HOKA's Reality Check & Surf Industry Drama

Okay, so earlier this week, I was surprised to read in Surf Eat Shop Outside, aka SESO, way much easier, SESO, that the La Jolla Group was dropping the license for O'Neill, the core surf apparel brand, to focus on, quote, "Its operating platform business, providing back-end services like sourcing, logistics, and finance to emerging brands." Okay, so why is that surprising? Well, the La Jolla Group has held the O'Neill license for 33 years.

Let that sink in.

Since 1993.

That was the first year of the Clinton presidency.

Heck, I'd barely left college, and I'm older than dirt.

Okay.

[chuckles] From the La Jolla Group's perspective, I get that the surf industry is tough right now, truly, especially for big old-school brands.

Just look no further than the bankruptcy of Liberated Brands early last year, who had the licenses for the other big guys, Billabong, Quiksilver, Roxy, Volcom, et cetera.

And yes, the licensing model can be tough since you have to pay that licensing fee on top of all the rising costs around labor, transportation, tariffs, et cetera, et cetera.

And sure, a services model is more diversified with clearer margins and more predictable cash flows.

But walk away from a 33-year relationship with a brand that drives the majority of your revenue? Hmm.

Then there's the brand's owner, Luxembourg's Sysco Textiles.

Given the tumult in the surf industry, I just can't imagine that this is a great time to find a new licensee willing to invest in rebuilding a whole supply chain and distribution network around a surf brand.

So what is going on here? Well, I dug a little deeper, and it turns out that since 2024, La Jolla Group has been tied up in a legal battle with Sysco Technologies.

Because Sysco, through their Surf and Turf subsidiary, filed suit alleging that La Jolla Group had breached a pre-sale agreement to provide due diligence information.

I don't think it's a coincidence that the announcement of La Jolla Group dropping the brand coincides with both parties agreeing to dismiss the case.

The two are very much connected.

So what could a pre-sale agreement to provide due diligence information mean? Well, the legal filings, or at least the free ones that I could access, were sealed due to the confidential nature of the data involved.

But here's what I gather.

Pre-sale agreement means that Sysco Textiles was looking to sell the brand.

So then the question is, to whom, and why did La Jolla Group allegedly stop providing the due diligence information? So the first option is that Sysco Textiles was trying to sell the O'Neill brand to another company.

Hmm.

So who? Well, most likely another licensing company.

And casting our minds back to 2024, who was the most likely buyer? Well, probably Authentic Brands Group, who already owned a large number of iconic surf brands, the ones we just talked about, Billabong, Quiksilver, Roxy, and Volcom, which were operated through a separate but connected company called Liberated Brands.

Now, I've been through a couple of due diligence processes, and I will tell you they are a corporate proctology exam.