While executives at Volcom are optimistic about the companys stellar first quarter numbers, skepticism remains with regard to the overall state of the economy and how it will carry over into the second quarter – and the remainder of fiscal 2010. Richard Woolcott, chairman and CEO of Volcom, supported that sentiment in Volcoms recent conference call with analysts. Overall, the environment appears to be getting better. Many reports indicated that there is increased confidence among consumers, which is a major shift from this time last year.
Retailers seem to be in a more positive mood and inventories have been adjusted to more appropriate levels, explained Woolcott.
The companys current initiatives seek to maximize wholesale distribution; drive international growth; increase direct-to-consumer business including e-commerce; as well as grow the Electric brand.
Volcom hopes that by doing so, it can double last year’s revenue of $281 million, while maintaining a gross margin of approximately 50% and improve operating margin by 15% to 20% by the year 2014.
Current drivers of the action sports brand mostly include warm weather regions such as Puerto Rico, Florida and Hawaii. With growth in these regions, as well as an overall spark on the mens side, Volcoms first quarter gross profit as a percentage of total revenue increased 390 basis points to 54.2% compared with 54.3% in the same period in 2009. Due to the surge in revenue, Volcom was able to adjust inventory accordingly in an effort to maximize performance.
The U.S. segment, which includes revenues from the U.S., Canada, Japan and most other international territories outside Europe, first quarter gross margin on product was 49.7% of sales as compared with 47.3% of sales in Q1 2009. The regions international product revenue, mainly from Canada and Japan, increased 19% to $15.2 million, or 32% of the companys U.S. segment product revenue for the quarter compared with $12.8 million, or 30% for the same period in 2009.
Revenue from PacSun decreased 10% to $7.5 million or 16% of US sales as compared to $8.4 million and 20% for the quarter last year. The drop from the prior year still brought praise, as revenue from PacSun exceeded the guidance.
In Volcoms European segment, the company is seeing success in Germany, Austria, Switzerland and France, with Italy holding its own.
The U.K. and Spain are also reporting decent numbers, while Greece and Portugal are lagging behind due to the current economic hardships in those regions. Revenues increased 9% to $23.6 million in the first quarter; again sparked by a 10% gain in mens which posted $15.4 million in sales.
Gross margin for the European segment was 60.4% of sales versus 54.5% of sales in Q1 last year mostly due to strong demand as well as fewer-than-projected low margin samples shipping.
Volcoms Electric brand segment performed above plan in revenue and gross margins, and showed a positive operating income of $266,000, compared with a loss of $915,000 last year.
Consolidated net income increased 78.5% to $7.5 million or 31 cents per diluted share.
For the second quarter, the company is forecasting total consolidated revenues of approximately $59 million to $62 million and EPS in the range of a loss of 2 cents to earnings of 2 cents. PacSun is projected be approximately flat at $8.9 million when compared to Q2 last year.
