ICRX Report: Volcom's strength this year linked to supporting core specialty stores

Volcom's strategy for maintaining solid financials in the coming year rests on supporting core retailers with unique product, CFO Doug Collier told an afternoon session at the ICR Xchange.

"Product is going to be the battleground of our industry going forward," he said. "It's gotta be phenomenal, insane, kids just gotta have it."

The spring lines on shelves now are focused around denim and boardshorts. Fall lines hit the trade shows this week and next, but Collier didn't say what the focus is there.

Other hightlights:

• Volcom's retail strategy is to support core retailers with its skate-inspired Stone Age brands and retail collateral like stickers, window displays, racks and fixtures.

"It's not so profit-generating (as products in wider distribution), though it is profitable. But it keeps the core brand alive with the core audience, and builds the integrity of the brand," Collier said.

• V.Co-logical is a second limited distribution specialty brand made up of organics and other environment-friendly products with a higher price point. Volcom is supporting retailers of this line with the same kinds of collateral as Stone Age, but branded for V.Co-logical.

"We have the capital and the strong balance sheet to help retailers this way. We do these things, rather than give discounts, where possible," Collier said. "They're small things, but in a cohesive package, they really do help the core retailers."

The company ended its third quarter with:

• $73 million in cash and equivalents, and no significant debt

• A slight rise in inventory and accounts receivable - about 10 percent net Electric numbers

Some growth areas:

• Expanding Electric Visual's soft goods lines, and distribution of those lines, while supporting its core, technical snow goggles and "fun" sunglass lines.

• Japan and Korea, where Volcom has settled in after buying its Japanese distributor, and where snowboarding is big.

• Australia, where Volcom is sold by a licensee, but "that's something we'll probably fold into our company" in coming years, Collier said.

• The U.K., where Volcom acquired its distributor and sees potential in skate and fashion.

• Other European countries on a case-by-case basis.

• Retail stores. Volcom will stand pat on store count for 2009, but "going forward, we see this as a growth area," Collier said. Volcom owns 10 U.S. stores and two Laguna Surf & Sport (LSS) stores. It has eight U.S. licensee outlet stores and seven licensed international stores.