Kerrisdale Capital is collecting some serious profits on its short call on Quiksilver, Inc. (NYSE:ZQK). The stock dove over 30% yesterday after the sports gear and clothing company released lower-than-expected earnings for 2Q2014 and much weaker guidance for FY2014 than anticipated.
You can read Kerrisdale’s latest thesis on Cardtronics, Inc. (NASDAQ:CATM).
Kerrisdale said Quiksilver is going out of fashion
Sahm Adrangi of Kerrisdale expressed negative views on Quiksilver in early May while he was speaking at a conference. His short was primarily based on the thesis that Quiksilver’s products are going out of fashion. While speaking at the Sohn Investment Conference in New York, Adrangi said that the surfing and skating culture that Quiksilver seeks to sell is no longer in fashion, his exact words being, “once fashion changes, there really is no going back.”
Quiksilver slips 40%
Quiksilver, Inc. (NYSE:ZQK) continued its downward slump today as well. Its stock has now wiped out nearly 40% of its market value since yesterday. The sports apparel company experienced a 9% decline in revenues, which fell to $408.2 million, missing the Street’s estimate of $448.6 million. A quarter of this decline was due to a 19% fall in DC Shoes sales. The company incurred a loss of $46 million or 27 cents per share, excluding one-time charges, whereas analysts forecast a loss of only 2 cents per share.
Quiksilver, Inc. (NYSE:ZQK) also said that weakness in sales is expected in the second half of the year as well. The EBITDA for FY2014 is expected to come in lower than $118 million, which is below the Street’s estimate of $153 million. The company previously expected to improve its adjusted EBITDA to $150 million in 2016, however, in the new guidance the profit improvement plan has been pushed further to 2017.
In a post-earnings comment, Goldman Sachs’ Taposh Bari noted that contrary to their estimates, sales are expected to decline through the second half of this year. The analyst also said that Quiksilver, Inc. (NYSE:ZQK) is facing challenges in the wholesale segment which account for 70% of the company’s revenues and where sales declined 15%,
“These challenges are compounded by the fact that poor near-term sell-through is deterring Fall 2014 sell-in (of new merchandise with support of increased marketing spending). While the path to recovery appears delayed, we believe ZQK has the proper tools and strategy in place to stem the aforementioned cyclical and secular challenges in wholesale while continuing to mix the business in favor of healthier DTC and emerging market channels.”
Repeatedly missed estimates
Quiksilver, Inc. (NYSE:ZQK)’s sharp fall in the market is, however, nothing new. The stock has been the subject of intense selling whenever Quiksilver has missed earnings in the past, which is quite a few times. After the 2Q2014 earnings, Quiksilver has now missed Street estimates in seven out of ten quarters. Despite these repeated bad results, analyst estimates have missed the mark by 100% in many of these periods.