The Changes at Quiksilver; A Broader Industry Organizational Perspective

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On Monday, The Editors at Boardistan, posted a still evolving story about cuts to Quiksilver’s team rider programs. Here’s a link to the post. As Boardistan points out, at that time there had been no official announcement from Quik, so we didn’t know the extent of the changes. 

They then make the insightful comment that “…Hollister doesn’t spend a dime on “core teams” and they don’t seem to be having any problem in the “So Cal inspired clothing for Dudes and Bettys” space.” Good point.
 
Since the Boardistan posting, Transworld Business and Shop-Eat-Surf have reported related stories, and we’ve also learned that Quik is also cutting certain brands and staff.
 
With the management changes that have happened and are happening at Quik, it’s hardly surprising that we’d see some things done differently. Tactically, it would make sense to me to cut team programs some. I can’t find the article (I have too many articles) but it was some years ago I suggested that your very best team riders have value and the guys you flow product to and maybe pay for wins or photo credits have value, but that it was time to take a look at the value of the members in the middle of a larger team. A lot of brands have done that.
 
Strategically, if it makes sense to cut your team budgets now, then it probably made sense a few months ago or even longer. Why didn’t it happen sooner at Quik? Or, for that matter, at other companies.
 
In recent years, we’ve watched management and organizational transitions at Spy, PacSun, Billabong, Burton, and Quiksilver. In at least some cases we’re still watching and I’m sure there are some other companies that should be included in the list.
 
Remember when Burton cut The Program? In the press release, or in an interview, Jake said something like, “I didn’t want to do this, these people are my friends, I fought it and tried to figure out another solution, but the annoying and persistent finance people on my board wouldn’t leave me alone.” From time to time, I am one of those annoying and persistent finance people, so I know exactly what he meant.
 
Organizations have momentum. People don’t like to change. Successful entrepreneurs have a high level of self-confidence and capability or they wouldn’t be successful entrepreneurs.   
 
A founding entrepreneur or long time CEO is successful partly because of the values she has imbued the organization with and the consensus around what the company is about. There is a sense of “how we do things” that gives comfort not just to the stakeholders (of which the employees are one part) but to the CEO as well. People have an understanding of their place in the company and their responsibilities that goes beyond their box on the org chart. At its best, this can be liberating and create efficiencies.
 
But it only works as long as the competitive business environment it was created to function in doesn’t change too quickly or dramatically.
 
In 2008, we experienced that quick and dramatic change. We are still experiencing it. And we experienced it suddenly after the best economy for the longest period anybody has seen for, well, forever.
 
Those of you who might have followed the travails of JC Penney (Excuse me, I mean JCP) know that attempts to fundamentally change a company’s market positioning and way of doing business aren’t unique to the action sports/youth culture market, nor are they easy.
 
You’ve probably also noticed that it’s typical for the pressure to build and then for the change to begin with a defining event.  The period immediately following that event often seems a bit chaotic.
 
If you’ve reflected on my descriptions of organizations above, maybe that’s not such a surprise to you. My experience in turnarounds is that really fundamental change is resisted as long as it can be (hence the need for the turnaround. Typically, it is some outside stakeholder that forces the change. It can be the banker, the accountant, investors, or a tax authority (hint: it’s a really, really, bad idea to use payroll taxes as a short term source of working capital).
 
Prior to the defining event that leads to the organizational change there’s almost always, as I’ve described it before, “more of the same” going on. “If we do the same thing, but work harder, we can solve this problem,” is the way the thinking goes. I have also called it “denial and perseverance in a period of change,” and I think that’s a damned good phrase. That will often extend to claiming that required changes are being made, but they are tactical rather than strategic and don’t truly address the new business environment.
 
But what would you expect when you’ve got an organization created to function under a set of assumptions and positive business conditions that have lasted for decades that suddenly, in a few months, change so dramatically that in some sense those business conditions cease to exist? The existing organization, the existing management, the existing relationships, may simply not be capable of coping with the new environment and making the required changes. That’s not what they were optimized for.
 
