Business shares

If you are looking to invest in retail shares Standard & Poor's Equity Research team have said sportbrand Quiksilver can achieve long-term earning gains of 15 to 20 per cent and consider the shares undervalued vs. the company's industry peers and the S&P SmallCap 600 index.

Opportunity for market-share gains are expected over the next few years as Quiksilver penetrates international markets (Asia being the latest) and profit margins benefit from recent capital investments. Quiksilver enjoys strong global brand awareness, which suggests brand-extension opportunities in ancillary categories. Management has cited shoes, eyewear, and watches. The retailer's technical products -- clothing and accessories aimed at high-level surfers and skateboarders -- help it to establish brand authenticity among its youthful target group, while casual products provide the sales volume.

While the Quiksilver brand is positioned (and sized) for young men ages 15 to 24, it reaches a younger audience with the Quiksilver Boys and Quiksilver Toddlers marques. Quiksilveredition is the men's line. Other brands include Roxy, Hawk, Raisins, Teenie Wahini, and Leilani.

The business is pursuing growth opportunities in the Asia Pacific region and has recently opened its first retail store in China. The Chinese marketplace is currently hungry for Western lifestyle brands like Quiksilver and Roxy, and together with its partner, Glorious Sun Enterprises, one of China's largest retailers, Quiksilver has plans to open additional stores in Hong Kong and Beijing as well as other locations in the country.

The company's fiscal 2004 sales are projected to grow 16per cent, to USD1.13 billion. Gross margins should widen by 1.3per cent, partly offset by a 0.3 per cent increase in SG&A expense as a percentage of sales. We see operating income growing by 27 per cent, to USD128 million, representing 11.3 per cent of sales.

Standard & Poor believes the shares are undervalued, trading at a discount of about 30 per cent to teen-branded apparel-retail peers and a discount of some 10 per cent to the S&P SmallCap 600, based on calendar 2004 earnings projections. Risks to their investment recommendation include significant changes in consumer-spending patterns and preferences, a shift in boardsport trends, delays in merchandise receipts, risks related to international operations, and/or business disruptions resulting from political, social, economic or other events.