Bear Of The Day: Quiksilver

Aug.16.13 | About: Quiksilver, Inc. (ZQK)

Quiksilver (ZQK) reported a big Q1 miss back in June due to revenue and gross margin pressure. This prompted analysts to revise their estimates significantly lower for Quiksilver, sending the stock to a Zacks Rank No. 5 (Strong Sell). Although shares of Quiksilver have fallen considerably since the Q1 report, the stock still does not look a value at 36x forward earnings. Investors should consider avoiding the stock until its earnings momentum turns around.

Quiksilver produces and distributes apparel, footwear, and accessories. Its three flagship brands are Quiksilver, Roxy, and DC. The company was founded in 1976 and is headquartered in Huntington Beach, Calif.

Earnings Results

Quiksilver delivered disappointing first-quarter results in June. Earnings per share came in at -$0.12, badly missing the Zacks Consensus Estimate of +$0.04. It was also below a loss of 1 cent in the same quarter last year.

Net revenues declined 5% year over year to $458.7 million, well below the consensus of $506.0 million. Revenue fell in all three of its flagship brands, with Quiksilver down 10% in constant currency. Geographically, sales were strongest in the Americas and weakest in the EMEA region. The gross profit margin declined 320 basis points to 46.0% of revenue, due in part to increased discounting.

Falling Estimates

Analysts have been revising their estimates lower for both 2013 and 2014 over the last several weeks, which has sent the stock to a Zacks Rank No. 5 (Strong Sell). The Zacks Consensus Estimate for 2013 is now -$0.15, down from +$0.14 just 90 days before. The 2014 consensus is currently +$0.21, down from +$0.35 over the same period.

You can see the drop in consensus estimates in the following chart:

Premium Valuation

Shares of Quiksilver are down more than 30% since late May. Despite this, the stock doesn't look like a value here. Shares currently trade around 36x 12-month forward earnings (assuming those estimates don't fall any further), which is a premium to the industry median of 17x. And its price-to-book ratio of 1.7 is above its historical median of 1.6.

The Bottom Line

With falling earnings estimates and premium valuation, investors should consider avoiding this Zacks Rank No. 5 (Strong Sell) stock until its earnings momentum turns around. Investors still interested in the Textile-Apparel industry may want to take a look at Hanesbrands (HBI) or Michael Kors (KORS), which both carry a Zacks Rank of 1 (Strong Buy).

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Quiksilver: Free Stock Analysis Report (email registration required)