In Focus

How Foxy Is Roxy?

All this week in the Chicks Eye View we have been chirping about clothing retailers, from American Eagle to Ralph Lauren to my mother's ever-so informative article on Stein Mart. I don't know if you're like me, but I have to include at least one clothing retailer in my stock portfolio because it's an industry I know (ahem, know well). I currently own stock in The Gap (GPS), Abercrombie and Fitch (ANF) and Bebe (BEBE). Okay, I admit, none of them have performed particularly well for me over the past two years, and to make matters worse, their balance sheets and income statements tell the reasons why. All their numbers are heading in the wrong direction. From Net Income to Sales and Cash to Long Term Debt, they're all flying south. (It's no wonder with The Gap: Before Christmas I sauntered in ready to outfit all four kids in the latest Holiday fashion. Problem was, there was no Holiday fashion. There was not a single thing they would even try on.) Since it is the New Year, I thought it was time to take a good hard look at my stock portfolio and see where my retail portion of the diversified dollars could get a better return. But first, I had to figure out what retailers are worthy. Where are kids shopping these days? What's hot? What are they buying? Instead of my company's numbers, I thought I'd fly south.

The kids and I hopped a plane to Los Angeles. They had no idea that I was conducting an experiment. We had six days in L.A., and all their Christmas money. We headed out to the mall. (No, this wasn't the main reason for the trip, we did Disney and a couple of hockey games. But I have mall kids. they looooooove to shop.)

Each mall had an Abercrombie and Fitch, Gap, Limited Too, and Old Navy. The kids didn't spend a dime. Every shopping trip (and there were many) was spent in search of Roxy, Hawk and Quiksilver. They couldn't get enough of the stuff. According to the kids, any Roxy item in Canada is immediately scooped up before it hits the shelves. The eighth-grade girls are on a mall rotation schedule checking out all the stores that have new Roxy and Quiksilver items. But the malls in L.A. had entire ROXY and Quiksilver stores! They were in heaven! Who makes this stuff?

When I got back to the hotel room, I had to dig further. This is the best part about being a Chick, knowing how to dig further. Quiksilver Inc (NYSE:ZQK. isn't that a weird ticker?) makes clothing and accessories for active minded people (that is what their snapshot says anyway). But get this, Quiksilver makes Roxy and Hawk too! Just like The Gap owns Banana Republic and Old Navy, Quiksilver is the company behind Quiksilver, Roxy, Hawk, and many other brand names. They also own the labels such as Raisins, Radio Fiji, Teenie Wahine, Leilani and Alex Goes. They primarily are interested in garments for young men and women, but also whip up some things for the even younger crowd. In addition, they make snowboards, snowboard boots and bindings under the Lib Technologies, Gnu and Bent Metal labels.

During my "experiment," I witnessed the kids going bonkers over Roxy furniture, bedding, luggage, and clothing. My son couldn't get enough of the Quiksilver and Hawk "hoodie" sweatshirts, so he spent ALL of his Christmas money and bought four. The girls went berserk over the Roxy "hoodies" and t-shirts so they each had to buy a new piece of Roxy luggage to carry all their purchases. I watched other kids flocking around the surfing stores, or their displays in department stores like Nordstroms. No wonder Abercrombie and Fitch and The Gap are having problems. everyone is buying Quiksilver. Where have I been??

I had to do the numbers. maybe this would be my next investment. I whipped on over to marketguide.com to see how "foxy" Roxy really was, or how "gold" was Quiksilver. (I crack myself up.) Let's see, after some PDQ tapping on my calculator, ZQK looks like this:

Gross Margins: 38%

Net Margins: 5.5%

Cash to Long Term Debt: .08, Uh-oh

Flow Ratio: 3.5, shoot. not good

But this doesn't mean that I'm not going to watch it. Their sales have increased consistently quarter to quarter and year over year. This past full year of fiscal 2000 their net income (a number I love to see increase since it means they are figuring out how to lower expenses) rose 19.8% versus the full year of fiscal 1999. According to their CEO, Robert B. McKnight, Jr. (not to be confused with the infamous Bobby Knight. Can you just picture the basketball coach Bobby Knight in surf clothes? Still cracking myself up.), "We are especially pleased with the strong pace of our bookings for the Spring season and the excellent results we are seeing with Roxy."

Does this mean I have to make another trip to L.A. for the spring line? Please don't give my kids any Easter money.