Last Thursday, Quiksilver
But first, let us look at Quiksilver's results. Revenues for the fourth quarter were $778.4 million, up 22% from $637.4 million in fourth quarter 2005. Net income was $65.3 million, or $0.51 per diluted share, up 94% from $33.6 million, or $0.22 per diluted share, in fourth-quarter 2005. Stock option costs, which weren't expensed in 2005, were $3.3 million in the quarter, or $0.03 per diluted share.
For the full year, revenues were up 33% to $2.36 billion from $1.78 billion. Net income was down due to a combination of stock option expenses, which totaled $14.6 million, and a full year of Rossignol operations. Rossignol's seasonally weak summer months weren't included in fiscal 2005's results.
And those recurring summer losses at Rossignol are just one of the added challenges to Quiksilver's business. To management's credit, Rossignol is benefiting from its new stewards; revenues grew 30% for the quarter. It wouldn't surprise me if Rossignol's profits grew even faster with the efforts to streamline operations. But in the end, a weak business will always win over a superior management team.
The hard part of hard goods
Hard goods like snowboards carry lower gross margins than soft goods like T-shirts, which will drag the overall profitability down. Investors should make sure that the operating margins don't follow suit, which would mean the company would have a tougher time earning its cost of capital.
Investors should also watch the cash conversion cycle. Dating or extending credit to retailers to purchase hard-goods inventory can extend up to 120 days or longer, especially for large pre-season orders such as snowboards. K2
The bottom line is that after several years of retailing both soft goods and hard goods, which included Quiksilver's DC shoes and Lib Tech snowboards, I can attest that selling shoes is more profitable than snowboards. It's too early to tell how Rossignol will add or detract from Quiksilver, but if I were an investor, I would keep a close eye on its productivity and profitability levels for any signs of deterioration.
For related Foolishness:
- Foolish Forecast: Quicksilver Hits Powder
- Quiksilver's Rich Consultants
- The Quik(silver) and the Dead