When you’re dealing with a difficult business situation, it starts to wear on you after a while. Where it used to be fun to get up and go to work (most days- there is no perfect job), now it’s a struggle. If it’s tough enough, you spend most of your time talking with suppliers, bankers, and investors and worrying about cash flow. It takes an incredible amount of time and energy, but doesn’t do anything to help you address the new business environment. The management team, and the entire organization, starts to get a little beat up. Attitudes can turn negative.
 
Interestingly, that’s the moment when you can get the most accomplished in the shortest amount of time. The CEO’s I respect the most are the ones who figure out what has to happen but decide they don’t want to be the ones to make those changes and aren’t the right ones to do it.
 
So you end up with a new CEO. That CEO has incredible situational authority, at least for a while, exactly because the change has been resisted long enough that things are tough. He doesn’t have the personal relationships or vested interest in the organization that the previous CEO had. Look, when you walk into a company and they say, “Welcome Jeff. We can’t make payroll next week. What should we do?” it’s incredible liberating because there’s nothing you can’t try.
 
Inevitably, the changes are a bit chaotic because they’ve been put off too long, change fundamental things about the company, and usually happen fast. Insecurity among employees can also be coupled with a sense of relief, because they all knew something had to happen.
 
When we hear about these dramatic and maybe unexpected changes from Quik or any other company going through this process, let’s by all means feel bad that people are losing their jobs. Let’s also remember that the goal here is to keep Quiksilver a successful, profitable company that supports the surf industry and provide jobs and careers to the people still working there.
 
For the reasons I’ve described above, the change process in companies facing a dramatically new business environment can often by chaotic and look pretty awful at first. Typically, however, it’s happening for a good reason and needs to happen. To that extent, I look at it as positive.

 

 

Billabong’s Half Yearly Report. Now What?

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I listened to Billabong’s conference call yesterday and have spent part of last evening and this morning going over the detailed financial reports. I lead an exciting life. There’s a lot going on at Billabong, and I want to start with an overview before we get to the financial nuts and bolts. All numbers are in Australian Dollars. 

An Overview
 
The first thing everybody no doubt wants to know is whether or not there’s any news on the company being sold. There is not. All we’re told is that due diligence with both parties is in “an advanced stage” and should be completed in March. Whether there will be a firm bid when the due diligence is complete, what price the bid will be at, or whether Billabong’s board would accept a bid is not known.
 
You’ll recall that both potential buyers preliminarily offered $1.10 per share. Given the half year results, deteriorating business conditions, and Billabong’s lowering of its guidance for the full year from an EBITDA (before significant items- we’ll get to those) of $85 to $92 million down to $74 to $85 million, I’ll be interested to see if they still feel that the $1.10 offer is appropriate. 
 
Meanwhile new CEO Launa Inman is pursuing the transformation strategy she described some months ago. You may recall that there were a lot of things I liked about that strategy. It seemed like there were a bunch of costs that could be reduced. Some of those savings have been realized, but others will take some time and there’s significant expense required to realize them.
 
119 retail stores had been closed as of February. Forty more will be closed by June. Starting in March, the number of suppliers will be reduced from north of 270 to 50. That has to be worth a lot of money but of course you don’t see the benefit until you’ve actually been through the product cycle with just 50 suppliers. Their process of reducing SKUs is also ongoing, but we didn’t get any specifics on that.
 
The organization is moving from a regional to a global reporting structure and there’s a global information technology strategy is place and being rolled out in the middle of this year. In the conference call we’re told that IT used to report through to each region. Billabong has now hired an IT director who reports to CEO Inman and is tasked with pulling it together. The comment that most caught me by surprise was her statement that Billabong does not have a true general ledger across the whole business.
 
