Takeover Time: Does Quiksilver’s Plunge Make It a Target?

Quiksilver (ZQK) sure didn’t catch that wave.

Mark Abramson

Shares of Quiksilver have dropped 42% to $3.36 at 11:35 a.m. today after the Huntington Beach, Calif.-based clothing company reported an adjusted loss of 15 cents a share, missing forecasts for a loss of two cents, on sales of $408.2 million, below the Street consensus for $449 million. Even worse: Quicksilver doesn’t expect sales to get much better.

Monness, Crespi, Hardt’s Jim Chartier explains why he downgraded Quiksilver after today’s plunge:

We are downgrading shares of Quiksilver to Neutral (from Buy) given limited visibility into the timing of the company's turnaround. We continue to see a meaningful margin opportunity for ZQK as the company transitions from a founder-led organization to a more efficient, global apparel and footwear company. However, the cyclical/secular industry headwinds in the wholesale channel have proven significantly more challenging that we anticipated. Accordingly, the timing of a potential turn in the wholesale channel appears to be pushed out six to twelve months and we prefer to see evidence that management's strategies are working before recommending the stock.

Citigroup’s Kate McShane and Corinna Van der Ghinst wonder if VFC (VFC) will buy Quiksilver:

[We] believe VFC is the most likely apparel company in our universe to make an acquisition in 2014. Our meetings with management have indicated that with the Timberland acquisition fully integrated & growth plans on track, and having returned the balance sheet to pre-TBL debt levels, they are actively seeking their next deal…

Following VFC's unsuccessful bid for Billabong LY, we think Quiksilver could be a consideration, based on: 1) a strong, authentic action sports brand; 2) a solid girls'/women's brand in Roxy, which we believe still has significant potential, esp given ongoing strength in kids' action/activewear, 3) DC Shoes, which would complement VFC's Vans; & 4) Quiksilver should also help alleviate some of VFC's 2H exposure, as it is more of a 1H brand.

McShane and Van der Ghinst believe Quiksilver could fetch $900 million to $1 billion.

VFC has dipped 0.2% to $63.27 today.