Volcom Posts 38% Revenue Increase, Sees Taxes Hurt Bottom Line

Volcom, Inc. announced that for the third quarter ended September 30, 2005, total revenues increased 38% to $51.2 million, compared with $37.2 million in the third quarter of 2004. Gross profit as a percentage of total revenues increased to 51% for the third quarter of 2005 from 48% in the third quarter of 2004.

Operating income for the third quarter of 2005 increased 58% to $15.4 million, compared with $9.8 million for the third quarter of 2004. Operating margin increased to 30% for the third quarter of 2005 from 26% in the third quarter of 2004 and 21% in the second quarter of 2005. Considering the change in tax status described below, the company believes that evaluating operating income for quarter-over-quarter comparisons is more reflective of its performance than are net income comparisons.

In connection with the completion of its initial public offering, the company changed its tax status from an S corporation to a C corporation. As a result, the company recorded a provision for income taxes for the third quarter of 2005 using a 29.8% tax rate, which reflects the rate necessary to bring the year-to-date provision for income taxes in line with the company's estimated annual effective tax rate of 27.3%. The 29.8% tax rate for the third quarter of 2005 compares to a 1.5% tax rate for the third quarter of 2004 when the company was treated as an S corporation.

Net income for the third quarter of 2005, which includes a provision for income taxes using a 29.8% tax rate, increased to $11.3 million, or 47 cents per diluted share. Net income for the third quarter of 2004, which includes a provision for income taxes using a 1.5% tax rate, totaled $10.1 million, or 52 cents per diluted share.

Richard Woolcott, Volcom's president and chief executive officer, said, “The third quarter was a great quarter for Volcom. We continued our momentum during the quarter and are pleased to report both strong sales growth and margin.” Woolcott added, “We continue to focus our efforts on building our brand worldwide, supporting our core boardsport retailers and delivering quality products on time.”

2005 Outlook

Based on the company's results for the first three quarters of 2005 and current visibility on the balance of the year, the company has increased its guidance for full year revenue growth. The company now expects 2005 annual revenue growth of 39% to 41%, compared with 2004, up from the previous guidance of 34% to 37% growth announced at the end of the second quarter. The company also expects an annual operating margin of approximately 24% for 2005. Volcom currently plans to address 2006 guidance when it reports its fourth quarter and full year 2005 financial results.

                      VOLCOM, INC. AND SUBSIDIARY
           CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
            (in thousands, except share and per share data)

                         Three Months Ended       Nine Months Ended
                            September 30,           September 30,
                       ----------------------- -----------------------
                           2005        2004        2005        2004
                       -----------------------------------------------
Revenues:
 Product revenues         $50,096     $36,285    $116,259     $80,861
 Licensing revenues         1,096         928       2,477       1,956
                       ----------- ----------- ----------- -----------
  Total revenues           51,192      37,213     118,736      82,817
Cost of goods sold         25,082      19,312      57,522      42,343
                       ----------- ----------- ----------- -----------
Gross profit               26,110      17,901      61,214      40,474
Selling, general and
 administrative
 expenses                  10,669       8,107      32,090      22,440
                       ----------- ----------- ----------- -----------
Operating income           15,441       9,794      29,124      18,034
Other (expense)
 income:
 Interest expense, net        463          (1)        461          (5)
 Dividend income from
  cost method investee         --          --          11          --
 Foreign currency gain
  loss                        171          18          54         (52)
                       ----------- ----------- ----------- -----------
  Total other (expense)
   income                     634          17         526         (57)
                       ----------- ----------- ----------- -----------
Income before
 provision for income
 taxes                     16,075       9,811      29,650      17,977
Provision for income
 taxes                      4,783         139       7,797         271
                       ----------- ----------- ----------- -----------
Net income before
 equity in earnings of
 investee                  11,292       9,672      21,853      17,706
Equity in earnings of
 investee                      --         431         331         663
                       ----------- ----------- ----------- -----------
Net income                $11,292     $10,103     $22,184     $18,369
                       =========== =========== =========== ===========

Net income per share:
 Basic                      $0.47       $0.53       $1.07       $0.96
 Diluted                    $0.47       $0.52       $1.06       $0.94