Quiksilver’s Stock Drops 27% on News of Rising Costs

Sparked by an analyst’s warning that rising costs will cut into next year’s profits, investors Wednesday clobbered Quiksilver Inc.’s stock.

Shares of Orange County’s second-largest apparel company fell 27%, or $9.25, to $24.50 a share, making it the fourth-biggest loser on U.S. stock markets. More than 1.16 million shares traded hands, 17 times the company’s three-month daily average.

The drubbing came after Shelly Hale Young, senior analyst at Hambrecht & Quist, lowered her 1998 earnings estimate by 6% to $2.05 a share and downgraded Quiksilver to “hold” from “buy.”

While acknowledging that the company’s higher outlays will help it grow, “we are surprised by the magnitude of the spending and the lack of earlier visibility,” Young wrote in a three-page report. She could not be reached for additional comment.

Quiksilver Chairman Robert B. KcKnight Jr. took the biggest hit among individual shareholders. His 4.6% stake in the company fell $2.9 million in value, to $7.8 million.

Young’s downgrade followed a company conference call Tuesday with analysts, in which the scope of the additional costs--at least $5 million--was disclosed for the first time.

The bulk of that stems from a new advertising campaign for the Roxy juniors line that will appear in Seventeen magazine, said Steve Brink, Quiksilver’s chief financial officer.

The company also will spend an additional $1 million next year in leasing a new, larger warehouse and fabric-cutting facility in Huntington Beach. A larger warehouse in France also will add to the costs.

“To continue to grow the company, we need to invest in people, merchandise and buildings,” Brink said.

Earnings per share should still grow nearly 20% in fiscal 1998, “which we think is excellent,” he said.

Young also acknowledged that she expects Quiksilver to continue to grow. She predicts a 20% increase in sales next year to $274 million. The company’s acquisition of Seattle snowboard manufacturer Mervin Manufacturing earlier this year should bolster sales, but not enough to offset higher costs, she said.

She did not change her fourth-quarter earnings estimate of 41 cents a share, or about $2.9 million. Quiksilver is set to report fourth-quarter earnings in early December. The company earned $2.6 million, or 36 cents a share, in the fourth quarter last year.