Volcom investing despite slowdown

Volcom plans to continue to invest in growth initiatives even as its domestic business slows, executives said during an earnings conference call this afternoon.

The plan is to continue to invest in marketing initiatives, infrastructure and in creating the strongest product possible so the company will be well-positioned when the economy picks up.

If the economy gets worse in the next month or two, Volcom will adjust spending plans but “the No. 1 goal is to ride through the slow down and keep the ship healthy,” said CEO Richard Woolcott, right.

Some interesting tidbits:

• Volcom opened 19 Sport Chalet doors in Southern California in the fourth quarter across all categories. Volcom is especially excited about the potential for outerwear sales at Sport Chalet.

• The company estimates revenue from PacSun will fall 40 percent in the first quarter, primarily on the girls side. Last year in the first quarter, Volcom Girls had some “misses” in fit for dresses and tanks that lead to a loss of business in the first quarter this year. PacSun’s move to private label is also a factor. Volcom executives expect the girls business with PacSun to pick up in the back half of the year.

• For 2008, executives expect revenue from PacSun to decline 10 percent.

• Volcom will spend $2 million in 2008 to move into its new warehouse in Irvine. The company plans to be operating there by the end of 2008. The new distribution center is expected to meet the company’s domestic needs for the next 10 years.

• Volcom plans to hold on to its cash – about $64 million after the Electric Visual purchase – especially with the tough economic environment. But it also wants the cash to take advantage of any opportunities that come up.

• Volcom girls is the No. 1 brand for Zumiez, Volcom COO Jason Steris, left, said. Volcom girls had good sell through during the holidays at Zumiez, especially in T-Shirts, denim, fleece and accessories.

• In core stores, the juniors business is becoming increasingly competitive and brands must compete more for floor space. Volcom believes its new swim line will help.

Financials

Fourth quarter: Revenue rose 22 percent to $69.1 million. Net income decreased 7 percent to $7.1 million

Full year 2007: Revenues rose 31 percent to $269 million. Net income rose 16 percent to $33.3 million

Volcom COO Jason Steris

New initiatives for 2007 included launching girls swim, Creedlers, kids, the European operation and acquiring Electric Visual.

The U.S. Business – Fourth quarter

Total revenue – up 8 percent to $58.9 million

Mens – up 17 percent to $32.1 million

Girls – down 11 percent to $16.5 million, largely because of the changes at PacSun.

Boys/Kids – up 63 percent to $5.3 million

Snow – down 33 percent to $1.4 million. For the year, snow was below plan but up year-over-year 8 percent to $16.2 million.

Footwear – $1.1 million, down from $1.7 million the same period last year due to the move away from closed toe, vulcanized shoes.

Girls swim – $1 million

Revenue from Canada and Japan (included in U.S. revenues) – up 10 percent to $11.3 million

Revenue from five largest customers – down 6 percent to $25 million

Revenue from PacSun – down 15 percent to $14.4 million

Revenue from other accounts – up 23 percent to $33.2 million.

European business – Fourth Quarter

This is the first year Volcom has run the European operation itself so there are no year-over-year comparison figures.

Product revenue: $10.2 million

Mens – $6.1 million

Girls – $2.2 million

Boys – $1.8 million

Gross profit – Fourth Quarter

U.S. gross profits as a percentage of sales were hurt in the fourth quarter by $6 million in product that Volcom sold to offprice channels at its cost or close to cost.

Gross profit: 43.4 percent, down from 47.2 percent from the same period last year.

Guidance

Total Q1 revenue: up 36 to 38 percent to $69 million to $70 million.

Q1 earnings per share – 20 to 21 cents

FY 2008 revenue – $339 million to $344 million

2008 earnings per share estimate – $1.50 to $1.53