I suppose that’s a hangover from the days of “Buy good brands with good management and let them run their operations.” Perhaps an appropriate strategy for a different economic reality and, in any event, lacking a companywide general ledger, you had no choice.
 
It sounds like there are a lot of changes in reporting relationships and responsibilities going on.  Wonder how it will all impact the people running the various brands. No doubt they are wondering the same thing. The described changes are necessary in my opinion, but also disruptive. Peter Meyers, the CFO, has been there only four weeks speaking of drinking through a fire hose.
 
Remember when Gary Schoenfeld became PacSun’s CEO and turned over the entire senior management team? We talked then about how there had to be a settling in period measured in months. I don’t know how extensive the changes will be at Billabong, but it’s the same concept. Some patience is required.
 
So there are a plethora of ultimately good and necessary changes and a certain level of organizational musical chairs going on. Accomplishing all this costs some money. Meanwhile, cash flow is impacted by weak business conditions and the bank is nervous enough to make Billabong move to an asset based line of credit. And then there are two potential bidders for the company. What happens to which brand if one of them is successful? The stock closed at $0.86 a share yesterday, down from $0.92 before the announcement, so it looks like the market is not quite sure, after yesterday’s results, that a deal will happen at $1.10.
 
CFO Meyers noted that of course the company had to watch its cash flow, but he said he was comfortable that they have the cash flow to continue the transformation strategy. I wonder if that’s true if business conditions worsen more.
 
The best thing that could happen to Billabong is to resolve the issues of whether the company is going to be sold. The disruption, uncertainty, and general organizational angst surrounding just the transformation strategy is adequate without the addition of due diligence and the possibility of a new owner. If there is a firm offer to purchase Billabong, I suspect it will be accepted (or not) based on how Billabong’s board perceives the company’s financial ability to implement the transformation strategy.
 
Numbers
 
Let me start by giving you the actual income statement numbers. Then I’ll go through various explanations, adjustments, and qualifications you’ll want to know about.
 
Revenues from continuing operations were $702.3 million, down from $764.3 million in the PCP for a decline is 8.1%. As you would expect, cost of goods fell from $360 to $335 million and gross margin was down from 53.4% to 52.1%. Selling, general and administrative expenses fell from $297 million to $268 million.
 
Okay, now here’s the biggie. Other expenses rose from $96 million in the PCP to $624 million this year. I guess I’d better stop and explain that.
 
As we’ve discussed before, companies are required to evaluate their intangible asset values and adjust them if those values have changed. Impairment charges they are called. I consider the process to be valid. If you don’t expect to earn as much with an asset as you did before, it’s certainly worth less. But doing the calculations is arcane as hell and it’s tough to say if the numbers you arrive at really reflect market value. Impairment charges for brands and goodwill are noncash charges.
 
Billabong ended up having to take big write downs on the goodwill and brand values they had on their balance sheet. By far the biggest chunk was for the Billabong brand, whose carrying value was reduced from $252 million to $30 million. Billabong took total brand and goodwill charges of $427.8 million. The charge for Nixon was an additional $107 million and it took its carrying value down to $29 million.
 
Including those charges, Billabong called out “significant charges” that totaled $567 million pretax. You can see the list on page 12 of the Half Yearly Report Presentation. Click on it on this page to open.
 
The charges include $1.9 million for inventory clearance below cost, $3.1 million for specific doubtful debts, $5.8 million for takeover bid defense, $6.3 million for the transformation strategy, $11.7 million for Surf Stitch, and $3.5 million for a supply agreement they had to pay as part of the Nixon deal. They then proceed to show their results as though these costs hadn’t been incurred, arguing that these are unusual, one-time costs. You can decide for yourself which of these you think should or should not be excluded. $1.9 million was included in cost of goods sold, and $16.2 million in selling, general and administrative expenses.       
 
The bottom line, including all these charges, was a net loss of $537 million compared to a profit of $16 million in the PCP.
 
