On Jun 3, 2014, Zacks Investment Research downgraded textile apparel retailer Quiksilver Inc. (ZQK) to a Zacks Rank #5 (Strong Sell).
Why the Downgrade?
Shares of the company have slumped 39.7% since it released disappointing second-quarter fiscal 2014 results on Jun 2. Along with the dismal earnings, Quiksilver also hinted at continued troubles in the second half of fiscal 2014.
The top line tanked 9% year over year to $408 million. Quarterly sales missed the Zacks Consensus Estimate of $451 million. Additionally, the company reported adjusted EBITDA of $12 million, down about 33% from $18 million in the prior-year period.
During the quarter, the company benefited from the implementation of its ‘Profit Improvement Plan’ which was reflected by the lowered cost structure, higher gross margin and improved sales in the direct-to-consumer channel and emerging markets. However, these improvements failed to mitigate sales decline in the wholesale channel, especially in North America and Europe, with the DC brand playing a spoilsport.
Going forward, the company expects the downtrend in sales to continue through the rest of the year and anticipates a continued fall in wholesale revenues in North America and Europe, with some respite from the emerging markets and e-Commerce sales.
Quiksilver’s quarterly adjusted loss of 15 cents a share was substantially wider than the Zacks Consensus Estimate of a loss of 3 cents and was also greater than the prior-year loss of 12 cents per share. A glance at the earnings history shows that the company has missed the Zacks Consensus Estimate in 8 of the past 10 quarters, resulting in continued fall in its share price.
Further, Quiksilver’s lackluster results triggered a downtrend in the Zacks Consensus Estimate, as analysts became less constructive on the stock’s future performance. The Zacks Consensus Estimate for the third and the fourth quarter has declined by 14.3% and 20% to 12 cents and 4 cents a share, respectively, in the past 7 days.
Other Stocks to Consider
Other better-ranked retail stocks that look promising and are expected to continue with their upbeat performance include Hanesbrands Inc. (HBI), Michael Kors Holdings Limited (KORS) and V.F. Corporation (VFC), each carrying a Zacks Rank #2 (Buy).
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