Volcom Reports 11.4% Revenue Increase, Declares Special Cash Dividend


On Thursday, October 28, Volcom executives hosted a conference call with investors and analysts to discuss third quarter results. First, we’ll get the prototypical, press release type info out of the way, then let’s dive a little deeper into what the executives said during the call, and afterward when they fielded questions from analysts.

For the quarter ended September 30, the company’s consolidate revenues increased 11.4% to $104.7 million for the quarter, and the U.S. segment saw revenue jump 13.6% to $64.5 million compared to the same period last year. Another positive bullet point, Electric grew its revenue by 29.2% to $8.9 million for the quarter.

Volcom also declared a special cash dividend of $1.00 per share payable on each share of the company’s outstanding common stock. The special dividend will be payable on November 19, 2010 to stockholders of record at the close of business on November 8, 2010. In accordance with NASDAQ rules, the company's common stock will start trading on an ex-dividend basis beginning November 4, 2010. The aggregate amount of payments to be made in connection with the special dividend will be approximately $24.4 million.

As far as Q4 guidance goes, Volcom’s CFO Doug Collier says that the company expects total consolidated revenues between $76–79 million, and earning per share in the range of $0.04–0.06.

There were some very interesting specifics discussed during the call by Collier, Founder and CEO Richard Woolcott, and President Jason Steris. For starters, in the U.S. segment, Volcom’s men’s and boy’s business increased by 29% and 24% respectively, something that the executive team attributes to a successful campaign for market share over the course of 2010.

But—and this should come as no suprise to anyone who has been following the market—in order to get the market share, Volcom had to sacrifice some gross margin. The company says it believes it’s been successful in gaining floor space at retail (and the revenue spikes in key product categories seem to support that). But, apparently the strategey only works if you’re willing to sacrifice a little gross margin—Volcom says it is, and that Q4 gross margins will be in the 45% ballpark.

Things like incentive programs for retailers, costly SMU production for key accounts, and projections to liquidate approximately $3 million worth of inventory in Q4 all equate to margin erosion. But that’s a concession that Volcom’s executives are willing to make based on the benefits they say. Woolcott explained the strategy this way: “We’re strong, we’ve got momentum, now let’s go get some market share.”

The company did say, however, that the incentive programs have been rolled back for 2011 and that because of rising production prices, incremental increases in price are inevitable moving into spring, summer, and fall of 2011.

On the juniors side of the business in the U.S. segment, revenues for Q3 dropped 2%, which is the best comp for that department of the company since Q3 2008. Although a decline, Volcom’s executives hope this marks “turning the corner” for a business segment that has been struggling industry wide.

Steris says that early reads on Summer bookings (which reps have been out on the road making for less than two weeks) are strong for boardshorts and juniors, and Woolcott added that two key accounts have asked for Volcom branded juniors T-shirts—something he believes could be an early indicator that female interest in action sports is on the uptick.

In response to a question from an analyst, Steris also confirmed that the juniors business has seen some additional interest from the department store channel, more specifically Bloomingdales, which carries Volcom juniors in 11 doors and is selling well, he says.

At PacSun, Volcom saw a 5% increase in revenue for the quarter, which represented 11% of the overall business in the U.S. segment. part of this increase is attributed to PacSun’s Shop-In-Shop strategy. Volcom currently has 25 of these in PacSun lcations around the country. For Q4, Volcom expects to see a 17% increase in PacSun business compared to the same period last year.

On the international side, Japan was described as “sluggish, but stable.” Australia, which the company recently took over has some momentum according to the executives, and in Europe the brands says it expects that the recent announcement of going direct in Spain will benefit its performance in 2011.

To Read The Entire Transcript Of The Call, CLICK HERE.

To Read The Release, CLICK HERE.