Volcom Inc. (VLCM)

Q3 2010 Earnings Call

October 28, 2010 04:30 am ET

Executives

Richard Woolcott - Chairman & CEO

Jason Steris - President & COO

Doug Collier - CFO

Hoby Darling - SVP Strategic Development & General Counsel

Analysts

Mitch Kummetz - Robert Baird

Jim Duffy - Stifel Nicolaus

Eric Tracy - FBR Capital Markets

Jeff Van Sinderen - B. Riley

Paula Torch - Needham & Company

Jonathan Grassi - Longbow Research

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the Volcom Q3 2010 earnings conference call. At this time, all lines are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator instructions) As a reminder, this conference is being recorded. I would now like to turn the conference over to your host today, Hoby Darling. Please begin.

Hoby Darling

Thank you, Shawn. Good afternoon, everyone, and thank you for joining us today to discuss Volcom's 2010 third quarter 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.

First, some housekeeping items before we begin. If you'd like to be added to the Volcom's email distribution list to receive Company information or if you would 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 may be accessed on the Internet at both web sites.

Please note that all information discussed on today's call is covered under the Safe Harbor Provisions of the Litigation Reform Act. The Company's discussions today will include forward-looking information reflecting management's current forecast of certain aspects of the Company's future. In particular statements about the future regarding our 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 company's business. Certain risk factors associated with Volcom's business are set forth in its Form 10-K as per the year ended December 31, 2009, and 10-Q for the period ended June 30, 2010.

The Company disclaims any intent or obligation to update these forward-looking statements except as required by law. All forward-looking statements from today's call are qualified in their entirety by the foregoing cautionary statements.

With that said, it's my pleasure to turn the call over to Richard Woolcott, our Chairman and Chief Executive Officer. Richard?

Richard Woolcott

Alright, well, thank you, Hoby, and good afternoon everyone. As we approach the end of 2010 I am pleased with our progress so far this year and believe we have been successful in implementing our strategic plan. And while the pace of the economic recovery has been slower than what we had all envisioned, we have stayed focused on our core strengths, kept our brand performing well at retail and have built a global foundation from which to grow in the years ahead.

Our results for the third quarter are a reflection of this focus and brand building efforts. Both Volcom and Electric continue to show strength across virtually all product categories and regions. Our initiatives to gain market share have generated revenue growth, and have enabled us to build stronger relationships with our retailers. And as we increase our market share we are being diligent to ensure our moves support our business and align with our financial objectives we have set for the next several years.

We have been mindful of not to take on too much at one time, and are constantly re-evaluating our strategies to make sure that we are on the right track. Some of these strategies include, devoting resources to building our brand on global basis, trading great product that performs well and resonates with our customer, working closely with our retail partners to constantly improve the Volcom in-store experience, and expanding our distribution opportunities by taking on new territories while continuing to invest in our existing markets. We have successfully advanced these initiatives while operating in a tough environment and I am proud of our team's efforts as we look forward to continuing our attack as we close out 2010.

Let me now take time to review our business. The strength of Volcom was evident on many levels this quarter. One area that really shined is our marketing. So much of the Volcom magic comes from our branding efforts, and I am impressed with how our team continues to deliver new and exciting initiatives.

Here are a few highlights from the quarter: in skateboarding news, the Volcom Street Pro at the Maloof Money Cup was a great success with airings on Fox TV, and as well as having over a 127,000 viewers online watching the event live. We also just completed our Wild in the Parks skate series with the championships that ended in early October in Arizona. This was our 8 year with the series, and the events are still free to all participants. And finally, the Volcom brand Jeans Tour which just finished was also a huge success, representing our biggest skate tour to date with over 20 riders participating with more than 20 retailers across the country. This was tied to our Give Jeans A Chance program, where prizes were offered for donating jeans to the homeless.

In snowboarding news, we just released our newest snowboard movie 9191, starring legendary rider Gigi Rüf. We showed the movie in large format with the major marketing tour that include 20 stops in 11 countries in 28 days. The movie has received rave reviews, and was awarded best score on ESPN.com.

And finally, in surfing news, the Volcom Annihilator Boardshort campaign kicks off this November. In conjunction with this launch we are excited to announce the release of the Volcom Annihilator web series in early November, which will feature some of our top team riders, including Bruce Irons and Dusty Payne. And, coming up in January we will be hosting the second annual Volcom Pipe Production, which should be another great event to get 2011 underway.

From a brand standpoint, Volcom was once again ranked as the number action sports brand in the Piper Jaffray 20 semi-annual taking stock with team's survey. This was Volcom's 6 consecutive survey where we were ranked number one in action sports.

Now turning to our products, we continued to post strong revenue gains in core categories, such as Men's and Boy's quarter increasing 21% and 32%, respectively over last year on a consolidated basis. I am also happy to report that most of this year's ad ware has already shipped and is now on the floor at retail. The product is looking great and feedback has been strong.

Our Junior's business looks to be turning the corner as sales in this category are showing some improvement. This is very encouraging as Junior's has been a tough category for many brands in action sports. We have talked previously about our revamped Junior's team, and I believe all of their efforts are beginning to payoff.

From a distribution standpoint, our core business continues to be strong with solid growth this quarter. This is an important channel for Volcom as this group includes influential retailers that cater to board sport participants and aspiring enthusiasts. Also, it appears as though inventory levels with many retails are more in line with sales creating re-order potential as retailers chase the in season business.

At the specialty level, Men's and Boy's continued to be top performers and we have equally high expectations for growth in other categories, such as Swim and Creedlers. Our largest account PacSun, posted good results with Volcom in the third quarter as they continue to put their focus behind brands.

Finally, we continue to strengthen our presence at the department store level, and are mindful of the necessary commitment to make this initiative a success. This includes direct action from our merchandizing groups to ensure the best assortment and presentation of Volcom products. We are making steady progress and are pleased with the results, thus far this year.

Further reinforcing our direct to consumer strategy, this September we launched our eCommerce initiative featuring a balanced mix of Volcom product. We launched online, quite methodically making certain we had constructive conversations with our retailers to gain their support for this initiative. The launch took a few months longer than originally planned, but we believe the extra time allowed us to do it the right way.

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