I’ve had a number of emails asking me what I thought about Quiksilver. Some of them have been along the lines of, “Should I buy the stock?” or “What’s it worth? If I knew with any degree of certainty whether or not to buy Quik stock, or any other stock, I’d be rich, rich, rich. As far as what it’s worth goes, it’s worth what it’s trading for right now. This minute. No idea if it will be worth more or less tomorrow.

I should start by saying that the last quarterly report came out in September for the quarter ended July 31. We should see the next one sometime around December 9th.

For that last quarter, Quik’s income from continuing operations (that is, before Rossignol) was $33.1 million. For the same quarter the previous year, the number was $35.7 million. But discontinued operations created a loss of $30.2 million in the quarter. In the same quarter the previous year, it was a loss of $43.6 million. Bottom line, Quik had net income of $2.85 million in the quarter ended July 31 compared to a loss of $7.87 million the previous year. For the nine months ended July 31, they reported a loss of $10.2 million in 2007 and $225.3 million in 2008.

Now let’s take a brief look at the balance sheet. At July 31, 2007, Quik had a current ratio of 1.72 and a debt to equity ratio of 1.73. Fast forward to July 31, 2008 and the current ratio is essentially the same at 1.71. But the debt to equity ratio has risen to 2.34 times. Total liabilities haven’t really changed but total equity is down as a result of the company’s loss so the debt to equity ratio has risen substantially. Cash and cash equivalents has actually risen from $76 to $99 million. It will be really interesting to see the financial statements in December and evaluate how they have changed.

Okay, now for the fun part. Let’s talk about some of the news that’s flying around and the concerns and speculations that seem to be on everybody’s mind. First, “But aren’t these great brands?!” everybody says. Implied is if the brands are so great, how come the stock’s at a dollar and the company’s credit rating has been downgraded?

I’d say they are great brands and they are going to continue to be great brands. I don’t know what the resolution of the financial/liquidity issues will be, but I do know that people are smart enough (no- make that greedy enough) to recognize powerful brands with a continuing future when they see them. If I were a Quik retailer, I would expect to continue to be one.

Meanwhile, Quik had previously hired Morgan Stanley as its financial advisor to help it get correctly capitalized. I suppose yesterday’s downgrade by Moody’s confirms that’s an issue, as if hiring Morgan Stanley hadn’t already done that.

You know, I can’t help but recollect that Moody is one of the fine rating institutions that told us not all that long ago that securitized subprime loans were AAA rated.

Sorry, I just couldn’t resist throwing that in. Back to Quiksilver.

In all the Rossignol/Moody’s/$1.00 stock/Morgan Stanley excitement, I haven’t really seen much about how Quiksilver has been impacted by the recession. I guess that will be in the next filing. I don’t imagine they’ve been immune, but I’m actually more concerned about how they’re being affected by the banking crisis. It’s a hell of a time to have to raise money.

I’m hoping we see a resolution to Quik’s immediate financial issues in short order. Now that they’ve got the Rossignol ball and chain off their ankle, it would be great if they could just get back to focusing on building brands and supporting surf.

Jeff Harbaugh is a consultant for the action sports industry and works with companies to identify and focus on critical business issues and opportunities fundamental to the bottom line. For more information, visit www.jeffharbaugh.com.

Tags: jeff harbaugh, Market Watch, quiksilver

This entry was posted on Friday, November 21st, 2008 at 10:01 am and is filed under Data & Statistics, FEATURES, Market Watch. You can leave a response, or trackback from your own site.