Nixon
 
 Let’s take a short detour to examine the impact of the Nixon deal on the income statement. Total revenue in the PCP was actually $850 million. But remember they sold 51.5% of Nixon in April, 2012. Accounting treatment required that their share of Nixon’s revenues no longer shows up as revenue on the income statement. We just see their share of Nixon’s after tax profit for this year. For the PCP it’s carried as discontinued operations and the $86 million in revenue is excluded from the top line. Nixon’s $18.4 profit after tax is shown as a separate line item called profit from discontinued operations. For the six months ended December 31, 2012, there is a loss shown of $2.44 million. This is a one-time cost they had to pay to get out a contract when the deal was done and doesn’t have anything to do with how Nixon is doing.    
 
However, Billabong’s share of Nixon’s profits in the most recent six month period was $1.142 million, “materially down” from what it was expected to be at the time of the transaction and 30% to 40% down compared to last year. During the question session, there was some concerned expressed about the debt on Nixon’s balance sheet ($175 million) but we were assured there was no recourse to Billabong for that debt.
 
Looks like the timing of the Nixon sale was pretty good. Probably wishing they’d sold the whole thing. Boy, I didn’t see that one coming.
 
Segment Results
 
Billabong reports its results for three main segments; Australasia, Americas, and Europe. The headline is that revenue and EBITDAI as reported were down in all three segments. These numbers include the Nixon revenue of $86 million in the PCP. I’ll give you the numbers without Nixon after this.
 
In Australasia, revenue fell from $296 million to $276 million or by 6.8%. In the Americas, the decline was 20.2% from $401 to $320 million. Europe was particularly bad (not a surprise) falling 30.7% from $150 to $104 million.
 
Here are the EBITDAI numbers. Australasia fell 48% from $27 to $14 million. The Americas was down $30 to $13 million, or 56.7%. Europe went from $16 million to a loss of $799,000. When you include third party royalties, Nixon, and that bad contract they had to pay, we’re left with total EBITDAI falling 66% from $74 million to $25 million.
 
Now here are the numbers, but without Nixon. It’s kind of overkill, but I think it’s important. Without Nixon, revenues in Australasia fell 2.5% from $283 to $276 million. In the Americas, they were down 7% from $344 to $320 million.  Europe fell from $135 to $104 million, or by 23%.
 
EBITDAI without Nixon fell from $21 to $14 million or 33% in Australasia. The Americas went up slightly from $12.2 million to $12.5 million. Europe’s EBITDAI fell from $10 million to a loss of $799,000. Total EBITDAI excluding Nixon fell from $45 to $28 million.
 
As you can, the comparisons look better without Nixon and, in fact, the EBITDA is $3 million higher.      
 
In the CEO’s presentation, we learn that the sales decline in the Americas was led by retail which fell US$ 19.1 million. This was “driven by negative comparative store sales growth in Canada and store closures.” Wholesale revenue fell US$ 4.2 million. $US 3.9 million of that was in Canada. Future orders are up in the U.S., but down in Canada. West 49 was down 8% for the six months. Retail sales in the Americas were down 6%. 
 
There was also a comment that they did substantial closeout business in the Americas including to TJ Max. They are hardly alone.
 
In Europe, action sports distribution continues to shrink, there’s pressure on margins, and heavy promotional activity. CEO Inman noted they lost 25% of all their accounts in Europe last year either because they went out of business or due to credit hold. There were also some accounts that reduced orders due to stock left from last year.
 
In Australasia, the sales decline was driven by store closures, but the online business is growing. Wholesale forward orders are “not where we’d like.” 
 
The numbers are a bit different in constant currency, but not enough to justify me laying them out here.
 
So these results are not specifically too good. How might Billabong management give us a little different perspective? 
 
Here’s what Billabong says on page four of their Half-Year Financial Report. You can see the report here. Just click on the link and open it as a PDF.
 
