ZQK is the most expensive apparal company on a multiple basis--trades at 9.5x 2014 EBITDA, while most trade at 8x or below. Its overvalued even giving credit for cost cutting which new management is trying to execute. The market is choosing to ignore downside risks to future results:
a) The action sports category has been losing market share for the last 5 years
b) DC Shoes - the only bright spot over the last few years - is encountering major headwinds based on my channel checks. This brand carries the best margins. VF Corp's Vans is eating their lunch.
c) Significant slowdown in ZQKs most profitable intenational markets. Australia, Canada, Spain (55% of under 25 year olds unemployed--ZQKs core demo). Also you have to question what the weaker yen is going to do to them in Japan
d) New management wants to shift distribution strategy to bigger box retailers which carry poorer gross margins and risks eroding the credibility of their brands whch grew up in surf and skate specialty stores
e) Balance sheet risk. Most of their debt comes due in the next 2 years.
Can someone please explain why the bullishness here. It seems way ahead of itself.
You miss an important issue in clothing retailing... Repositioning and rejuvenating the brand... There has been none as ZQK was burdened with its lousy ski acquisition... Now it should capitalize on a simple concept that has global appeal...buy or die...