Volcom Inc. said Thursday that its fourth-quarter net income shrank by more than half due to higher costs and slower demand in Europe.


The company, which managed to surpass Wall Street’s expectations, issued weaker-than-expected first-quarter guidance. It also said it signed a deal to acquire 10 Volcom outlet stores from a licensee.


During the three months ended Dec. 31, the surf, skate and snowboard-inspired vendor registered net income of $1.6 million, or 7 cents a diluted share, down 51.9 percent from year-ago income of $3.4 million, or 14 cents a share. Total revenues grew 22.4 percent to $78.6 million from $64.2 million. Analysts expected EPS of 6 cents on sales of $78.4 million.


The rise in sales was aided by an 18 percent increase in U.S. sales to $54.3 million, as well as a 20.5 percent gain in sales at its Electric eyewear division, to $6.4 million. Sales in Europe fell 0.5 percent to $12.8 million.


Quarterly gross margin pulled back to 45 percent of sales versus year-ago margin of 49.2 percent, as selling, general and administrative expenses totaled $34 million, up 20.9 percent over 2009.


“Last year at this time, along with many others, we shot out of the gates quickly…with the mindset that consumers would be back in stores and ready to start,” chairman and chief executive officer Richard Woolcott said on the call. “Our teams are fired up and we will focus on advancing our key growth drivers in what feels like a more stable economic environment.”


For the year, Volcom’s net income increased 2.5 percent to $22.3 million, or 91 cents a diluted share versus $21.7 million, or 89 cents in 2009. Revenue rose 15.2 percent to $323.2 million from $280.6 million.


The Costa Mesa, Calif.-based firm said it expects first-quarter EPS of between 16 cents and 19 cents on sales ranging from $83 million to $86 million. Volcom also said it anticipated annual earnings of between $1.08 to $1.14 a share on revenue of between $366 million and $371 million.


Analysts are looking for first-quarter EPS of 32 cents on sales of $88.9 million, and 2011 EPS of $1.04 on sales of $366.7 million.