Quiksilver Catching New Growth Wave
Quiksilver, the Newport Beach surfing and sportswear company that took a nasty tumble last fall, has gotten back on its board and is ready to ride another big wave of growth.
That is the conclusion reached in an internal report distributed last week to brokers at Wedbush Securities in Los Angeles.
Quiksilver was founded 10 years ago by Robert McKnight, then a 24-year-old surfer and lifeguard in search of a career.
Today, McKnight is Quiksilver’s president, and the company, which went public in December, 1986, earned $2.4 million on sales of $30 million last year.
Trendy Image
Quiksilver has managed to maintain its original trendy image as a supplier of surf shorts to small specialty shops while branching out to a flashy array of sportswear sold in upscale department stores such as Nordstrom in California and Bloomingdale’s in New York.
The company has racked up impressive sales growth over the years, but last year’s profit margins were squeezed by a general downturn in the apparel industry and by the cost of diversifying into a new line of non-sport clothing.
Still, last year’s gain of $2.4 million was the strongest performance ever, according to chief financial officer Larry Crowe. In 1986, the company earned $1.9 million on just $18.6 million in sales.
“We considered (1987) a very good year,” Crowe said. “Sales were up, and profits were up. We put $2.4 million on the bottom line, which is far more than we ever brought down before.”
Analyst Frank Podbelsek, the author of the Wedbush report, expects sales to rise to $42 million or as high as $45 million in 1988, with earnings of $3.25 million to $4 million.
Podbelsek also hiked his second-quarter earnings estimate from 19 cents per share to 22 to 25 cents. He said the company should earn 52 to 60 cents a share for the year, compared to 41 cents last year.
Quiksilver’s improved outlook is based on two developments: Unusually warm winter weather in both California and Florida has spurred sales at “mom-and-pop” beachside surf shops. Meanwhile, demand from large department stores for Quiksilver’s products--mostly surfing, volleyball and skateboard wear--has been stronger than expected.
First-quarter sales of $8 million were up 76% from last year’s $4.6 million, according to Podbelsek.
Store operators confirmed that Quiksilver continues to be a hot item among consumers.
“It’s our No. 1 line,” said Tom Noble, manager and buyer for Newport Surf & Sports. “We can’t get enough of the volley shorts. Every week we sell out. It’s a killer--red hot.”
“It’s doing really well for us,” echoed Diane Walker, sportswear department manager at the Nordstrom in South Coast Plaza. “It’s one of our very best lines.”
Despite the company’s popularity and its impressive sales growth, Quiksilver ran into choppy water last year that depressed earnings and sent the company’s stock prices sharply lower. Quiksilver stock hit an all-time high of $10.625 per share in September, 1987, but it began to decline in the fall in response to a general slump in the retailing industry. After the October stock market crash, the stock slid to $4.25 a share.
Then, anticipating an imminent recession, Quiksilver executives opted for a $500,000 inventory write-down, which resulted in a $25,000 net loss in the fourth quarter. In January, Quiksilver stock fell to a low of $3.375 a share. It has since recovered somewhat, closing Friday at $5.625.
Given the underlying strength of the company and the strong demand for its products, Podbelsek believes that the write-down may have been a bit excessive. But it has created a buying opportunity for the stock, he said, provided his earnings estimates hold up.
Unusually Heavy Reorders
One positive sign is the volume of reorders, which have been unusually heavy this spring. Large department stores generally can gauge how many products they will need for a given season, according to Podbelsek. “When they come back for more, it means the product is moving out the door very quickly.”
Other analysts, however, are more cautious about the company.
“I suppose there is a silver lining in every cloud. But with consumer spending in the doldrums, Wall Street has cooled off dramatically to nondurable goods, and specialty retailers definitely fall into that category,” said Barry Sahgal, director of research at Ladenburg & Thalmann, a New York brokerage. “For a stock market investment, Quiksilver isn’t very exciting.”
