Shares of casual youth apparel designer, producer, and retailer Quiksilver (NYSE:ZQK) had the eye of investors today after the company reported strong revenue and net income growth for the fiscal third quarter ended July 31. It was more good news for investors who've seen their company's stock outperform the S&P 500 by a wide margin over the past two years.
That news (and chart) prompted me to check for past Foolish commentary to see how, or if, the story had changed. Most notable was an article that is, coincidentally, almost exactly four years old today. (It was published September 9, if you're counting at home.)
At the time, Fool analyst Richard McCaffery noted that the company could boast strong income statement figures to go with inventory and receivables growth that tracked well with revenue -- generally speaking, they should increase at the same rate as revenues (or slower). For the four full fiscal years ended October 31 (through 2002), sales increased at a compounded annual rate of 22.5%, compared to about 8% for inventories and 21% for trade accounts receivable. Not bad.
Richard's two other points also bear watching:
- Days of receivables outstanding -- essentially, how quickly Quiksilver gets cash back from those who owe it -- have held fast in recent years at about the same level (in the low 80s) as when Richard researched the company. The numbers are acceptable, though we'd like to see those numbers lower, as this can lead to improved cash flows.
- Following that point, operating cash flow still bears watching. Quiksilver didn't return any in the first half of this fiscal year or any of the last four years -- except fiscal 2002 on the back of decreased inventories, increased payables, net income growth that outpaced receivables growth, and other factors.
In the end, it's the company's ability to generate operating cash flows that investors should be most concerned with. When Quiksilver can do that consistently, it will finally become the profit machine investors need it to be to justify their long-term faith, rather than the high-growth debt story it has been in recent years.
