Volcom second quarter total revenues increased 47.1% to $35.9 million, compared with $24.4 million in the second quarter of 2004. Gross profit as a percentage of total revenues increased 2.2% to 52.1% for the second quarter of 2005 from 49.9% in the second quarter of 2004.
Operating income for the second quarter of 2005, which was reduced by a $1.0 million charge relating to a one-time payment for the settlement of litigation, increased 41.2% to $7.6 million, compared with $5.4 million for the second quarter of 2004. Operating income as a percentage of total revenues decreased 0.9% to 21.3% for the second quarter of 2005 from 22.2% in the second quarter of 2004. Excluding the effect of the $1.0 million settlement cost, operating income would have been 24.1% of total revenues for the second quarter of 2005.
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 second quarter of 2005 using a 44.1% 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 24.7%. The 44.1% tax rate for the second quarter of 2005 compares to a 1.5% tax rate for the second quarter of 2004 when the company was treated as an S corporation. The provision for income taxes for the second quarter of 2005 also includes a tax benefit of $0.4 million related to the net deferred tax assets recorded by the company in connection with the change in tax status. Reflecting this change in tax status, net income for the second quarter of 2005 decreased to $4.6 million, or $0.24 per diluted share, compared with net income of $5.1 million, or $0.26 per diluted share, in the second quarter of 2004.
Richard Woolcott, Volcom's president and chief executive officer, said, “We are very pleased with our second quarter performance. Our financial results for the quarter reflect strong sales and continued industry-leading gross and operating margins.” Woolcott added, “We believe that the completion of our initial public offering provides the resources to help fuel future growth and create additional value for our stockholders. We plan to continue developing our infrastructure in Europe, increase our marketing and advertising efforts and enhance and deploy additional in-store marketing displays for our retailers.”
During the first half of 2005, the company's quarter to quarter growth rate was positively affected by one of its large retailers increasing the distribution of the company's products beginning in the second half of 2004. Based on the first half of 2005 results and current visibility on the balance of the year, the company currently anticipates total revenue growth for the second half of 2005 to be between 25% and 30% compared with the second half of 2004 and full year revenue growth for 2005 compared to 2004 to be between 34% and 37%.
In putting forth this outlook, the company reminds investors of the complexity of accurately assessing future revenue growth given the difficulty in predicting fashion trends and consumer preferences, boardsports popularity and participation rates, general economic conditions and the impact of trade safeguards with China.
VOLCOM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except share and per share data)
Three Months Ended Six Months Ended
June 30, June 30,
----------------------- -----------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Revenues:
Product revenues $35,478 $23,985 $66,163 $44,576
Licensing revenues 375 388 1,381 1,028
----------- ----------- ----------- -----------
Total revenues 35,853 24,373 67,544 45,604
Cost of goods sold 17,156 12,207 32,440 23,031
----------- ----------- ----------- -----------
Gross profit 18,697 12,166 35,104 22,573
Selling, general and
administrative
expenses 11,057 6,755 21,420 14,333
----------- ----------- ----------- -----------
Operating income 7,640 5,411 13,684 8,240
Other (expense) income:
Interest expense, net -- (2) (2) (4)
Dividend income from
cost method investee 11 -- 11 --
Foreign currency gain
loss (93) (78) (117) (70)
----------- ----------- ----------- -----------
Total other (expense)
income (82) (80) (108) (74)
----------- ----------- ----------- -----------
Income before provision
for income taxes 7,558 5,331 13,576 8,166
Provision for income
taxes 2,926 84 3,015 132
----------- ----------- ----------- -----------
Net income before
equity in earnings
(loss) of investee 4,632 5,247 10,561 8,034
Equity in earnings
(loss) of investee -- (131) 331 232
----------- ----------- ----------- -----------
Net income $4,632 $5,116 $10,892 $8,266
=========== =========== =========== ===========
Net income per share:
Basic $0.24 $0.27 $0.57 $0.43
Diluted $0.24 $0.26 $0.56 $0.42
Weighted average shares
outstanding:
Basic 19,174,912 19,170,705 19,172,809 19,113,048
Diluted 19,390,558 19,534,522 19,463,261 19,533,337
Pro forma net income
data:
Income before provision
for income taxes, as
reported $7,558 $5,331 $13,576 $8,166
Pro forma provision for
income taxes 3,080 2,119 5,667 3,422
----------- ----------- ----------- -----------
Pro forma net income
before equity in
earnings (loss) of
investee 4,478 3,212 7,909 4,744
Equity in earnings
(loss) of investee -- (131) 331 232
----------- ----------- ----------- -----------
Pro forma net income $4,478 $3,081 $8,240 $4,976
=========== =========== =========== ===========
Pro forma net income
per share:
Basic $0.23 $0.16 $0.43 $0.26
Diluted $0.23 $0.16 $0.42 $0.25
Pro forma weighted
average shares
outstanding:
Basic 19,174,912 19,170,705 19,172,809 19,113,048
Diluted 19,390,558 19,534,522 19,463,261 19,533,337
