DA Davidson Downgrades Quiksilver, Slashes Price Target To $0.90

In a report published Wednesday, DA Davidson analyst Andrew Burns downgraded the rating on

from Buy to Neutral, while reducing the price target from $3 to $0.90, citing debt, product delivery issues and more strategic change as the reasons. Quiksilver reported its F2Q revenue, pro-forma EBITDA and EPS at $333.1 million, $6.7 million and $(0.22), respectively, short of the consensus estimates. On a constant currency continuing category basis, Asia Pacific revenues grew by 7 percent y/y, while revenues from EMEA dipped 3 percent y/y and Americas were down 4 percent. Gross margin contracted 164bps y/y to 47.1 percent. The new management team has withdrawn the previous guidance for FY15, which called for revenues of $1.38-$1.45 billion and pro-forma EBITDA of $70- $80 million. "Management stated that they expect ongoing supply issues, especially in North America, that will impact sales and margins, despite the order book increasing," analyst Andrew Burns said . In the report DA Davidson noted, "We are no longer confident in recommending shares based on the long-term recovery potential and brand portfolio value. While numerous management changes, balance sheet adjustments, and strategy changes have occurred in recent years, we believe the current combination of headwinds (FX, delivery issues, management changes, pricing issues, brand relevance) makes it extremely difficult to gauge the magnitude and timing of an improvement in profitability." "The urgency of a potential recovery is exacerbated by debt in excess of $800 million. The €60 million EMEA line of credit will need to be renewed/replaced by October 2016 and the €200 million 8.875% notes mature in December 2017," Burns added.