Volcom, Inc. preceded its second quarter results with a step into mult-branded retail, announcing the acquisition of Laguna Surf & Sport. A core surf and skate retailer, LS&S operates two stores in Southern California, in Laguna Beach and Aliso Viejo. The acquisition is expected to add approximately $900,000 to full year revenues for VLCM with management describing the transaction as an opportunistic acquisition that mirrors similar moves by the likes of Billabong and Quiksilver. The plan is to keep these stores operating under the LS&S name, with the same employees, management and general product and brand mix. Terms of the deal were not disclosed, but the acquisition is expected to close later this month.
For the second quarter, company-wide net sales jumped 26.5% led by the additions of the European business and Electric Eyewear, as well as strong sales growth with PacSun. Revenues from the companys five largest accounts increased 15% to $27.5 million in the 2008 quarter, with revenue from PacSun increasing 17% to $15.8 million for the quarter. The PacSun business came in better than expected with mens product sales said to be up 66% for Q2.
Excluding PacSun, revenue from the next four largest accounts increased 13% for the quarter. Revenue from the remaining accounts increased 5% to $32.1 million.
Product revenue from Europe totaled $5.9 million for the second quarter of 2008, approximately $900,000 ahead of guidance and was due primarily to a foreign currency translation of the euro to U.S. dollars. Within Europe, mens sales were $4.7 million, girl’s were $1 million, with boy’s and Creedlers, at $108,000 and $107,000, respectively.
Revenue from the recently acquired Electric eyewear business was $6.4 million for the quarter, approximately $600,000 below plan. This shortfall was primarily the result of the soft retail environment, both in North America and Europe.
Gross margins in the U.S. region, which includes Canada, Japan and owned-retail, declined 310 basis points to 45.6% of sales as a result of the soft retail environment causing increased liquidation sales.
Operating margin for the U.S. segment was 15.3% for the quarter, compared to 20.5% in the second quarter of 2007 as the company allocated “resources to growth and brand-building initiatives.”
In the Electric segment, the operating loss in the second quarter was $90,000 including a non-cash, acquisition-related amortization of approximately $500,000.
For the 2008 third quarter, the company anticipates total consolidated revenues of approximately $109 million to $110 million, representing an increase of approximately 20% to 21% over the 2007 third quarter. Fully diluted earnings per share are expected to be in the range of 63 cents to 64 cents.
For the full year, Volcom expects consolidated revenue of between $344 million to $347 million, including projected revenue of approximately $241 million to $243 million in the U.S., approximately $76 million to $77 million in Europe, and approximately $27 million from Electric.
The PacSun business is now expected to “increase slightly in 2008,” improved from earlier guidance of a 10% decrease. Earnings per diluted share expectations have been reduced and are anticipated to be in the range of $1.50 to $1.53 versus previous guidance of $1.56 to $1.59. Electric is expected to be “slightly accretive” for the fiscal year. The LS&S acquisition is expected to be earnings neutral for the year.
