Volcom Reports Strong Q3, Scales Down Holiday Expectations

Rising action sports apparel giant Volcom still has room for growth, despite new warnings of a further economic slowdown.

LOS ANGELES — Rising action sports apparel giant Volcom still has room for growth, despite new warnings of a further economic slowdown.

Known for its loud fashion and “Youth Against Establishment” mantra, the brand beat its own revenue and profit expectations for the third quarter, but scaled back fourth-quarter expectations as it faces what may be a disastrous holiday shopping season.

For the three-month period ending Sept. 30, net income rose 11 percent to $16.3 million, or 67 cents a diluted share, compared with $14.5 million, or 59 cents a share, in the year-ago period.

Revenue increased 18.5 percent to $111.7 million, up from $91 million last year. The company had expected third-quarter revenues of $109 million to $110 million, with diluted earnings per share of between 63 cents and 64 cents.

Still, executives scaled back fourth-quarter guidance to approximately $69 million to $71 million, with fiscal year expectations of $333 million to $335 million. The company had earlier expected annual revenue of $344 million to $347 million. Volcom CFO Doug Collier declined to offer guidance for the next fiscal year, citing the uncertain retail environment.

“There’s no question the current environment is challenging, but we’re confident in our ability weather the storm,” Volcom CEO Richard Wolcott said in a Thursday conference call with analysts. “The most important focus is that we stay healthy … by keeping costs and inventory levels under control.”

For the fourth quarter, Wolcott said the company is most focused on tightening inventory, as retailers become increasingly conservative with holiday buys.

Collier concurred, asserting the brand is less interested in expanding to new retailers and more concentrated on existing retail customers.

Wolcott added that Volcom was not currently looking to further expand its vertical retail presence.

The company’s Europe segment reported a 16.8 percent revenue increase to $31 million, aided by strong sales in Germany and Austria that offset lagging performance in France, Italy and the United Kingdom. The U.S. division, which also includes Canada and Japan, saw revenue gains of 10.4 percent.

Wolcott said the company expects to take control of its Japanese distributor next month. Volcom had announced the acquisition of the distributor earlier in the quarter.

Like most youth apparel brands struggling for a foothold amidst the current market quicksand, Volcom has faced steep declines in its stock value over the past year. As of Thursday, the Costa Mesa, Calif.-based company’s stock has lost 62 percent of its value from a year ago. By comparison, competitor Quiksilver Inc. has lost 80 percent of its stock value in the past year, with shares plummeting 55 percent so far this month.

By all accounts, young American men are not exempt from budget trimming. According to a bi-annual teen consumer study by Piper Jaffray released earlier this month, overall spending among young men dropped 3 percent from a year ago, while apparel spending among teens was “essentially flat.”

In the macroeconomic climate, a government report released Thursday showed a 0.3 percent decline in gross domestic product annual rate, with consumer spending falling for the first time in 17 years.

Founded in the early 1990s and a public company since 2005, Wolcott’s Volcom shifted into acquisition mode this year. In January, the brand purchased action sports eyewear and accessories brand Electric Visual Evolution for $25.3 million. The subsidiary brand saw third-quarter sales of $7.9 million.

Volcom shares rose 7.5 percent, or 81 cents, to $11.56 in Thursday trading, with increased gains in after-hours trading.