Foolish Forecast: Ahead of the Curve With Quiksilver

Surf and skate clothing retailer Quiksilver (NYSE: ZQK) will report second-quarter results tomorrow. Let's grind out an estimate of what we can expect.

What analysts say:

• Buy, sell, or waffle? Of the 12 analysts covering Quiksilver, half say buy and half say hold.
• Revenue. Sales are expected to be essentially flat from a year ago, at $605.4 million -- up 0.4%.
• Earnings. It could be that the profit situation is making some analysts happy, because the company is expected to post a profit of one penny, compared with a loss of $0.04 last year.

What management says:
There's a turnaround underway at Quiksilver, but in what direction is anyone's guess. In a topsy-turvy economy that has affected many similar retailers like Pacific Sunwear (Nasdaq: PSUN), the company also has to contend with offloading the Rossignol ski line -- just after its president took off for the slopes -- which it impertinently acquired a few years ago.

Worse, it seems the retailer is off on another vainglorious tangent, looking to sell upscale clothes at Nordstrom (NYSE: JWN) -- which doesn't exactly draw much of Quiksilver's target demographic, even if you can buy some of its threads there now.

What management does:
While some analysts feel that investors haven't appreciated the success of Quiksilver's DC Shoes line lately, I agree that once the ski business is sold, the profit picture ought to improve. As the table shows, Quiksilver has been tumbling.

Margin	1/07	4/07	7/07	10/07	1/08
Gross	46.0%	45.9%	45.5%	46.3%	45.9%
Operating	7.7%	7.0%	6.5%	6.2%	4.8%
Net	3.5%	3.0%	2.3%	(5.0%)	(5.8%)

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:
I expect Quiksilver to actually show some progress across the board, because a substantial part of its revenue comes from customers abroad. With Europe representing the largest group, and a strong euro up against the weak dollar, I'd expect to see some better results. But domestic sales will undoubtedly be weak, and its retail stores will probably face the same declining comps that a number of retailers have faced.

Although Quiksilver is somewhat discounted compared with Gap (NYSE: GPS) and PacSun, at least Volcom (Nasdaq: VLCM) has better growth prospects to justify its premium. Until the Rossignol sale goes through, there will be a continued drain on performance, so I don't see Quiksilver's stock blazing any trails.

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