MARKET WATCH: Volcom’s Third Quarter - Not Bad, For a Recession

Jeff Harbaugh

• October 31 2008
• 438 views
• 2 comments

Under the tyranny of the internet, realizing this can be published 30 seconds after I email it in, I’m turning this out Friday morning before I’ve finished my coffee.  Please recognize that I’m doing this based on their press release rather than the more detailed SEC filing which will come later.

I’ve got a question for the five people who actually read all this stuff I spew out.  Do you want it quick, or do you want it detailed?  Being slightly pedantic, I’d love to wait until I’d seen the press release, listened to the conference call and read the SEC filing, but that might make it old, but more interesting, news.  Let me know.  Don’t say, “Quick and detailed,” please.

The numbers look good for the quarter ended September 30.  Revenues are up 23% to $111.7 million for the quarter.  For nine months, it’s 32.6% to $265 million.  For the quarter, the Electric acquisition generated revenue of $7.85 million.  It was not part of Volcom in the same quarter last year.  Without that, revenue growth was 14%.  Revenue in the U.S., excluding Electric, was 11.6% to $72.8 million.  The U.S. segment, by the way, includes the retail stores and the whole world except for Europe.  Europe had an increase of 20.1% to $31 million.

Gross profit for the whole company rose 20.4% to $55.2 million.  Gross margin fell slightly from 50.4% to 49.4%.  Gross profit for the U.S. segment grew 7.47% to $33.6 million.  For Europe the numbers were 17.8% to $17.2 million.  Electric contributed $4.42 million in gross profit.

If we ignore Electric for a minute, gross profit growth was 10.7% to $50.8 million.  Gross margin in the quarter without Electric was 48.9%.

Operating income was up 8.16% to $24.9 million.  That’s before interest, foreign currency gain or loss, and income taxes.  Interest income fell 83.9% from $1 million to $162 thousand even though cash and cash equivalents on the balance sheet fell only 21.1% to $73.3 million.  It will be interesting to review the 10Q and see if there are some more details on that.  I’m guessing it has some relationship to the issues we’ve been having in the financial markets, but I don’t know that.

Volcom reported a foreign currency loss of $70,000 compared to a loss of $253,000 in the same quarter last year.  Not a big number. I discussed foreign currency issues briefly in my article on Billabong’s annual report, and I’d be curious to see how they impacted Volcom- especially on the revenue side.

Net income grew 12.1% to $16.3 million and diluted earnings per share rose from $0.59 to $0.67.  Due to “…significant changes in the weakening U.S. retail environment as well as the overall global economy,” Volcom expects its fourth quarter to have revenues of $69 to $71 million representing an increase of 0% to 3% compared to the fourth quarter of 2007. As a result of the change in its fourth quarter outlook, they are projecting diluted earnings per share of $1.42 to $1.44.  Last July, they had expected diluted earnings per share of $1.50 to $1.53.

The balance sheet is strong.  Maybe I’ll have more to say about it when I see the notes in the 10Q.
And that’s it. Boy these things are easy to write when you don’t have many pages of small print and footnotes to read.

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.