Costa Mesa-based Volcom Inc. has joined some select company on Wall Street.
After a heady stock run-up since August, the edgy clothing designer counted a $1 billion market value last week.
The company joins Huntington Beach-based Quiksilver Inc. as one of two companies rooted in Orange County’s surfwear sector to surpass the $1 billion mark.
Quiksilver had a market value of $1.7 billion last week.
Volcom, which makes clothes and shoes inspired by surfing, skating and popular culture, has seen its shares rise more than 130% since August, when they dropped on concerns about lower sales to big customer Pacific Sunwear of California Inc., the Anaheim-based mall retailer.
Since then, Volcom has expanded the number of stores that sell its clothes, which has boosted Wall Street’s “confidence” and “eased investors’ concerns,” said Claire Gallacher, an analyst at Caris & Co.
Volcom, a staple of surf and skate shops, has upped sales to department stores such as Nordstrom, Macy’s and Dillard’s. The company also started selling at Maurice’s, a chain of stores in the Midwest, according to Gallacher.
More stores selling Volcom clothes are a key part of the company’s “strategy to ensure continued robust top line growth and the diversification away from its biggest customer, Pacific Sun-wear,” Gallacher said.
“They’re not just sitting back reaping the rewards of their past successes,” she said. “They’re still building the company and building the brand.”
Sales to Pacific Sunwear still are an issue for Volcom. They rose 18% last year from 2005 and were up 9% in the first quarter from a year earlier.
But Volcom is being cautious. The company said on a recent conference call that it is “unclear” about what sales to Pacific Sunwear will be in “the longer term.”
For the year, Volcom expects “mid-single digit decrease in sales” to Pacific Sunwear, which is struggling with a sales slump of its own.
Volcom is progressing on a plan to take over the shipping of its clothes to stores in Europe, where it has been relying on other companies that license the Volcom brand.
By later this year, Volcom expects to be handling its own distribution in Europe.
“The expansion appears to be on plan and within budget,” Gallacher said.
Volcom recently finished building a $6 million, 34,000-square-foot European headquarters in Anglet, France. It’s delivered sample clothes for its sales team, and continues to hire workers for operations there.
Volcom so far has 48 workers in Europe for design, production, sales, technology and management.
The company took a charge in the first quarter and expects to take another in the CURRENT quarter for its European expansion.
It’s betting the moves will pay off.
Business in Europe, now just licensing revenue, is about 10% of Volcom’s yearly sales of $200 million.
Quiksilver gets about 45% of its $2 billion in yearly revenue from Europe.
“Europe provides a significant opportunity for growth, and it seems that Volcom is doing a good job managing the transition to direct selling there,” said Jeff Mintz, vice president of research at Wedbush Morgan Securities.
Volcom also has generated a buzz with new products.
The company now sells a line of sandals and slip-on shoes called Creedlers. It also added girl’s swimwear and clothes for boys ages 4 to 7.
“It’s another way for them to diversify,” Gallacher said. “The brand is still hot.”
Volcom, known for crafty marketing, recently said it plans to stage a worldwide art show tour and produce a 60-page comic book. There’s also a music tour in the works.
The moves are a good way for Volcom to “stay connected to its core consumer” and “maintain its authenticity,” Mintz said.
