How Serious Are Viability Concerns at Quiksilver?

Quiksilver Inc. (NYSE: ZQK) reported its fiscal second-quarter earnings Tuesday before the markets opened. The company has a net loss of $0.22 per share on $333.01 million in revenue. That compared to Thomson Reuters consensus estimates of a net loss of $0.14 per share on $341.24 million in revenue. In the same period of last year, the apparel maker reported a net loss of $0.15 per share and revenue of $408.22 million.

Following the release of these financial results, the stock took a tumble to what is easily a multiyear low.

The company’s brands reported for the quarter:

  • Quiksilver had net revenues of $139 million, compared to $167 million last year.
  • Roxy had net revenues of $105 million, compared to $120 million.
  • DC had net revenues of $81 million, compared to $103 million.

On a constant currency basis, both Quiksilver and Roxy net revenues were down 1% or $1 million. DC net revenues were down 9%, or $8 million, on a constant currency basis.

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Pierre Agnes, CEO of Quiksilver, stated:

Our second quarter performance came in largely as expected with revenues adjusted for currencies and licensed categories essentially stabilized. We also reduced operating expenses, which allowed the Company to meet its EBITDA goal for the quarter on a constant currency basis. We are encouraged by customer feedback on our Spring ‘15 product offering across all brands. In addition, as our order book for the Fall ‘15 product line continues to develop, we are confident in our ability to drive revenue growth in the medium term. Overall, we are quite happy with our product lines.

Cash and cash equivalents totaled $48.1 million for the quarter, compared to $46.7 million at the end of the 2014 fiscal year.

According to the company:

Based on management’s current assessment of the business, the Company is rescinding its previously stated financial guidance for the fiscal year 2015. The Company may choose to reinstate the policy of providing forward guidance in the future, but will not be providing an outlook for fiscal 2015 at this time.
The company has posted net losses for the past three years, perhaps longer than that. Quiksilver is a serious viability concern.

When retailers get to the point where they start losing money to this magnitude with declining sales and investors putting the stock at multiyear lows (and those lows are under $1) it would be understandable why anyone would question Quiksilver’s viability.

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Short interest for the most recent settlement date was 29.3 million with 34.4 days to cover. The previous reading was 28.9 million with 28.6 days to cover. The highest short interest reading in the past 52-weeks was 30.2 million in mid-November.

Shares of Quiksilver were down nearly 40% at $0.75 at midday Tuesday. The stock has a consensus analyst price target of $2.44 and a 52-week trading range of $0.75 to $4.32.