Quiksilver: Restructuring The Quicksand Capital Structure

Oct. 20, 2014 5:00 AM ETQuiksilver, Inc. (ZQK)24 Comments


  • Quiksilver's primary business segments have faced significant brand equity erosion and market share losses over the past twelve months, particularly across Roxy and Quiksilver brands.
  • Weak wholesale revenue led to an EMEA goodwill impairment charge of $182 million in FQ3'2014, including a $38 million non-cash charge for the impairment of DC Shoes goodwill.
  • Quiksilver's common stock is a terminal short; 17% of outstanding common shares are sold short and the common stock has realized a Y'o'Y price per share decline of -76%.
  • Quiksilver's USD-denominated senior secured and senior unsecured notes may appear to offer attractive relative value but expected recovery rates do not support current trade levels.


Quiksilver, Inc. (NYSE:ZQK) has been running out of steam as a player in the highly competitive retail industry, in light of stagnant macro fundamentals and losing the interest of its target consumers. It seems reasonable to expect that Quiksilver, Inc. is less than six months away from Chapter 11 bankruptcy, even with sufficient liquidity as of the mostly reported quarter. After years of weak acquisitions and high turnover across its executive team, Quiksilver's over-diversification and general lack of focus on developing the most efficient supply-chain processes and nurturing the perceived value of its core product offerings and brands has stretched thin its resources and forced the company to now compete on price, instead of perceived value and brand appeal. The company has played musical chairs with its capital structure and product offerings and brands, iterating through many different product strategies, acquisitions and supply chain ideas but lacking attention on developing long-term supply chain knowledge and feedback loops to achieve the leanest inventories and shortest path from design to converting customer sales. Quiksilver's failures give rise to at least two potential capital structure plays that may yield significant risk-adjusted returns over the next six months. We strongly doubt that Quiksilver can realize ~$150 million of supplementary annual EBITDA from implementing its 11-point Profit Improvement Plan and achieve 15x to 17x multiples within three years to operate at VF Corp.-level efficiency. We assume diminution of core revenues will precipitously increase over the next three years as Quiksilver's brands become less relevant to their target consumers. Quiksilver's retail prices will never come close to prices of comparable product offerings from fast-fashion retailers. Management's recent deferral of PIP positive EBITDA impact to FY'2017 gives us even less faith in their ability to protect or enhance shareholder value. Sources of wholesale revenue should continue to evaporate as more mom and pop specialty stores shut down and as larger department store retailers

This article was written by

Hadrian Capital is a special situations, event-driven and distressed debt private investment manager. We invest in pre-bankruptcy situations. We manage investment partnerships and separately managed accounts.

Disclosure: The author is short ZQK. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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