Quiksilver may have to sell Rossignol

[skier666]

Hmmmmmm.....

Regardless, Quiksilver already has made other moves meant to curtail the damage. It has set in motion significant production cuts for Rossignol, and, even before the difficult winter, it had begun steps to close a major factory in Europe, a move set to be finished this summer. Mr. McKnight also has trimmed Rossignol's presence on the Continent significantly, bringing its offices down to just three from 17.

Having stumbled on its first trip down the ski slope, Quiksilver may be ready to quit the sport it took up just two years ago. And that could give the company's share price a nice run.

Known for its skate and surf wear, the Huntington Beach, Calif., company last month posted its first quarterly loss since 1992. The main reason: a foray into the ski business via the company's 2005 acquisition of Rossignol. The European brand, once seen as a growth opportunity, now seems to be dragging the company under the waves.

Rossignol, a mature company known for snowboards, skis and other so-called hard goods, was always viewed as an odd choice for Quiksilver, whose growth has thrived on apparel and lifestyle sportswear. What hope there was for the $305 million deal hinged on the combined company's bid to gain traction in the $47 billion-a-year outdoor market.

Then the weather changed for the worse. Last winter saw record-low snowfalls in both North America and Europe, drawing few skiers to the slopes and even fewer into stores.

Sales plummeted along with the stock price: Shares hit a 52-week low of $10.90 in March. The price has since recovered, with investors returning after solid performances by the company's apparel ventures, which include Roxy and DC shoes.

On Friday on the New York Stock Exchange, Quiksilver's shares were up 44 cents to $14.13. The stock currently trades at about 16 times estimated per-share earnings for 2008, considered in line with its peers.

But the stock's recovery isn't enough to quell analysts who believe the Rossignol brand remains a near-certain liability for investors and the company.

Quiksilver is considering whether to backtrack completely by selling Rossignol. Any sale would undoubtedly be at a loss to what the company paid, but observers say it would nonetheless boost interest in the stock by removing a cloud hanging over the company, which has a market value of about $1.7 billion.

"They are probably going to sell something, either all or part of Rossignol," says Jeff Mintz, a sportswear analyst with Wedbush Morgan Securities. While Mr. Mintz agrees that the weather was a factor in the brand's seasonal stumble, he says the company would be better to leave the ski business rather than chance another bad winter. He gives the stock a "hold" rating.

Quiksilver itself has hinted that it may be looking for a pathway off the slopes. During a conference call last month, Quiksilver Chief Executive Robert McKnight Jr. indicated that he is now considering "all the strategic possibilities" for its flagging brand.

"We're looking at every possible alternative concerning the hard goods," he said. "Everything is on the table."

Regardless, Quiksilver already has made other moves meant to curtail the damage. It has set in motion significant production cuts for Rossignol, and, even before the difficult winter, it had begun steps to close a major factory in Europe, a move set to be finished this summer. Mr. McKnight also has trimmed Rossignol's presence on the Continent significantly, bringing its offices down to just three from 17.

Rossignol isn't the only Quiksilver brand that has been getting a bad rap on Wall Street. Cleveland Golf, the company's division that produces golf clubs among other products, had a revenue slump this quarter -- it was down 6% -- and it didn't go unnoticed. On Tuesday, Quiksilver announced that it would bring its stake in the company to 100% by acquiring remaining shares of Cleveland -- what analysts say is a likely prelude to a sale.

For Rossignol, Jeff Van Sinderen, an analyst at B. Riley, advocates selling the struggling hard-goods sector of Rossignol, but maintaining licensing rights to what Quiksilver does best: hawking apparel. Revenue growth was up across the board for Quiksilver's apparel brands, with Roxy showing 20% growth and DC shoes leaping forward 60%. Analysts see similar figures possible with better weather conditions and an apparel-only Rossignol.

If Quiksilver decides to sell off all of Rossignol, "It certainly won't be what they paid for it," says Mr. Van Sinderen, who has a "buy" on the stock.

Quiksilver's equipment brands sustained a pretax loss of $50 million for the full fiscal year, ended Oct. 31. If the company were freed of Rossignol, however, retail analysts like Todd Slater of Lazard Capital Markets say they would be inclined to look on the stock more favorably. Mr. Slater already gives the stock a "buy" rating.

"The risk-reward [ratio] would improve, the earnings would improve and the stock would likely appreciate on this type of news," Mr. Slater says.

Jennifer Black, an analyst with Jennifer Black & Associates of Portland, Ore., says any sale that would decrease the firm's vulnerability would make her feel more comfortable with the stock. "The dependency of hard goods on the climate makes investors a bit nervous," she says. "There are definite concerns out there about global warming and the question of if it's going to snow." She currently gives shares a "buy" rating.

Representatives of the firm wouldn't comment on potential decisions in the Quiksilver pipeline, though executives have publicly maintained support for the Rossignol brand. What is clear, however, is that the company's latest bid to expand beyond the horizons of its sun-drenched surfer crowd may have backfired. It caught the wrong wave.

"I'm sure they'll never do something of this nature again," B. Riley's Mr. Van Sinderen says.

[bio-smear]

I blame it on their topsheet designs.

[leroy jenkins]

I could see the squads being one of the first things to go if they start trimming their offerings down. Lets hope it isn't so.

[skier666]

My buddy emailed me the WSJ article...that's all I have and searched.

What's wrong with the topsheets?