“Given the impact of the Group’s transformation strategy announced to the market on 27 August 2012 and the impact the difficult global macro trading conditions have had on results this half-year, the Group’s results have been presented on an adjusted basis to exclude the significant items to enable a more representative comparison to the prior year as detailed below.”
 
Calling the transformation strategy costs one time I can see, though I don’t expect they are done with those costs. But certain costs that result from the “impact of difficult global macro trading conditions” can be adjusted for? How can those possibly not be normal operating costs? Maybe I just don’t speak Australian English. A company doesn’t get a “do over” because the economy sucks. That’s what you’re supposed to manage through.
 
Anyway, if you eliminate all those costs they have labeled as significant, the adjusted EBITDAI is shown to fall from $83 million in the PCP to $57 million. Net profit is down from $38 to $19 million, which is a bit better than a loss of $537 million.
 
The balance sheet has gotten smaller but, thanks to the sale of half of Nixon and the raising of capital, not gotten much weaker. Cash generated by operations has fallen from $87 million to $29 million.
 
As much as I like Billabong’s transformation strategy, I’m left wondering if they’ve got the time and financial capacity to implement it, especially if the world economy should stay soft or even get worse.      

 

 

Trade Show Evolution: The Boardroom with the Vans U.S. Open. I Like It, I’m There.

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Over the years I’ve had a lot (some would say way too much) to say about Trade Shows. I’ve suggested there were too many, that they were too expensive, that the internet made them less necessary, that they’d lost focus, weren’t efficient, and that the way product was sold into broader distribution made them less important. 

The poster child for most of these issues was ASR which, as you all recall, went away a couple of years ago. I don’t think my concerns are all resolved, but there’s been progress.
 
And the smartest thing anybody did in the wake of ASR’s closing was, well, nothing. Absolutely nothing. This brilliant doing of nothing was conceived and implemented by Surf Expo.
 
You remember all the noise and wringing of hands that accompanied the closing of ASR. Everybody wanted to know what was going to “replace” ASR. There were various proposals and discussions among all the usual suspect organizations about doing a new trade show. Happily, in my judgment, nothing happened.
 
I say happily because the last thing we wanted to do was replace ASR which, I think it is generally agreed, had become a flawed model. But when ASR went down, people lost streams of income. Having carefully studied this for many years, I have determined that nobody likes it when they lose a source of income, and they will flail about madly trying to replace it.
 
Flailing there was, but no new event emerged. A little time needed to pass, things had to settle out, and we had to get a better idea of just what it was we needed, because it sure wasn’t to “replace ASR.”
 
In the fullness of time, the Agenda show evolved to be part of the solution for the street and skate part of ASR. I never saw Agenda as a surf trade show and, frankly, how well did having skate and surf under the same roof at ASR work out anyway?
 
Then enough time passed. Nike walked away from the U.S. Open, Vans (owned by VF) became the title sponsor for the event owned and operated by IMG and GLM Fashion Group that runs Surf Expo and LAUNCH LA bought The Boardroom. The stars became aligned (and a bunch of people worked really hard).
 
The result is that we get the event announced today and described in this press release. I’m saying event because trade show doesn’t do it justice and I don’t yet have a better word to describe it. Here’s what the press release says in part.
 
“A celebration of surfing, surfboards and the shapers who make them, The Boardroom will be held within the Vans US Open of Surfing in a 50,000 square foot freestanding pavilion that will be floored, carpeted, and fully climate controlled. It will feature shaping competitions, seminars, entertainment, autograph signings and hundreds of booths filled with surfboards, legendary and contemporary shapers, surf apparel and accessory companies. The Boardroom will be a hybrid trade/consumer event with two days exclusively dedicated to retail buyers and media as well as two days also open to the general public.”
 
Here’s an event, then, that involves the surf industry, its customers, the media and the world’s best surfers.   It will be all about surfing and, I hope and assume, we won’t have an Invisilign tent on the beach this year. I don’t know- I just had a hard time seeing their connection to surf.
 
