Volcom began its discussion at ICR with a welcome to the newly acquired Electric Visual business, which was founded by industry veterans, Kip Arnette and Bruce Beach. Electric is mainly known for its sunglasses and goggles, though approximately 15% of their revenues come from apparel.
Volcom paid $25.25 million up front for the brand, with an additional $21 million possible through a 3-year earnout based on EBITDA. For 2007, Electric revenue was $23.5 million, with VLCM saying in the presentation that they expected approximately 20% growth in 2008. The deal should be EPS-neutral for 2008.
Management said in the presentation that Q4 presented a weaker than expected retail environment, leading to a lower reorder business, and greater sales to off-price channels. However, Europe exceeded plan by approximately $2 million. In the domestic business, revenue was below plan by about $6 million, but the business with PacSun was ahead of plan by about $1 million, leading to a revision of PacSun sales guidance to down 9% for the year, from down 10% previously. Juniors was said to have experienced an overall slowdown.
“In the Juniors market we did see an overall slowdown, not just with the Volcom product but just in our retail base in general, continued to struggle with the Juniors business,” said Dave Collier, Volcom CFO.
Looking out to 2008, management sees 18% growth as achievable with earnings growth of approximately 10%.
Looking even further out, the company expects to grow through its international presence, through product development and diversification, Volcom branded retail and acquisitions. The company plans to take the business model it has established in Europe and expand to other areas, where applicable, to grow international, while expanding its six retail locations by five to seven more this year. Finally, on the acquisitions front, Volcom will look for companies in the action sports industry that fit with the companys culture. Plans do not include moving beyond the action sports segment for any acquisitions.
Volcom lowered its outlook for the fourth quarter, citing lower than expected revenues in the core domestic distribution channels and lower gross margin, each generally attributable to the weaker than anticipated retail environment.
The company now expects Q4 sales to be $67 million to $68 million with earnings per diluted share of approximately 29 cents to 30 cents. Previous guidance had revenues between $70 million and $73 million and earnings between 30 cents and 32 cents per diluted share. For the year-ago quarter, Volcom reported revenue of $56.6 million and earnings per diluted share of 31 cents.
Given these preliminary fourth quarter estimates, Volcom now expects full year 2007 revenues to grow approximately 30% to between $266 million and $267 million, compared with $205.3 million in 2006. Earnings per diluted share are expected to increase between 15% and 16% from 2006 to be between $1.36 and $1.37, versus $1.18 per diluted share as reported in 2006. Previously the company estimated annual revenue to be between $270 million and $273 million, and earnings per diluted share of $1.37 to $1.39.
