After warning the market of its woes with sales to PacSun, Volcom, Inc. found itself sitting better than it thought it would with its largest customer, though sales were still down to the retailer. Taxes and the conversion of its European business to a direct control model caused the bottom line to shrink, though still a profit.

For the third quarter, revenues increased approximately 19.3% to $61.0 million, from $51.2 million last year. When excluding sales to PacSun, management said that sales grew 30% in the quarter during a conference call with analysts. Revenue from PacSun itself was down 7.6% to $13.4 million from $14.5 million during last year’s third quarter. For the overall company, men’s product sales decreased slightly to $24.1 million from $24.3 million last year, with management attributing the slip primarily to the PacSun business. Girl’s sales increased 26% to $18.5 million from $14.7 million last year; boy’s increased 34% to $3.1 million from $2.3 million last year; and snow sales increased 57% to $13.1 million from $8.4 million last year.

Net income for the third quarter decreased 10.0% to $10.2 million, or 42 cents per diluted share, from $11.3 million last year, or 47 cents per diluted share, once again affected by an increased tax rate. Unfortunately, the bottom line was also affected by a 40 bps decrease in gross margin to 50.6% of net sales and a 430 bps increase in SG&A expenses to 25.1% of net sales. Management attributed the expense increases to the transition to direct control of the European business.

Looking ahead, the company expects DEPS between $1.16 and $1.17 for 2006, up from the previous estimate of $1.12 to $1.14. The company also raised its revenue guidance to $203 million to $204 million.