Quiksilver Inc. share price continued to inch up Monday, four days after shareholder and activist investor Ryan Drexler urged its board to auction off the company’s brands.
Shares of the company, which owns the Quiksilver, DC and Roxy brands, were trading $1.58 on Monday, up about 11 percent from their 52-week low on Oct. 8 and 82 percent off their level at the beginning of the year.
Drexler, who is president and shareholder of Consac, LLC, said Oct. 9 he believes Quiksilver, Inc.s 17-month-old turnaround plan is a failure and called on the Board of Directors to explore options to sell the company.
Drexlers Consac, which owns in excess of 2 million shares of Quiksilver, specializes in activist investing, a model popularized by Carl Icahn in which investment firms acquire equity stakes in companies and then try to force them to make changes that will enhance shareholder value in a period of months. Consac noted that it may increase, decrease, sell or change the form of its investment in Quiksilver at any time for any reason without notifying the market.
In a letter to the Board, Drexler said Quiksilvers 11-point Profit Improvement Plan (PIP) has had a profound detrimental effect on the companys financial position and operating performance. Drexler is an investor in consumer and retail companies, as well as the former operator of a well-known consumer brand. As such, he said he was profoundly disappointed with the companys performance over the last year and a half.
In addition to the sharp drop in the company’s stock price, he said that the $42.2 million operating loss (excluding impairment losses) for the first three quarters of fiscal 2014 marked a significant deterioration from the $11.4 million operating profit (excluding impairment losses) for the same period in fiscal year 2013.
In the letter, Drexler pointed out that Quiksilver stated in its most recent annual report that by the end of fiscal year 2016, the PIP was expected to improve adjusted EBITDA by approximately $150 million over FY2012.
However, he said, adjusted EBITDA for the first nine months of FY2014 is down 77 percent compared to the same period in FY2013-deteriorating from $60.6 million in the first three quarters of FY2013, to $14.1 million in the same period this fiscal year.
The most telling measure, Drexler said, was the revenue decline in the companys three core brands, Quiksilver, Roxy and DC, which was down 17 percent, 9 percent and 34 percent, respectively.
The revenue decline by brand indicates to me that the companys fashions have fallen out of favor, its targeted advertising is out of touch with todays consumers, and it has failed to take the necessary steps to maintain market share and profitability, Drexler said.
I believe that to continue on the present course would not be in the interests of shareholders based on the companys deteriorating performance since the PIP was announced, he added, and, quite frankly, in my opinion, to continue on this path would be the height of folly.
He said the companys well-known brands, global retail and wholesale presence and supply chain still have value that should be unlocked and maximized for shareholders with the sale of the company through a competitive process.
