MARKET WATCH: Follow-Up On Volcom’s 3rd Quarter 10Q

Jeff Harbaugh

• November 11 2008
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I wrote about the quarter’s results when they came out with their press release.  I’m not going to repeat that analysis. Go see it HERE if you want to. I said I would follow up when I had the more detailed actual filing.  Now that I have it, there are some points I want to highlight.

• In September, Volcom amended its unsecured credit agreement to increase its line of credit from $20 to $40 million.  I don’t know if other terms changed.  There were no advances under the line and the only usage was for a $2.9 million letter of credit.  The point is that if you are a solid company you can get and even increase your credit line in spite of the situations with banks and the economy we’re all reading about.

• Here’s a breakdown of revenue for the quarter by product category.  Everything but footwear is up and that’s a small number anyway.  I don’t know what the impact of exchange rate changes might have been.

• Here’s a comment from Volcom about China.  Nothing surprising here, but changes in the Chinese economic and manufacturing environment are an issue for everybody making stuff there.   “… China offers a rebate tax on exports. China has reduced this rebate due to pressures from the United States and other countries to control the amount of exports from China. This reduction in the rebate has increased our sourcing costs. In the future, the Chinese government may increase or further decrease the amount, if any, of the rebate at its discretion. This increase or decrease in the rebate amount, along with the Yuan strengthening against the U.S. dollar, labor shortages and inflation in China, may further impact our sourcing costs. We intend to closely monitor our sourcing in China to avoid disruptions.”

• Here are the results of operations in percentage terms for the third quarter.  In the discussion that follows, Volcom notes that “Gross margin from the U.S. segment decreased 180 basis points…primarily due to the soft retail environment, resulting in additional discounts.”

• Volcom states that “Revenues from our five largest customers were $74.1 million for the nine months ended September 30, 2008, an increase of $10.3 million or 21.4%.  PacSun by itself was $41.5 million during the nine months.”

Those are the things I thought were worth pulling out of the filing that weren’t in the press release. Okay, done for now.

Jeff Harbaugh is a consultant for the action sports industry and works with companies to identify and focus on critical business issues and opportunities fundamental to the bottom line. For more information, visit www.jeffharbaugh.com.