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Quiksilver Sneaking Up on Hot Skate Shoe Market

The Huntington Beach firm's CEO says the purchase of DC Shoes will make it 'a major player' in footwear.

March 09, 2004|Leslie Earnest | Times Staff Writer

Quiksilver Inc. wants to outfit skateboarders from head to toe.

The Huntington Beach company, whose Hawk clothing brand is already well-known among skateboarders, said Monday that it would buy the hot skate shoe maker DC Shoes for $87 million in cash and stock. Quiksilver would assume $10 million in debt and pay an additional $57 million through 2007 if DC Shoes reached certain performance targets.

Analysts said the acquisition would give Quiksilver a foothold in all areas of skateboard fashion.

"They have the Quiksilver brand and the Hawk brand, but neither of those have allowed them to fully capitalize on the skate channel," said Mitch Kummetz, an analyst with D.A. Davidson & Co. "DC is the vehicle that will help them fully penetrate the skate market."

The two firms sell products in many of the same stores, often to the same customers, and both are expanding internationally. With a tie-up, "they're going to be kind of shaking each other's hands," said Adam Sullivan, editor of Skateboarding Business magazine.

Vista, Calif.-based DC Shoes, a privately held company with sales of more than $100 million last year, also makes snowboard boots and clothes and accessories for men and juniors. Apparel accounts for about 25% of DC's sales.

As for Quiksilver, the world's largest surf wear maker, it had sales of $975 million in its last fiscal year, which ended Oct. 31.

During a conference call with analysts, Quiksilver Chief Executive Robert B. McKnight said DC would help Quiksilver expand its $50-million shoe division while Quiksilver would help DC broaden its apparel line.

"We believe we have now become a major player in the footwear industry," McKnight said.

The DC brand, while not a household name among mainstream shoe buyers, is considered one of the top three skate shoe brands among skateboarders, along with Emerica and DVS, Sullivan said. That's a considerable feat, he said, because skateboarders are notoriously fickle about brands.

"It's definitely one of the industry leaders as far as credibility," he said. "It's one of the few companies in skateboarding that's made the jump to mainstream exposure while simultaneously hanging onto their credibility."

Doing the same thing on a much larger scale is one thing that has distinguished Quiksilver, which owns about 15 brands, including Roxy for girls, Teenie Wahine for younger girls and Fidra for golfers.

Indeed, the action sports apparel industry, which is centered in Southern California, isn't an easy market to penetrate or navigate.

Skate shoe sales, blazing a few years ago, skidded over the last couple of years but now appear to be rebounding, Kummetz said. Shoes that sold two years ago for $90 a pair now sell for $60, he said. But prices have begun to edge up.

"They're buying DC at a very good time," Kummetz said. "They're not buying in at the top. They're buying in off the bottom."

The acquisition would be a heady event for the owners of DC Shoes, Ken Block and Damon Way, a snowboarder and a skateboarder who launched the business in 1993 because it seemed like it would be fun.

Both attended college but neither graduated. While at Palomar College in San Marcos, Calif., Block designed logos and artwork on the school's computers and transferred the design to T-shirts.

That led to his first business, a clothing company. Later, while working at a local sports shop, he met Way when Way came in to get a surfboard waxed.

It was unclear Monday whether DC Shoes had resolved a lawsuit filed by its former chief financial officer, who claimed he was wrongfully fired because of his age. DC denied the charge. The company also was the subject of an Internal Revenue Service audit that began in 2001.

Quiksilver officials declined to comment on either matter. Neither Block nor Way could be reached for comment.

The acquisition is expected to close by Quiksilver's third fiscal quarter.

The company forecasted that the deal would provide a slight boost to profit this year and add about 6 cents to earnings per share in fiscal 2005. Quiksilver will report first-quarter earnings Wednesday.

The planned transaction was announced after the stock market closed Monday. Shares of Quiksilver had risen 28 cents to $19.80 on the New York Stock Exchange.

The stock has gained 43% in the last year.

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