Volcom Q2 Income Slips on 25% Sales Increase…

July 30, 2007
SGB Update

Volcom, Inc. posted strong sales growth in the second quarter with
growth across its sales segments and regions. The cost of getting its
new European operations up and running, though, caused net income to
decrease compared to the year-ago quarter.

Total revenues increased 25% to $57.7 million, compared with $46.1
million in the second quarter of 2006. Men’s sales increased 14% to
$28.8 million from $25.4 million, while girls’ increased 24% to $20.3
million from $16.5 million. Boy’s, including the new kids line,
increased 30% to $4 million from $3.1 million during the year-ago
quarter. The company’s Creedlers footwear saw $1.7 million in sales.

Revenues in the U.S. totaled $43.0 million, up from $36.8 million last
year. International revenues, not including licensing fee revenues,
increased 59.8% to $13.9 million from $8.7 million last year. Sales to
PacSun were $13.5 million in the quarter, up 1% due to a shift of $2.5
million in sales from Q3 into Q2.

Gross margin decline 160 basis points to 48.2% of sales in the second
quarter due to costs related to the new EU operations. Without the
effects of Europe, margins would have increased 80 bps to 49.4%. Net
income was down 4.6% for the quarter to $6.2 million, due to a $2.5
million pre-tax loss related to the EU takeover. Diluted earnings per
share were 25 cents in the quarter, down from 27 cents last year.

 

Volcom Q2 Income Slips on 25% Sales Increase

July 26, 2007
SGB Executive
by

Volcom, Inc. second quarter ended June 30, 2007 total revenues increased 25% to $57.7 million, compared with $46.1 million in the second quarter of 2006. Net income for the second quarter of 2007 was 6.2 million, or 25 cents per
diluted share. This compares with $6.5 million, or 27 cents per diluted
share for the second quarter of 2006.

“We continue to see strong demand for the Volcom brand across all channels of distribution,” said Richard Woolcott, Volcom's president and chief executive officer. “Our other key focus has been our European operations that are now up and running. We believe we are on track for a solid year.”

Gross profit as a percentage of total revenues for the second quarter of 2007 was 48.2%, compared with 49.8% in the second quarter of 2006, primarily reflecting initial shipments to Europe that contained low margin sample product.

Selling, General and Administrative expenses for the quarter were $18.9 million versus $13.2 million in the comparable period last year as the company continued its investment in building its European infrastructure to take direct control of the brand in the region in the second half of the year.

Operating income for the second quarter of 2007 was $8.8 million, compared with $9.7 million for the second quarter of 2006. Operating margin was 15.3% for the second quarter of 2007, compared with 21.0% in the second quarter of 2006.

As previously reported, the company incurred pretax losses related to its recently established European operations of approximately $2.4 million in the second quarter, equal to approximately $0.06 per diluted share.

2007 Third Quarter and Full Year Outlook

Reflecting the acceleration of certain revenue recognized in the second quarter and the deferral of some expenses to the third quarter, the company currently expects revenues to be approximately $89 million to $91 million and fully diluted earnings per share to be $0.53 to $0.55 in the 2007 third quarter.

Based on current visibility regarding the remainder of the year, the company is reaffirming its 2007 revenue guidance of an increase of 34% to 36% over 2006, equating to total revenues ranging from $275 to $280 million. Additionally, the company is maintaining its previously issued diluted earnings per share guidance for 2007 at a range of $1.47 to $1.50.

                    VOLCOM, INC. AND SUBSIDIARIES

          CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
           (in thousands, except share and per share data)

                        Three Months Ended        Six Months Ended
                             June 30,                 June 30,
                      -----------------------  -----------------------
                          2007        2006         2007        2006
                      ----------- -----------  ----------- -----------
Revenues:
 Product revenues     $    56,901 $    45,492  $   106,326 $    86,005
 Licensing revenues           780         559        2,173       1,642
                      ----------- -----------  ----------- -----------
  Total revenues           57,681      46,051      108,499      87,647
Cost of goods sold         29,888      23,137       54,299      43,211
                      ----------- -----------  ----------- -----------
Gross profit               27,793      22,914       54,200      44,436
Selling, general and
 administrative
 expenses                  18,944      13,224       37,289      28,060
                      ----------- -----------  ----------- -----------
Operating income            8,849       9,690       16,911      16,376
Other income:
 Interest income, net       1,057         977        2,139       1,715
 Dividend income from
  cost method
  investee                     --           3           --           3
 Foreign currency
  gain                        493         259          531         262
                      ----------- -----------  ----------- -----------
  Total other income        1,550       1,239        2,670       1,980
                      ----------- -----------  ----------- -----------
Income before
 provision for income
 taxes                     10,399      10,929       19,581      18,356
Provision for income
 taxes                      4,179       4,397        7,879       7,398
                      ----------- -----------  ----------- -----------
Net income            $     6,220 $     6,532  $    11,702 $    10,958
                      =========== ===========  =========== ===========

Net income per share:
 Basic                $      0.25 $      0.27  $      0.48 $      0.45
 Diluted              $      0.25 $      0.27  $      0.48 $      0.45
Weighted average
 shares outstanding:
 Basic                 24,297,839  24,214,523   24,285,874  24,207,537
 Diluted               24,436,998  24,310,679   24,406,187  24,311,960

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