The industry needs this kind of focus and excitement.   Whatever this thing is, I’m enthusiastic about going to it like I’ve haven’t been about a trade show in years. I’m expecting to have fun, which is kind of why I got into this industry in the first place. 

 

 

PPR’s Annual Report: How’s Volcom Doing?

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When a smaller company in our industry is acquired by a conglomerate, it often becomes difficult to follow how the acquired company is doing because the conglomerate isn’t required to release any details on that company’s performance. Think Reef after it was acquired by VF (though I imagine we might have heard more if Reef had been doing better). 

PPR, however, is telling us a bit about what’s going on with Volcom and its plans for the Sports & Lifestyle segment of which Volcom is a part. 
 
PPR is a French company with revenues of 9.7 billion Euros in the year ended December 31, 2012. The current exchange rate is about $1.3 to the Euro. So 9.7 billion Euros is around US$ 12.6 billion. It acquired Volcom in July of 2011.
 
PPR has two divisions; its Luxury Division and Sport & Lifestyle. PPR’s luxury brands, including Gucci, Bottega Veneta, and Yves Saint Laurent, contributed 64% of its revenue for the year, or 6.2 billion Euros. The remainder (3.532 billion Euros) came from its Sports & Lifestyle segment that includes Volcom and Electric as well as Puma, Cobra (golf) and Tretorn (outdoor footwear). 
 
The last complete fiscal year results for Volcom we saw before it was acquired was for the year ended December 31, 2010. In the complete year, in US dollars, Volcom reported revenue of $323 million. Operating income was $30 million net income $22 million. Keep those numbers in mind as we move forward.
 
Of the total Sport & Lifestyle segment, Puma revenue represented 3.271 billion Euros, or 92.6% of the segment’s total. That means that Volcom, Electric, Cobra and Tretorn collectively generated revenue of 261 million Euro. You can see that result on page 27 of this PPR document. Go ahead and look just so you know I’m not making it up.
 
At 1.3 Dollars to the Euro, that’s about US$ 339 million. That’s only 2.7% of PPR’s revenue for the year, so it’s not really significant financially.
 
There is a bit of confusion here. Page 40 of the full financial result (which you can down load here  (It’s the first item on the list after you click “documents” at the top) talks about “Other Brands” in the sport and lifestyle segment. That is, all brands in that segment except Puma. It specifically lists Volcom and Electric (but not the other brands) and says they had revenue of 261 million Euros and recurring operating income of 15 million Euros. But it seems to exclude Cobra and Tretorn.
 
I can’t tell, then, if the 261 million Euros in 2012 revenue is just Volcom and Electric or includes these other two brands. I suspect that it does.      
 
Compare those numbers for Sport & Lifestyle segment excluding Puma with Volcom’s numbers in its last year as a public company. Note that operating income is US$ 19.5 million and is a third less than Volcom’s stand-alone operating income in its last full independent year.   At best, Volcom has grown only a bit. If that 261 million Euros in revenue includes Cobra and Tretorn, Volcom’s year over year revenues could have fallen. In the fourth quarter, according to the financial report, Sport & Lifestyle revenues rose 7.6% on a comparable basis. But excluding Puma, comparable segment revenues were down 4.8% and totaled 64 million Euros. As far as I can tell Volcom (including Electric) is most of what’s left in the segment after you remove Puma. 
 
I would like, at this time, to renew my congratulations and admiration, expressed at the time of the deal, to the Volcom management team for the timing of their sale to PPR and the price they got.
 
In the conference call, we learn that Volcom held its gross margin, but that marketing initiatives had a negative impact on operating margin. PPR management also referred to a “…worsening economic context…” and a “…major reorganization of certain retailers, notably in the United States…” in the second half of the year. 
 
Puma’s recurring operating income for the year was down 13% while that of the other sport and lifestyle brands rose 9.6%. EBITDA fell 10.5% for Puma but rose 28.1% for the Sport & Lifestyle segment. Remember most of the improvement in the other Sport & Lifestyle brands results from owning Volcom for a whole year. Impossible to tell what they would have been without that.
 
