Moody’s Ups Quiksilver Rating After Exchange Offer

Moody’s Investors Service has raised its ratings of Quiksilver due to the company’s recent debt-for-equity exchange offer and improved earnings during the first half of the year, according to the Wall Street Journal.

Moody’s said Monday its upgrade also reflects Quiksilver’s improved results, with operating income jumping 78% in the first half of its fiscal year. This is primarily due to higher margins that reflect better alignment of inventory levels with demand, resulting in fewer markdowns. Moody’s believes the recent improvements are sustainable.

Quiksilver’s ratings were lifted by a notch to B2, although they are still five notches into junk. The ratings outlook is positive, meaning further upgrades are possible.

The ratings take into account that the company’s product range is generally sold at a relatively higher price point than other apparel offerings. As a result, Quiksilver is susceptible to a downturn in spending as consumers focus on value, which is most evident in the recent weak performance of its Roxy brand.

But the ratings also reflect the company’s significant global diversification, as well as its ownership of a portfolio of well-known apparel and footwear brands. The positive outlook reflects Moody’s expectation that the company’s credit metrics could improve further as it continues to meaningfully deleverage its capital structure.

Quiksilver in June reported its fiscal second-quarter profit jumped on higher margins, which helped offset lower revenue. The company has been stung by feeble economies in its biggest coastal markets: California, Florida and Hawaii. It had projected fiscal third-quarter revenue to fall in the low teens on a percentage basis; those results are due in the next several weeks.

Shares were recently up 1.9% to $3.86. The stock has jumped 90% this year.