[cj001f]

do you have a link to the press release somewhere?

http://online.wsj.com/article/SB1183...N=wsjie/6month

here's an older LAT story
http://www.latimes.com/business/la-f...,2041955.story

[f2f]

thanks cj001f and skier666!

[philippeR]

A bad winter and they're bailing out... Fuck wall street and short term management. I expect that century old company to be totally screwed up in a couple years. Future Rossignols will be made in China.

[leroy jenkins]

Future Rossignols will be made in China.

Well at least its better than france.

[jonski]

Be interesting to see what happens. No mention of the Roxy skis or Dynastar/Look/Lange.

I wonder if they split them and de-merge just Rossi or get rid of the whole hardgoods side of things.

And who'd buy Rossi? Amer (Atomic/Salomon) or K2 or Tecnica (/Nordica/Blizzard)? Someone else altogether?

Hey Leroy, a whole bunch of them are made in Spain and Tunisia rather than France already...So not much better really!

[cj001f]

rumours have it nobody wants to buy Rossi + rest of the hardgoods (Quiksilver wants to solely do softgoods)

legend pros and the rest of the made in chamonix valley dynastars suck as does the skiing there - no 'real skiers'

[Voltron]

And who'd buy Rossi? Amer (Atomic/Salomon) or K2 or Tecnica (/Nordica/Blizzard)? Someone else altogether?

Private equity. They'll buy anything if the price is right, probably even if it's not.

[jonski]

rumours have it nobody wants to buy Rossi + rest of the hardgoods (Quiksilver wants to solely do softgoods)

legend pros and the rest of the made in chamonix valley dynastars suck as does the skiing there - no 'real skiers'

Intriguing given that Quik own Mervin (Gnu/LibTech), and have done for a fair while, that they want to deal with 'just' softgoods. That is why I wondered if it would split Dynastar off and maybe keep it as a smaller brand. With less 'history' to have to support and pander to, Dynastar appears to be more 'malleable' in that sense. Plus the Chamonix Valley, freeride, etc image is maybe more appealling in terms of cross branding with their other lines than Rossi is with its longer Race Heritage.

Unless the money dries up entirely, the consumer level won't see many real changes for another season or two anyway, so guess we'll just have to wait and see.

[japollner]

K2 wont be buying them...They owe themselves so much money its not even funny. Line really put K2 into a hole.

[Spats]

As far as I can tell, there are a lot of new ski companies (and resurrected old ones) and not as many new skiers. I predict there are going to be more dead fish than just Volant floating to the top in the next few years.

[cj001f]

As far as I can tell, there are a lot of new ski companies (and resurrected old ones) and not as many new skiers. I predict there are going to be more dead fish than just Volant floating to the top in the next few years.

there are but they aren't that big, they are just skimming the cream off the top

[bdog]

Hey Leroy, a whole bunch of them are made in Spain and Tunisia rather than France already...So not much better really!

Rossi has almost always had a production facility in Spain. Their wood core skis and snowboards (re: lower end with the exception of wood core race and pro stock skis) are made there and the microcell core products are made in France.

Still it will be interesting to see what the future holds for such an established company.

[The Dad]

I can't imagine that the EU antitrust regulators would let either K2 or Amer buy Rossi/Dynastar/Look. Amer might even be more of a concern for them, since they would end up with all but two established alpine binding brands.

Without knowing anything about the companies, Head/Tyrolia would look like a more complimentary fit, although some overlap would remain.

My money's on an outsider of some sort.

[Odin]

My money's on an outsider of some sort.

I'm going to get some scratch off tickets in the next 30 minutes.

When I get my hands on that company I am switching all the designs to skate ski widths and I am going to hire Tannor Hall to design my new pro model, "The Hoser"

[skimoore]

I bet someone in Dubai is going to buy them. They'll need 'em for the snow dome or whatever they call it.

[Plakespear]

I wonder if this will result in the move Nike has been rumored to be considering for years about venturing into the winter sports market.

[The Dad]

They certainly have the pockets to do it, and it would appear to make a certain amount of sense -- bring some premier hardgoods lines in and use them to piggyback softgoods sales. The question is, would they rebrand? Part of the value of this company, at least to my untrained eye, is the different market positions of Dynastar and Rossignol.

[tarkman1]

I called Quiksilver buying Rossignol a bad move from the start. On the surface, one action sports industry company buying another seems good on the surface. The strategic differences between the two are numerous and substantial.

[Odin]

I'm going to get some scratch off tickets in the next 30 minutes.

When I get my hands on that company I am switching all the designs to skate ski widths and I am going to hire Tannor Hall to design my new pro model, "The Hoser"

I would like to point out that I was ahead of the trends for today with dynamic skate ski steeze.

[rideit]

I wonder if this will result in the move Nike has been rumored to be considering for years about venturing into the winter sports market.

I got to check out and try a bunch on Nike winter soft goods prototypes last year.
It was all very, very high quality.

Nike did just pull out of a mt. Bike shoe partnership, so who knows.

[cj001f]

I got to check out and try a bunch on Nike winter soft goods prototypes last year.
It was all very, very high quality.

it's not bad stuff but where can you buy it aside from their outlets on clearance in June?

they keep making a half assessed attempt at the winter market (see tele athlete sponsorship beginning long ago) and never bothering to fulfill or complete it. A 2 month product cycle doesn't work in the outdoor biz.