In spite of the rising sales Puma’s net income fell from 230 million Euros in 2011 to 70 million Euro in 2012. PPR is implementing a Transformation and Cost Reduction program for Puma. This will involve clarifying brand positioning, improving product momentum, improving efficiencies in the value chain and revamping the organization. Apparently, the organization didn’t evolve as the brand grew and that caused some problems. I’d note that as this program of transformation and cost reduction proceeds, average head count at Puma has risen from 10,043 in 2011 to 10,935 in 2012.
 
It’s also interesting to see that for the year wholesale revenues, which accounted for 81.6% of Sport & Lifestyle revenue, grew by only 0.6%. We’re told, “The unsettled economic environment in Western Europe, coupled with the reorganization of Volcom’s distributor store networks in North America, weighed on the performance of this distribution channel during the year.”   Retail sales in directly operated stores (don’t know if that includes online) rose 17.6%.   
 
In the conference call, we were told that more Sport & Lifestyle acquisitions were expected after Puma had been turned around and that there would be a focus on outdoor. Puma is to remain the core of the Sport & Lifestyle segment.
 
Here’s what PPR wants to do with its Sport & Lifestyle brands:
 
“For its Sport & Lifestyle brands, PPR’s strategy is based on expanding into new markets while bolstering
growth in the most mature ones, developing distribution, launching new products that are consistent with each brand’s DNA, and continuing to identify and foster synergies between the brands, particularly in sourcing, logistics and knowledge sharing in the areas of product development, distribution and marketing. The objective is to regroup sports brands that have an extension into Lifestyle.”
 
There’s nothing wrong with that but it’s kind of generic and pretty much lists what all brands want to do. But as I’ve noted before, that’s all you can expect in a public document. No company wants to lay out its strategy in detail for its competitors. 
 
While Puma struggles and it’s not clear that Volcom is doing all that well, PPR management is looking at revenues from their Luxury Brands that grew 26.3% year over year, while Sport & Lifestyle was up only 11.9%. Recurring operating income from Luxury was up 27.6% but fell 12.1% in Sport & Lifestyle. EBITDA rose 26.6% in Luxury, but fell 9% in Sport & Lifestyle.
 
It’s enough to make a management team schizophrenic. The Luxury Brands that represent two thirds of your revenue are doing great. Sport & Lifestyle, where you obviously see potential and opportunity (or you wouldn’t have bought Volcom) aren’t doing so well. But you expect to make further acquisition in this segment and have an outdoor focus.
 
We’re only a year and a half from the acquisition of Volcom, and that isn’t long to integrate a company and bring the strengths of PPR to bear. Puma has obviously helped Volcom introduce its new shoe line. But Puma and Volcom seem to me to be very differently focused companies. And as I think about outdoor, I’m not sure that’s how I think of either of them.
 
When PPR bought Volcom, I suggested, kind of half seriously, that maybe PPR would turn Volcom into an upscale, boutique kind of brand and develop some appropriate products. I’m now up to maybe two-thirds serious about that.
 
PPR no doubt has noticed that everybody is interested in the youth culture and outdoor markets and think they should be too. Can’t blame them. But I come away from their documents and conference call with the sense that they maybe they aren’t quite clear on what the sport/lifestyle/outdoor market represents.
 
During the conference call, between the presentation and the question and answer session, there was a short video featuring flashes of most of their brands. There was a lot of action sports material in it. But occasionally when the skate or snowboard trick was bracketed with the golf shot, it felt like there a certain discontinuity in the whole thing. Maybe I’m reading too much into that, and it was perfectly appropriate for the audience. But I think PPR knows that they need to think about how the brands in their Sport & Lifestyle segment are positioned and, ultimately, why they are in the business if they can’t get growth and returns consistent with their luxury brands.