Winter just isn't Quiksilver's (NYSE:ZQK) season. While the retailer posted a gnarly 19% increase in its apparel revenue, its winter sport equipment segment saw a 2% drop in sales. Apparently still a green-circle novice on the slopes, the company has struggled with its Rossignol ski equipment acquisition for some time now, and it continues to review plans to sell the ski line.
Despite a 14.5% gain in the overall top line, Quicksilver posted a net loss of $0.18 per share, or a $0.12 loss from continuing operations. Contributing to the loss was a 160-basis-point decline in gross margin and a whopping 26% surge in SG&A costs.
After deciding to hit the slopes in 2005, Quicksilver quickly learned that it should stay out of the snow. The acquisition has been nothing but an avalanche of a bad business. Last year, it wrote off more than $166 million of the $320 million purchase price in goodwill and trademark imparment. It's looking to unload this albatross, even if it means selling it to former Quiksilver president Bernard Mariette, who reportedly was responsible for the acquisition.
The latest earnings report does show that sticking to what Quiksilver knows best -- selling clothes, not hard goods -- will let it regain its footing.
Yet I'm questioning whether its latest venture will pan out as planned. Quiksilver is once again abandoning its loyal surf-and-skate crowd with a line of clothes unrelated to that demographic. A story in yesterday's Wall Street Journal quotes management as saying it is targeting 20-something women with clothing that "looks back to the past, to figures like Jackie Onassis."
Uh, excuse me? Focusing on the female shopper is a smart move. Pacific Sunwear (NASDAQ:PSUN) seems to be benefiting from its own greater emphasis on women consumers, but it's hardly maintaining grandiose assumptions that the former First Lady would have shopped its stores. PacSun's female fashions remain true to its core; Quiksilver is once again going off on a tangent.
The line will be sold at upscale department store Nordstrom (NYSE:JWN). Sure, you can buy Quiksilver clothes there now, but this ploy seems more reminiscent of the upscale "Ezra Fitch" line from Abercrombie & Fitch (NYSE:ANF) -- and I think it's doomed to the same failure. Abercrombie pulled the line soon after its launch because it wasn't well-received. Abercrombie tried again with its RUEHL No. 925 stores, but again, going upscale didn't work. Abercrombie had to reduce the price points of RUEHL's clothes to make it effective.
So it looks to me like Quiksilver will be jumping from the fire into the frying pan. It made the right decision to jettison the skis, but I'm wary about the company's latest decision to once again ignore its core customers. With shares surging today on the latest earnings report, I'd see this as an opportunity to take profits and wait for Quiksilver to take a powder again.
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