Quiksilver, Inc. (NYSE:ZQK)’s namesake brand, which accounts for 40% of its top line, reported a 10% decline in sales, due to lower demand for surf, beach and seasonal apparel. Meanwhile, Roxy, Quiksilver’s female brand which comprises 28% of its top line, reported a 4% decline. The only bright spot for the company was DC Shoes, its footwear and skate apparel brand, which squeezed out an anemic 1% gain. Gross margins also declined from 49.2% to 46.0%, indicating higher markdowns in an effort to generate higher sales volume, which apparently failed.
A big part of Quiksilver’s problem is its international exposure. The company is exposed to too many markets at the same time. Although sales in the Americas rose slightly, they were completely offset by steep losses in Europe, the Middle East, Africa and the Asia-Pacific region. Global same-store sales slid 4% as a result of this imbalance in demand.
On the bright side, Quiksilver, Inc. (NYSE:ZQK) was able to reduce its expenses substantially during the quarter. Its e-commerce sales, which generate 5% of its revenue, also rose 31%. This indicates that Quiksilver could improve its sales if it streamlines its operations and reduces its brick-and-mortar footprint, especially in overseas markets.
For now, however, investors should avoid Quiksilver, Inc. (NYSE:ZQK), since most of its sales figures are headed in the wrong direction.
The Foolish Bottom Line
Investing in the right activewear retailer can be a tough choice. Investors should take a look at the dire fate of Australian surf and snow apparel retailer Billabong to see what happens when this kind of business model fails. In closing, let’s compare the fundamentals of these three companies.
Forward P/E | 5-year PEG | Price to Sales (ttm) | Debt to Equity | Profit Margin | Qty. Revenue Growth (y-o-y) | |
Pacific Sunwear | N/A | N/A | 0.29 | 195.70 | -7.48% | -2.30% |
Zumiez | 16.43 | 1.11 | 1.37 | 0.70 | 5.83% | 14.30% |
Quiksilver | 27.18 | -6.50 | 0.58 | 149.12 | -2.37% | -6.80% |
Advantage | Zumiez | Zumiez | Pacific Sunwear | Zumiez | Zumiez | Zumiez |
Source: Yahoo! Finance, 6/11/2013
Of these three stocks, Zumiez has the most stable financials. With solid top and bottom line growth, along with positive margins and the lowest debt, Zumiez Inc. (NASDAQ:ZUMZ) could indeed zoom again if its same-store sales start rising again, especially after it stops taking losses on its Blue Tomato acquisition. Meanwhile, Pacific Sunwear of California, Inc. (NASDAQ:PSUN) is more of a stabilization story than a turnaround one at the moment. Pacific Sunwear is still unprofitable, but its positive same-store sales growth could eventually bring the company back into the black. Lastly, investors should avoid Quiksilver, which has all the earmarks of a failing company. Unless the company can stem its global losses and turn around its namesake and Roxy stores, then it is surfing straight into a tsunami.
The tides of summer retail can be treacherous to navigate. However, there are still some sunny stocks for careful investors who have the patience for longer-term stabilization and turnaround stories.
The article Two Summer Retailers to Buy and One to Avoid originally appeared on Fool.com and is written by Leo Sun.
Leo Sun has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Leo is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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