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Wipeout: Quiksilver files for Chapter 11 bankruptcy in U.S.

Wipeout: Quiksilver files for Chapter 11 bankruptcy in U.S.
Merchandise on display at the Quiksilver store in Downtown Disney in Anaheim on Wednesday. (Allen J. Schaben / Los Angeles Times)

Quiksilver, the Orange County surfwear company, rode America's fascination with the surfer lifestyle to become a retail powerhouse.

In 1986, it was the first surfwear company to go public and over the decades benefited as young shoppers across the country sought to emulate what they saw as the cool lifestyle of surfers, skateboarders and snowboarders.

But the declining popularity of such gear, coupled with competition from fast-fashion brands and strategic missteps caused a wipeout in recent years, prompting the Huntington Beach company on Wednesday to file for Chapter 11 bankruptcy protection for its U.S. business.

"There's just fewer kids out there that think the surf market is cool," said analyst Mitch Kummetz of B. Riley & Co. "The heyday of the late '90s and the early 2000s is a distant memory."

But the company still sees a future for its core Quiksilver, Roxy women's ware and DC shoe brands.

It plans to continue in business and filed a detailed restructuring plan that calls for debt holder Oaktree Capital Management, an L.A. firm that specializes in investing in troubled companies, to become majority owner after exiting bankruptcy.

Chief Executive Pierre Agnes said the bankruptcy plan is a "difficult but necessary step" that will help complete a turnaround of the company's U.S. business. The firm's Asia-Pacific and European business units are not part of the bankruptcy filing.

In a statement, Agnes said the bankruptcy and financing from Oaktree will allow the company to "satisfy our ongoing obligations to customers, vendors and employees" and "reestablish Quiksilver as the leader in the action sports industry."

Since 2013, the company has been engaged in a turnaround plan that included store closures in the United States and a refocus on its three core brands.

Last year, Quiksilver sold its licensed apparel subsidiary Hawk Designs Inc. for $19 million.

The company said Wednesday that it will continue to close stores as part of its bid to "rationalize" its presence in the Americas.

Among those listed for closure are ones at Universal CityWalk, South Coast Plaza in Costa Mesa, the Irvine Spectrum, Fashion Island in Newport Beach and one in Glendale, according to court documents.

At the end of October, the company had 122 retail and factory outlet stores in the United States.

The Quiksilver brand got its start in Australia in 1969, when it was founded by surfer Alan Green.

In 1976, champion surfer Jeff Hakman and Robert B. McKnight Jr. co-founded Quiksilver U.S.A and in 2002 the American business purchased the original outfit.

But Quiksilver was hurt by the recession and a move toward fast-fashion retailers such as H&M and Forever 21 that appealed to price-conscious teenagers, analysts said.

Last fiscal year, sales fell more than 10% and losses exceeded $300 million. By the time it filed for bankruptcy protection it had racked up debts of $826 million and assets of $337 million, according to court documents.

The share price had fallen 80% since January.

Part of the problem, according to Craig Johnson, president of Customer Growth Partners, was surf apparel companies continued to expand even though many teens became less interested in donning clothing with labels such as Quiksilver, Volcom and Billabong.

In Quiksilver's case, the company opened too many stores, many in expensive areas such as Times Square in New York, he said.

The company took another hit last year when 11-time world surfing champion Kelly Slater ended his long-running sponsorship deal with Quiksilver to start his own brand.

By that time some surfers had come to view the clothing giant as too corporate in a sport that tries to maintain, and often markets, a counterculture
vibe.

Marshal Cohen, chief industry analyst of the NPD Group Inc., said Quiksilver simply fell out of fashion with many non-surfing youths and was hurt by its reliance on a demographic that tends to treat brands as a "revolving door."

"They are the most fickle," he said.

But other surfwear brands are doing far better than Quiksilver, and compounding problems for the firm were corporate missteps, said Kummetz of B. Riley.

In 2005, Quiksilver bought winter sports company Rossignol, but the new unit quickly became a financial drag and three years later Quiksilver unloaded Rossignol for less than half the original purchase price of $320 million.

Former Chief Executive Andy Mooney alienated retailers, in part, by discounting goods online, Kummetz said.

In March, current CEO Agnes replaced Mooney.

In a letter to U.S. employees about the bankruptcy, Agnes and President Greg Healy said the failed Rossignol acquisition cost the company close to $1.3 billion and "left us with a huge amount of debt." That deal, coupled with "poor management decisions that yielded a failed strategy and poor operational execution" put the company on an "unsustainable" path, the executives said.

As part of the bankruptcy plan, which must be approved by the court, Quiksilver would receive about $175 million in financing from affiliates of Oaktree Capital Management and Bank of America to operate during the bankruptcy.

Oaktree, which owns 73% of the company's senior debt, will convert its debt to equity, taking a majority ownership stake.

Cohen said Quiksilver might not retain the broad-based appeal it once held, but the brand has a future.

"The brand has too much heritage, too much familiarity," he said.

Timmy Phan, 35, of Irvine was one of the few shoppers in the company's store at South Coast Plaza.

He used to work for a Quiksilver store for several years when he was 17 years old.

He has been involved with urban street wear since then and was upset about the bankruptcy.

"Back then, Quiksilver was on top of their game, and I still think they're the No. 1 surf brand in the industry," he said. "It just sucks to hear. It's a business thing."

andrew.khouri@latimes.com

Times Community News staff writer Anthony Clark Carpio contributed to this report.

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