Skate and surf retailer Quiksilver (NYSE:ZQK) will report Q1 2007 financial results March 8.

What analysts say:

  • Buy, sell, or waffle? There are 17 analysts trying to catch the wave with Quiksilver, and nine of them think the stock is a buy. The other eight say hold.
  • Revenues. Revenues are expected to be essentially flat, at $540 million.
  • Earnings. Profits, however, are expected to tumble 73% to just $0.04 per share.

What management says:
Although the apparel retailer caters to the surfer dudes, in winter it's the snow and ski set that carries it. Unfortunately, an unseasonably warm winter turned what should have been an avalanche of sales into a snow drift of weakness. Last month, management more than halved its own forecasts of $0.09 per share and reduced the sales outlook as well. In addition to the apparel lines not selling, Rossignol, the ski manufacturer Quiksilver acquired in 2005, didn't sell either, for the same reasons. Both here and in Europe, the lack of significant snowfall allowed this already expensive acquisition to continue to drag down performance. This weakness could also signal coming difficulties for other ski manufacturers like K2 (NYSE:KTO).

What management does:
The skate crowd held up its end by continuing to buy the popular Quiksilver, Roxy, and DC brands. But they should be less of a factor now in the winter, in comparison to their strong summer runs, which are similar to those of both PacSun (NASDAQ:PSUN) and Zumiez (NASDAQ:ZUMZ). The golf side of the business, Cleveland Golf, may also end up hurting. While golfing improved a little in 2006, a number of players in the game are expecting the year to be flat. All this will probably serve as a drag on margins, which have been steadily eroding.

Margin

10/05

01/06

04/06

07/06

10/06

Gross

45.4%

45.7%

45.7%

45.9%

45.8%

Operating

10.2%

10.1%

8.3%

6.9%

8.7%

Net

6.0%

5.6%

3.9%

2.8%

3.9%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Being able to extend the Rossignol brand into the apparel business was one of the justifications for making the acquisition. With the stock so deeply discounted after the earnings warning, it may have offered investors a chance to buy into a name that offered many branding opportunities. And they'd also be getting the skating crowd business at the same time.

It seems more like the skating crowd is being taken downhill by the ski business in an effort to justify the company's venture into manufacturing. Making clothes and making hard lines of goods are not the same, and it seems Quiksilver is finally coming to realize this.

Related Foolishness:

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Fool contributor Rich Duprey owns shares of K2, but does not own any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.