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Details on Industry Insight.
Here are some more details from Volcom's conference call yesterday for the third quarter ended Sept. 30.
Tough environment: Volcom is meeting with key accounts regularly as they work through the tough retail climate. Retailers are ordering more conservatively, and asking for extended terms and in-season discounts. Some are adjusting buys or asking to shift deliveries. Retailers are very concerned about the holiday season especially as conditions deteriorated in the past few weeks.
Inventories: Because some retailers are canceling and/or adjusting orders and the reorder business will likely be limited, Volcom will have excess inventory that will need to be liquidated during the current quarter. Going forward, the company is planning carefully, including focusing on carry-over styles that can work in different seasons.
Regional view: Business in California and Florida is tough. In general, coastal areas are doing better than inland areas and better than mall stores.
Growth initiatives: Volcom is moderating its growth initiatives and taking a more conservative approach to opening Volcom-owned retail stores. At year end, Volcom will have 13 company-owned Volcom stores, including 10 in the U.S., two in Europe and one in Japan. The Volcom Waikiki store is now open. In addition, the company has two Laguna Surf & Sport stores.
In addition, Richard said the company will digest and integrate its recent acquisitions (LS&S, Electric, Japan distributor) before making new acquisitions.
Laguna Surf & Sport: Richard said EJ is adding a lot to Volcom's overall retail program, by using his expertise to enhance Volcom stores. Laguna Surf & Sport buyers are also working closely with Volcom product teams to share information about what Volcom product is working in stores and trends in the overall market.
Europe: Economic conditions have deteriorated, with France and the UK hardest hit. Bright spots include Germany and Austria. The back-to-school season was generally good, and the arrival of cold weather has stimulated sales of denim, fleece and jackets. Beginning January 1, 2009, Volcom will begin selling direct in the UK. Volcom has opened an office in England and will ship product to the UK from its European headquarters in France. A Volcom store recently opened in London. Previously, a distributor handled the UK business.
Cash: Volcom had $73 million in cash and no significant debt as of Sept. 30.
Total revenues: up 23 percent to $111.7 million
U.S. revenues (includes Canada, Japan, some other international territories, retail stores): up 11.6 percent to $72.8 million. This was $2.8 million above plan due to better demand from retailers.
Revenue from the five largest accounts: up 46 percent to $30.8 million
PacSun revenue: up 83 percent to $18.8 million. This was ahead of plan by $2 million.
Excluding PacSun, the next four largest accounts: up 11 percent.
Revenue outside the five largest accounts: down 5 percent to $41.4 million, due to the tough environment impacting independent stores.
Europe revenues: up 20 percent to $31 million. On a constant dollar basis, revenue rose 6 percent. This was below guidance and due to some cancelled orders.
Electric revenue: $7.9 million. Margins were 56.3 percent.
Gross profit as a percentage of revenues: 49.4 percent vs. 50.4 percent the same period last year. This was due to additional discounting.
Net income: up 12.4 percent to $16.3 million.
Fourth quarter guidance: Revenues flat to up 3 percent or between $69 million to $71 million. Diluted EPS between 17 to 19 cents.
Full year guidance: Revenue $333 million to $335 million. Diluted EPS of $1.42 to $1.44. Previously, the company forecast revenues of $344 million to $347 million, and diluted EPS of $1.50 to $1.53.