books and the anniversarying of currency pressures. We also believe management should increasingly evaluate strategic alternatives for its various brands, including DC.”

2015 has been a tumultuous year for Quiksilver. Andy Mooney, its former CEO, left the company in March after being seen as failing to turn it around. On June 3, the only woman serving on the surf giant’s board of directors resigned. Elizabeth G. Dolan complained about being excluded from meetings and votes. A Dow Jones article noted that she had previously worked with Mooney and may have been perceived as an ally of the former CEO.