Volcom, Inc. (

VLCM

)

Q4 2010 Earnings Call

February 24, 2011 4:30 pm ET

Executives

Seth "Hoby" Darling – Senior Vice President, Strategic Development and General Counsel

Richard R. Woolcott – Chief Executive Officer

Douglas P. Collier – Executive Vice President, Chief Financial Officer and Secretary

Jason W. Steris – President and Chief Operating Officer

Analysts

Mitch Kummetz – Robert W. Baird & Company, Inc.

Sean Naughton – Piper Jaffray

Claire Gallacher – Capstone Investments

Christian Buss – ThinkEquity

Jeff Van Sinderen – B. Riley & Company

Christine Chen – Needham & Company

Charu Sharma – KeyBanc Capital Markets

Andrew Burns – D.A. Davidson & Company

Presentation

Operator

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Good day, ladies and gentlemen, and welcome to the Volcom Fourth Quarter 2010 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference call is being recorded.

I will now like to introduce your host for today's conference, Hoby Darling.

Seth "Hoby" Darling

Thank you, John. Good afternoon, everyone, and thank you for joining us today to discuss Volcom's 2010 fourth quarter and full-year financial results. Joining me on the call today are Richard Woolcott, Volcom's Chairman and Chief Executive Officer; Jason Steris, Volcom's President and Chief Operating Officer; and Doug Collier, Volcom's Chief Financial Officer.

If you like to be added to Volcom's e-mail distribution lists to receive company information, or if you'd like to change your contact information, please contact Rob Whetstone at PondelWilkinson.

In addition, please be advised that this conference call is being broadcast live on the Internet at volcom.com, as well as earnings.com. A playback will be available for one-year and maybe assessed on the Internet at both websites. Please also note that the information discussed on today's call is covered under the Safe Harbor provisions of Litigation Reform Act. The company's discussion today will include forward-looking information reflecting management's current forecast of certain aspects of the company's future.

Particular statements about the future regarding guidance, outlook for future business, margins, financial performance, customer demand, growth and profitability, all constitute forward-looking statements. These forward-looking statements are based on management's current expectations, but they involve a number of risks and uncertainties. Actual results could differ materially from those stated or implied by these forward-looking statements due to risks and uncertainties associated with the company's business. Certain risk factors associated with our business are set forth in our Form 10-K and subsequent filed SEC reports. The company disclaims any intent or obligation to update these forward-looking statements except those required by law.

With that said, it's my pleasure to turn the call over to Richard Woolcott. Richard?

Richard R. Woolcott

Well, thank you, Hoby, and good afternoon, everyone. As we head into 2011, I believe we're in a great position to continue building upon many of the successes that we have accomplished in 2010. We have made good progress gaining market share and strengthening the foundation of our business.

Our teams are fired up and very focused on advancing our key growth drivers in what feels like a more stable economic environment. Last year at this time, along with many others, we shot out of the gates quickly responding to depleted retail shelves with the mindset that consumers would be back in stores and ready to spend. Clearly, things were not that simple either in the U.S. or anywhere else for that matter.

But as we navigated the constantly changing landscape, we stay true to the core drivers of our business that we believe will enable us to achieve our financial targets. We are still on track to achieve our previously stated goals by the end of 2014, which include consolidated revenue of approximately $550 million, gross margin of approximately 50%, and return to operating margins of 15% to 20%.

In my mind, a summary of achievement came a few weeks ago when Volcom was honored with the TransWorld Business Industry & Retail Award brand of the year. This acknowledgement came from over 3,000 core retailers who cast their votes for the company that fell – that they felt did the most throughout the year to support their stores growth, goals and continued success.

It is this very connection that I think was the essence of what we are working to achieve last year and while it is apparent and while it is apparent in our numbers, this stamp of approval from our retailers is a very important point of validation. I'm incredibly proud of our team for their passion and dedication as we fight daily to keep both the Volcom and electric brands front and center in a very competitive market.

Let me now review our achievements for the fourth quarter and full year in the context of our seven growth drivers, which are number one, keep Volcom the hottest brand in action sports to effective marketing; number two, focusing on innovative high-quality Volcom product; number three, maximizing our wholesale distribution; number four, carefully increasing our direct to consumer business; number five, driving international expansion and becoming a truly global company; number six, growing the electric brand; and number seven, re-enforcing a mindset of operational excellence throughout our organization.

For a company like ours, it's all about the brand. Everything we do revolves around nurturing our brand and ensuring that the Volcom magic resonates deeply with our customers. In 2010, we continued our relentless marketing push to cast Volcom as one of the most desirable and sort after action sports brands in the world.

From the Volcom branding skate tour to the proving grounds Boardshort campaign, our marketing managers and team riders have done excellent job keeping Volcom top of mind with our retailers and consumers. And as we move forward, we will leave no stone unturned in our pursuit to help drive sales at all levels of distribution. Our marketing efforts will continue to focus on our athlete programs, pre-contest series, specialty events, rock tours, film projects, social networking, demos and autograph signings, in-store merchandising programs and innovative advertising campaigns.

We've already come out of the gate strong this year with no intention of letting up on our branding attack and to get a detailed look of what's been going on, please visit our website at volcom.com.

Let me now turn to the second pillar of our growth strategy, which is to consistently design and deliver innovative high-quality products to the market. And given the time of year, I'd like to start with our snow product, which performed well at retail this past quarter and is gaining strength on a global scale.

One thing we can never count on is the weather. But this year, winter came early with plenty of snowfall in most of the key out of our regions. This contributed to solid sell through of retail, which generally resulted in minimal promotional activity.

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