In the closing quarter of a year that Volcom management called one of the most challenging for our company and our industry, the action sports apparel manufacturer handily exceeded analysts earnings estimates to wrap up 2009. In a conference call with analysts, management at the Costa Mesa, CA-based company said lower discounting and better managed inventories – among other factors – had propelled it to a profit versus a prior-year quarter that saw results weighed down by substantial impairment charges. Likewise, Chairman and CEO Richard Woolcott said the company was poised for growth as the recession loosens its grip on the retail environment.
As a result of various growth initiatives, including bolstering the presence and enhancing the presentations of its product offerings, Volcom said it expects accelerated revenue growth as the year progresses. Specifically, Woolcott said the company would continue its focus on fine-tuning its denim offerings by presenting a wider array of price points, fits and washes, along with refining its focus on the marketing campaign.
For Boardshorts, Woolcott said the company was able to build its presence during 2009 by focusing its approach on design, sourcing, production techniques and R&D. In Outerwear, the 2009 launch of the companys exclusive Gore-Tex Thermal Defense System drove sales, and Woolcott added that sell-through for the entire Snow Collection has been very good thus far in 2010.
For the fourth quarter of 2009, consolidated revenues for Volcom were $64.2 million, down 8.1% from $69.6 million in the prior-year period.
Total revenues in the companys U.S. segment, which includes revenues from the U.S., Canada, Japan and most other international territories outside of Europe, as well as the companys branded retail stores, were $46.0 million, down 16.2% from $54.9 million in the prior-year quarter.
Net income was $3.4 million, or 14 cents per diluted share, for the 2009 fourth quarter, compared with a net loss a year ago of $8.7 million, or 36 cents per share, which included the aforementioned pre-tax non-cash impairment charge on goodwill and intangible assets of $16.2 million, (46 cents per share) as well as a foreign exchange loss of $1.4 million, (4 cents per share), which the company attributed to a stronger U.S. dollar against Canadian dollar denominated receivables. Adjusted net income for Q4 2008 was $3.3 million, or 14 cents per diluted share.
Elaborating on Q4 results, management said weakness in the U.S. segment came as a result of declining sales from Mens product (-14%), Juniors product (-34%) and Boys product (-4%).
International product revenue, which is considered part of the U.S. segment and consists primarily of Canada and Japan, was $14.8 million, up from $12.5 million in the year-ago period.
For the U.S. segment, revenue by distribution channel for the five largest accounts decreased 35% to $12.9 million in 2009 fourth quarter, representing 29% of U.S. segment product sales. In Q4 of 2008, revenue from its five largest accounts was $19.9 million and represented 37% of U.S. segment product sales. Notably, revenue from Pacific Sunwear fell 42% to $6 million, (or 13% of U.S. segment revenue) from $10.4 million (19% of U.S. segment revenue) in the prior-year quarter. Excluding PacSun, revenue from Volcoms next four largest departments decreased 27% for the quarter. Management noted that while [Volcom] is not satisfied with the current sales to these accounts, it is encouraged by the improving trend over the last two quarters and by bookings for Q1.
The company added that Q4 sales outside its largest five accounts – which represented 71% of U.S. revenue – decreased 6% to $32.4 million from $34.5 million in Q4 2008. Excluding the incremental revenue from its Japanese operation, revenue from the these accounts decreased about 12% for the period.
For Volcoms Europe segment, sales climbed 18% to $12.9 million from $10.9 million in the prior-year period on strength from Mens product (+16%), Juniors product (+7%), and Snow product (+30%).
Management noted that top-performing countries for the Europe segment were Germany, Austria, France and Switzerland.
For the companys Electric segment, revenues improved 40.0% to $5.3 million from $3.8 million a year ago.
Overall fourth quarter gross margins improved to 49.2% from 44.4% on strength from the Volcom brand and the acquisition of a distributor in Japan that improved efficiencies for the Japan segment. SG&A expenses increased on increasing costs for domestic marketing and personnel expenses on the U.S. side and incremental expenses associated with its UK subsidiary and London retail store on the Europe side.
Regarding the outlook for the first quarter VLCM forecast total consolidated revenues of approximately $71 million to $74 million and fully diluted earnings per share between 16 cents and 19 cents.
