Volcom, Inc. posted strong growth on the top line for the fourth quarter, but saw decreased margins eat into net income for the period.  The largest worry for the coming year appears to be the company’s PacSun business, which it expects to be down in the double-digits for both Q1 and fiscal 2008.  Overall, Volcom saw fourth quarter net revenues jump 22.1% to $69.1 million, compared with $56.6 million in the fourth quarter of 2006. 

For the U.S. segment, which includes revenue from Canada, Japan and most other territories outside Europe, as well as the company’s owned-retail operation, total revenue including royalties increased 7.9% to $58.9 million compared with $54.6 million in the prior-year period.   In the U.S. segment, product revenue increased 9% to $58.1 million.  Excluding PacSun, VLCM’s largest customer, which decreased 15% for Q4, U.S. segment product revenue would have grown 20%.  Also in the U.S. segment, royalty income decreased 34% to $717,000, the result of VLCM taking direct control of its European operations.


Mens product revenue increased 17% to $32.1 million for Q4, compared with $27.5 million for fourth quarter of 2006. Revenue from girl’s product decreased 11% to $16.5 million from $18.6 million in Q4 last year, with the company attributing the decline also to the PacSun business as the retailer moves to less of a branded stance with its juniors program. Excluding PacSun, the girls business increased 12%.  Boys revenue, which includes the kid’s line for boys age 4 to 7, increased 63% to $5.3 million compared with $3.3 million in 2006.


Revenue for the snow division decreased 33% to $1.4 million for the quarter, down from $2.2 million in Q4 of 2006. The decrease in snow for Q4 primarily reflects the timing of snow product shipments.  For the full fiscal year, snow revenue increased 8% to $16.2 million, but grew “slightly below” the company’s initial plan.


Revenue from footwear was $1.1 million for the fourth quarter, down from $1.7 million in Q4 of 2006 as the company shifted away from the closed toe portion of its footwear program. Revenue from the new girls swim line was $1 million for the quarter.


International product revenue that is reported as part of the U.S. segment, which consists primarily of sales in Canada and Japan and does not include licensing revenue, increased 10% to $11.3 million from $10.3 million for the year-ago quarter.


Looking at revenue by distribution channel, Volcom saw revenue from its five largest accounts decrease 6% to $25 million in the fourth quarter. Revenue from PacSun alone decreased 15% to $14.4 million for the quarter from $16.9 million last year. Excluding PacSun, revenue from the next four largest accounts was said to have increased 11% during Q4. In Q4, revenue from the company’s smaller accounts, or the core doors, which represented 49% of total U.S. segment product revenue for the quarter, increased 23% to $33.2 million.


Product revenue from Europe totaled $10.2 million for the fourth quarter of 2007. Mens sales were $6.1 million, with girls at $2.2 million and boys at $1.8 million.


Gross margins declined 380 basis points for the quarter to 43.4% of sales compared to 47.2% last year. For the U.S. alone, margins declined 360 basis points to 43.7% from 47.3% in Q4 of 2006.


Net income for Q4 decreased 6.6% to $7.1 million, or 29 cents per diluted share, compared with $7.6 million, or 31 cents per diluted share last year.


On the retail front, Volcom continues to grow its department store distribution. The company is now in 106 Macy's West and Northwest stores with its mens, boys and Creedler categories, while also introducing girls products to 80 Macy's stores this past Holiday season. Finally, the company opened Sport Chalet in November, adding 19 doors across all categories.


Consolidated 2008 first quarter revenue is expect to be between approximately $69 million and $70 million or an increase of approximately 36% to 38%. By segment, the company expects U.S. sales of approximately $43 million to $44 million, with Europe at $21 million and the recently-acquired Electric business adding $5 million for the period.  Revenues from PacSun are expected to be down approximately 40% compared to Q1 of 2007.


For the full year, VLCM expects consolidated revenues in the $339 million to $344 million range, with approximately $241 million to $244 million coming from the U.S. segment, approximately $70 to $72 million in Europe, and approximately $28 million from Electric. The U.S. segment estimate includes a projected year-over-year revenue decrease of approximately 10% with PacSun.


Earnings for Q1 are anticipated to range between approximately 20 cents and 21 cents with Electric dilutive by a penny per share.  Full year EPS are expected to be in the range of approximately $1.50 to $1.53 per share with Electric earnings neutral.


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