Volcom, Inc. expects to realize fourth quarter revenues in the range of $67 million to $68 million with earnings per diluted share of approximately 29 cents to 30 cents. Previously, the company stated it expected total revenues to be between $70 million and $73 million and earnings to be between 30 cents and 32 cents per diluted share. The revised estimate primarily reflects lower than expected revenues in the core domestic distribution channels in the fourth quarter, and lower gross margin, each generally attributable to the weaker than anticipated retail environment. In the fourth quarter of 2006, 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 percent 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.
Forecast lowered from November
In an effort to provide some insight into the companys financial outlook for 2008, in November 2007 Volcom said it believed that overall consolidated revenue and earnings growth of 20 percent was achievable. In further reviewing its growth plans amid the current challenging economic backdrop, the company is revising this outlook.
For 2008, Volcom now anticipates that total revenue growth of approximately 18 percent and that earnings growth of approximately 10 percent are achievable.
This preliminary 2008 outlook assumes pressure on domestic gross margin as well as expenses related to the companys growth initiatives.
Eyewear acquisiition to boosts sales, but not earnings in '08
This preliminary outlook does not include any financial contribution from the acquisition of Electric Visual Evolution, which also was announced today. Volcom expects that Electric revenue will increase by approximately 20 percent and be earnings neutral to Volcom in 2008.
For the year ended December 31, 2007, Electric posted annual revenues of approximately $23.5 million. Volcom intends to provide additional details regarding its financial guidance for 2008 and the companys various growth drivers during its next earnings conference call in February.
In addition to the lowered guidance, Volcom announced that it reached an agreement on an all-cash offer to acquire privately held action sports eyewear brand, Electric Visual Evolution.
Deal could earn Electric shareholders $46 million
Under the terms of the agreement, Volcom shall pay to Electric shareholders $25.25 million in cash upon the closing of the transaction, subject to certain indemnities and post-closing adjustments. Electric shareholders also will be eligible to earn up to an additional $21.0 million over the next three years upon achieving certain financial milestones. Electric will operate as a wholly owned subsidiary of Volcom and will be maintained as a stand-alone brand.
Known for its volt logo, Electric is a core action sports lifestyle brand. The companys growing product line includes sunglasses, goggles, t-shirts, bags, hats, belts and other accessories. Electric, which achieved net sales of approximately $23.5 million in 2007, has an established global platform which will serve as the foundation for further growth. The company was founded in 2000 by industry veterans Kip Arnette and Bruce Beach and is headquartered in Orange County, California.
“We are very excited about this partnership,” said Richard Woolcott, Volcoms president and chief executive officer. “Electric is a powerful brand with a lot of potential, and together, we look forward to leveraging each others strengths and expertise.
Execs are well acquainted and see good cultural fit
“Culturally, Electric is a perfect fit for our company,” Woolcott continued. “Weve known the Electric team for a long time, and we recognize they share the same passion and love for action sports as we do here at Volcom. Our companies are very much on the same wavelength, sharing similarities in product distribution, marketing efforts and a strong commitment to quality and innovation. Everyone here is stoked to welcome Electric into the Volcom family.”
“We believe this partnership will enable us to take the Electric brand to the next level,” said Bruce Beach, co-president and chief executive officer of Electric. “We are very excited about working closely with the Volcom team to grow our existing eyewear business and further expand into new product categories. Additionally, this partnership will enable us to grow our retail relationships and to continue to strengthen our operational capabilities.”
“Volcom has an amazing team and an incredible heritage in the action sports industry,” said Kip Arnette, co-president and chief design officer of Electric Visual. “We could not have hoped to partner with anyone more capable on an operational level and more in-line with us culturally, than Volcom.”
Sunglasses fill key gap in Volcom product line
The acquisition, which is expected to be earnings per share neutral in 2008, expands Volcoms leadership in action sports and provides important product diversification opportunities. According to a 2006 SIMA Retail Distribution Study, sunglasses are viewed as the most important accessory category by retailers.
Electric currently sells 29 sunglass styles in 213 SKUs under three core price-point categories as well as 6 snow goggle styles in 63 SKUs. The company has maintained careful, controlled product distribution in core action sports, lifestyle, sporting goods and sunglass specialty stores.
