Quiksilver Got Slammed. So What?
Daniel is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
I've written about Quiksilver (NYSE: ZQK) on multiple occasions, usually touting the potential of their DC brand. After a 13% decline in the stock after disappointing Q4 results, it's time to take a look again. Were there any long-term implications in the quarter that have changed the story? Definitely not. Quiksilver missed estimates. So what? The long-term story still holds true.
Wall Street expected Quiksilver to report earnings of $0.10 and sales of $559 million. Instead, Quiksilver reported earnings of $.07 and missed revenue estimates by 1%. Furthermore, margins continued to contract for the fifth quarter in a row. In this quarter margins contracted 300 basis points lower than the same quarter last year, a steeper decline than expected.
Investors who took the time to listen to Quiksilver's earnings call were tipped with a useful explanation regarding the 300 basis point decline in gross margins: Most of the erosion in Q4 gross margins was due to the liquidation of overbought inventory. According to management, Quiksilver is entering 2013 with normal inventory levels, and margins should not be eroded due to overbought inventory in future quarters (unless Quiksilver overbuys again, of course).
The Big Picture
As stated in the Q4 earnings call, Quiksilver management has three long-term initiatives:
- Strengthening our brands
- Expanding our business
- Driving operational efficiencies
DanielSparks has no positions in the stocks mentioned above. The Motley Fool owns shares of The Buckle, Nike, and Under Armour. Motley Fool newsletter services recommend The Buckle, Nike, and Under Armour. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!