Volcom, Inc. third quarter revenues increased approximately 19.3% to $61.0 million, compared with $51.2 million in the third quarter of 2005. Net income for the third quarter of 2006, which includes a provision for income taxes using a 39.3% tax rate, decreased 10.0% to $10.2 million, or 42 cents per diluted share, compared with net income of $11.3 million for the third quarter of 2005, which included a provision for income taxes using a 29.8% tax rate, or 47 cents per diluted share.
Gross margin for the third quarter was 50.6%, compared with 51.0% in the third quarter of 2005.
“I'm proud of our performance and execution during a challenging third quarter,” said Richard Woolcott, Volcom's president and chief executive officer. “Our team continues to maximize the brand's strength while focusing on quality, integrity and long term sustainability. We have also been receiving good feedback from our retailers regarding our Spring 2007 collection, as well as our new product extensions. Additionally, we are currently on schedule to take direct control of Europe in 2007. Overall, the company is healthy and well positioned for future growth both domestically and internationally.”
Operating income for the third quarter of 2006 was $15.6 million, compared with $15.4 million for the third quarter of 2005. Operating margin was 25.5% for the third quarter of 2006, compared with 30.2% in the third quarter of 2005.
Net income for the third quarter of 2006, which includes a provision for income taxes using a 39.3% tax rate, decreased 10.0% to $10.2 million, or $0.42 per diluted share, compared with net income of $11.3 million for the third quarter of 2005, which included a provision for income taxes using a 29.8% tax rate, or $0.47 per diluted share.
In connection with the completion of its initial public offering during 2005, 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 third quarter of 2005 using a 29.8% tax rate, which reflected the rate necessary to bring the 2005 year-to-date provision for income taxes in line with the company's 2005 annual tax rate of 26.5%. The company recorded a provision for income taxes for the third quarter of 2006 using a 39.3% tax rate, which reflects the rate necessary to bring the 2006 year-to-date provision for income taxes in line with the company's 2006 annual tax rate of 39.8%.
Based on strong third quarter performance and current visibility regarding the remainder of the year, the company increased its financial guidance. Fully diluted earnings per share now are expected to be in the range of $1.16 to $1.17, up from the previous estimate of $1.12 to $1.14 per diluted share. This includes non-cash stock-based compensation expense of approximately $900,000, or $0.02 cents per diluted share. The company also raised its 2006 annual revenue guidance to approximately 27% over last year, or $203 million to $204 million, up from the previous revenue guidance of $200 million to $203 million.
VOLCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except share and per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2006 2005 2006 2005
----------- ----------- ----------- -----------
Revenues:
Product revenues $59,704 $50,096 $145,709 $116,259
Licensing revenues 1,345 1,096 2,987 2,477
----------- ----------- ----------- -----------
Total revenues 61,049 51,192 148,696 118,736
Cost of goods sold 30,141 25,082 73,352 57,522
----------- ----------- ----------- -----------
Gross profit 30,908 26,110 75,344 61,214
Selling, general and
administrative
expenses 15,348 10,669 43,408 32,090
----------- ----------- ----------- -----------
Operating income 15,560 15,441 31,936 29,124
Other income:
Interest income, net 1,048 463 2,762 461
Dividend income from
cost method investee -- -- 3 11
Foreign currency gain 122 171 384 54
----------- ----------- ----------- -----------
Total other income 1,170 634 3,149 526
----------- ----------- ----------- -----------
Income before
provision for income
taxes 16,730 16,075 35,085 29,650
Provision for income
taxes 6,567 4,783 13,964 7,797
----------- ----------- ----------- -----------
Net income before
equity in earnings of
investee 10,163 11,292 21,121 21,853
Equity in earnings of
investee -- -- -- 331
----------- ----------- ----------- -----------
Net income $10,163 $11,292 $21,121 $22,184
=========== =========== =========== ===========
Net income per share:
Basic $0.42 $0.47 $0.87 $1.07
Diluted $0.42 $0.47 $0.87 $1.06
Weighted average
shares outstanding:
Basic 24,217,204 23,939,141 24,210,801 20,762,988
Diluted 24,235,173 24,065,665 24,286,406 20,998,798
Pro forma net income
data:
Income before
provision for income
taxes, as reported $16,075 $29,650
Pro forma provision
for income taxes 6,551 12,217
----------- -----------
Pro forma net income
before equity in
earnings of investee 9,524 17,433
Equity in earnings of
investee -- 331
----------- -----------
Pro forma net income $9,524 $17,764
=========== ===========
Pro forma net income
per share:
Basic $0.40 $0.86
Diluted $0.40 $0.85
Pro forma weighted
average shares
outstanding:
Basic 23,939,141 20,762,988
Diluted 24,065,665 20,998,798
