Volcom, Inc. posted a 31.3% increase in total revenues for the first quarter to $41.6 million, compared with $31.7 million during the same quarter last year. Gross profit as a percentage of total revenues for the first quarter was 51.7%, compared with 51.8% in the first quarter of 2005.
“Solid top line growth, margin strength and a focus on controlling expenses drove our 2006 first quarter financial results,” said Richard Woolcott, Volcom's president and chief executive officer. “We continue to execute well and are in a great position as a premier brand in the growing action sports industry.”
Operating income for the first quarter of 2006 increased 10.6% to $6.7 million, compared with $6.0 million for the first quarter of 2005. Operating margin decreased to 16.1% for the first quarter of 2006 from 19.1% in the first quarter of 2005. This decrease primarily reflects spending on certain operational initiatives including the company's rollout of a national in-store display program with its retailers and costs related to the transition of its European operations from a licensee model to direct control, as well as costs associated with its status as a public company such as certain legal and accounting compliance costs and expenses related to stock-based compensation.
Income before income taxes for the first quarter of 2006 increased 23.4% to $7.4 million, compared with $6.0 million for the first quarter of 2005. This increase reflects $0.7 million of interest income generated from the company's $81.4 million cash balance.
In connection with the completion of its initial public offering in 2005, the company changed its tax status from that of an S corporation to that of a C corporation. Reflecting this change, net income for the first quarter of 2006, which includes a provision for income taxes using a 40.4% tax rate, was $4.4 million, or 18 cents per diluted share. The 40.4% tax rate for the first quarter of 2006 compares to a 1.5% tax rate for the first quarter of 2005, when the company was treated as an S corporation.
2006 Outlook
Based on current visibility regarding the remainder of the fiscal year, the company revised upward its fully diluted earnings per share guidance for 2006 from a range of $1.10 to $1.12 to a range of $1.12 to $1.14. The company's 2006 earnings per share guidance includes non-cash stock-based compensation expense of approximately $0.02 cents per share. The company also raised its 2006 annual revenue guidance from an increase of 24% to 26% over last year to an increase of 25% to 27% over last year, and from a range of $198 to $201 million to a range of $200 to $203 million. For the second quarter of 2006, the company currently expects revenues to increase 26% to 27% over the prior year period. The company also said that it expects second quarter fully diluted earnings per share to be 23 cents to 24 cents.
VOLCOM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except share and per share data)
Three Months Ended
March 31,
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2006 2005
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Revenues:
Product revenues $40,513 $30,685
Licensing revenues 1,083 1,006
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Total revenues 41,596 31,691
Cost of goods sold 20,074 15,284
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Gross profit 21,522 16,407
Selling, general and administrative expenses 14,836 10,363
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Operating income 6,686 6,044
Other income (expense):
Interest income (expense), net 737 (2)
Foreign currency gain (loss) 3 (23)
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Total other income (expense) 740 (25)
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Income before provision for income taxes 7,426 6,019
Provision for income taxes 3,000 88
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Net income before equity in earnings of investee 4,426 5,931
Equity in earnings of investee -- 331
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Net income $4,426 $6,262
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Net income per share:
Basic $0.18 $0.33
Diluted $0.18 $0.32
Weighted average shares outstanding:
Basic 24,200,256 19,170,705
Diluted 24,312,946 19,535,964
Pro forma net income data:
Income before provision for income taxes, as
reported $6,019
Pro forma provision for income taxes 2,588
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Pro forma net income before equity in earnings
of investee 3,431
Equity in earnings of investee 331
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Pro forma net income $3,762
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Pro forma net income per share:
Basic $0.20
Diluted $0.19
Pro forma weighted average shares outstanding:
Basic 19,170,705
Diluted 19,535,964
