Volcom Q2 Income Slips on 25% Sales Increase…

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.

 

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Thomas J. Ryan

Thomas J. Ryan Senior Business Editor | SGB Media tryan@sgbonline.com | 917.375.4699

Volcom Q2 Income Slips on 25% Sales Increase

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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