COSTA MESA, Calif.–(BUSINESS WIRE)–Aug. 8, 2005–Volcom, Inc. (NASDAQ:VLCM) today announced that for the second quarter ended June 30, 2005 total revenues increased 47.1% to $35.9 million, compared with $24.4 million in the second quarter of 2004. Gross profit as a percentage of total revenues increased 2.2% to 52.1% for the second quarter of 2005 from 49.9% in the second quarter of 2004.
Operating income for the second quarter of 2005, which was reduced by a $1.0 million charge relating to a one-time payment for the settlement of litigation, increased 41.2% to $7.6 million, compared with $5.4 million for the second quarter of 2004. Operating income as a percentage of total revenues decreased 0.9% to 21.3% for the second quarter of 2005 from 22.2% in the second quarter of 2004. Excluding the effect of the $1.0 million settlement cost, operating income would have been 24.1% of total revenues for the second quarter of 2005.
In connection with the completion of its initial public offering, the company changed its tax status from an S corporation to a C corporation. As a result, the company recorded a provision for income taxes for the second quarter of 2005 using a 44.1% tax rate, which reflects the rate necessary to bring the year-to-date provision for income taxes in line with the company’s estimated annual effective tax rate of 24.7%. The 44.1% tax rate for the second quarter of 2005 compares to a 1.5% tax rate for the second quarter of 2004 when the company was treated as an S corporation. The provision for income taxes for the second quarter of 2005 also includes a tax benefit of $0.4 million related to the net deferred tax assets recorded by the company in connection with the change in tax status. Reflecting this change in tax status, net income for the second quarter of 2005 decreased to $4.6 million, or $0.24 per diluted share, compared with net income of $5.1 million, or $0.26 per diluted share, in the second quarter of 2004.
Richard Woolcott, Volcom’s president and chief executive officer, said, “We are very pleased with our second quarter performance. Our financial results for the quarter reflect strong sales and continued industry-leading gross and operating margins.” Woolcott added, “We believe that the completion of our initial public offering provides the resources to help fuel future growth and create additional value for our stockholders. We plan to continue developing our infrastructure in Europe, increase our marketing and advertising efforts and enhance and deploy additional in-store marketing displays for our retailers.”
During the first half of 2005, the company’s quarter to quarter growth rate was positively affected by one of its large retailers increasing the distribution of the company’s products beginning in the second half of 2004. Based on the first half of 2005 results and current visibility on the balance of the year, the company currently anticipates total revenue growth for the second half of 2005 to be between 25% and 30% compared with the second half of 2004 and full year revenue growth for 2005 compared to 2004 to be between 34% and 37%.
In putting forth this outlook, the company reminds investors of the complexity of accurately assessing future revenue growth given the difficulty in predicting fashion trends and consumer preferences, boardsports popularity and participation rates, general economic conditions and the impact of trade safeguards with China.
Recent Initial Public Offering
On July 6, 2005, Volcom completed its initial public offering of 4,687,500 shares of common stock at a price of $19.00 per share and the simultaneous close of the underwriters’ over-allotment option to purchase an additional 703,125 shares of common stock at the initial public offering price. Volcom sold 4,187,500 shares in the offering and 453,125 shares pursuant to the underwriters’ over-allotment option. Certain selling stockholders of Volcom sold the remaining 500,000 shares in the offering and 250,000 shares pursuant to the underwriters’ over-allotment option. Upon the closing of the offering, the company received net proceeds, after deducting underwriting discounts and commissions and estimated offering expenses, of approximately $80.4 million, of which the company used $20.0 million to distribute its estimated undistributed S corporation earnings to its stockholders of record prior to the initial public offering. While the $20.0 million liability for the distribution is reflected on the company’s balance sheet at June 30, 2005, the net proceeds from the offering are not reflected on the balance sheet because the offering closed after the completion of the second quarter. The company anticipates the total shares outstanding at September 30, 2005 will be approximately 24.2 million, which includes shares issued in the initial public offering.
Non-GAAP Financial Measures
This release makes reference to operating income excluding the effect of a one-time payment to settle litigation. The company believes that use of this financial reference allows management and investors to evaluate and compare the company’s operating results in a more meaningful and consistent manner.
About Volcom, Inc.
Volcom is an innovative designer, marketer and distributor of premium quality young men’s and women’s clothing, accessories and related products. The Volcom brand, symbolized by The Stone, is athlete-driven, creative and forward thinking. Volcom has consistently followed its motto of “youth against establishment,” and the brand is inspired by the energy of youth culture. Volcom branded products are sold throughout the United States and internationally. Volcom’s news announcements and SEC filings are available through the company’s website at www.volcom.com.
Safe Harbor Statement
Certain statements in this press release and oral statements made from time to time by representatives of the company are forward-looking statements for purposes of the safe harbor provisions of The Private Securities Litigation Reform Act of 1995, including statements in connection with or related to any discussion of or reference to our future operations, opportunities or financial performance. In particular, statements regarding our guidance, outlook for future business, financial performance, customer demand, growth and profitability all constitute forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These forward-looking statements are based on management’s current expectations but they involve a number of risks and uncertainties. Our actual results and the timing of events could differ materially from those anticipated in the forward-looking statements as a result of risks and uncertainties, including, without limitation, changes in fashion trends and consumer preferences, boardsports popularity and participation rates, general economic conditions and the impact of trade safeguards with China, and additional factors which are detailed in our filings with the Securities and Exchange Commission, including the Risk Factors contained in our final prospectus relating to our initial public offering filed pursuant to Rule 424(b) under the Securities Act of 1933, available at www.sec.gov.
Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. Volcom is under no obligation, and expressly disclaims any obligation, to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.