Costa Mesa-based Volcom Inc. is changing things up as the clothing designer weathers the retail slump.
Founder and Chief Executive Richard “Wooly” Woolcott recently turned over the president’s title to Jason Steris, who also is chief operating officer.
Steris joined Volcom in 1993 and has held various positions, including sales manager.
The move freed Woolcott to take on the chairman’s role, a position previously held by his father, Rene R. Woolcott, 76, who helped his son start the company and remains a director.
The younger Woolcott is devoting more time to “focusing on the strategic direction, vision and marketing of the company,” he said on a recent conference call with analysts and investors.
Steris is running daily operations.
“These moves allow each of us to leverage our strengths,” Woolcott said on the call.
Volcom, which designs edgy clothes inspired by surfing, skateboarding and music, has seen other changes. The company has made two recent buys, opened more of its own stores and moved its warehouse.
The moves come at a tough time for clothing companies. The economic slowdown has hit retailers hard as consumers pull back on buying amid high prices for gas and everyday expenses.
Volcom’s stock says it all: The company’s shares are off by half in the past 12 months
with a recent market value of about $500
million.
“The current retail environment does pose its challenges,” Woolcott said on the conference call.
Volcom’s second-quarter profits fell 23% from a year earlier to $4.8 million. Revenue rose 25.6% to $72.5 million as the company saw a pick-up in business with big mall retailer Anaheim-based Pacific Sunwear of California Inc.
Sales through Pacific Sunwear rose 17% to $15.8 million in the quarter, mostly driven by sales of men’s clothes.
Volcom said it expects to increase business with Pacific Sunwear for the rest of 2008, instead of seeing a drop as previously expected.
Still, Volcom lowered its outlook for the third quarter based on what Chief Financial Officer Doug Collier called a “tempered view of the retail environment.”
Volcom now expects profits of $36.6 million to $37.3 million, down from an earlier forecast of $38 million to $38.7 million.
“This isn’t shaping up to be a good year for Volcom,” said analyst Mitch Kummetz of Robert W. Baird & Co. “But we still have confidence in the company’s longer-term prospects.”
The slowdown comes about a year after Volcom made a big push into Europe by taking over the sales of its clothes there from companies that had licensed the Volcom brand.
Wall Street has seen the move as a necessary expansion, even though it has come with higher-than-expected costs.
Volcom is dealing with “economic pressure” in Europe, according to Woolcott.
“We are closely monitoring the situation and believe that our brand position will help us endure these conditions should they continue to get worse,” he said.
Volcom had $6 million in European sales in the second quarter, up from minimal sales a year earlier before its operations there were fully up and running.
The company also is keeping tight reins on business in Japan and Australia.
Volcom hired a general manager to oversee its Japanese operations, which are handled by a licensee, and sent a U.S. executive to Australia to work for a year with its licensee there.
Acquisitions
The moves come on the heels of two recent acquisitions, part of a diversification strategy for Volcom.
The company made its way into sunglasses and goggles in January when it bought San Clemente-based sunglass maker Electric Visual Evolution for $25.3 million.
Overall sunglasses sales have been tough amid the slow economy with softer sales in North America and Europe, according to Woolcott. Plus, France and Spain, Electric’s two biggest markets, saw cold, rainy weather in April and May, he said.
Electric’s revenue was $6.4 million in the second quarter, slightly below Volcom’s expectation of $7 million.
Longer term, Woolcott said he expects “strength and momentum” from Electric.
“This is great young brand with plenty of future potential,” he said.
Volcom also bought Laguna Surf & Sport, which runs stores in Laguna Beach and Aliso Viejo.
The move is part of Volcom’s retail push.
The Laguna Surf & Sport stores, which long have sold Volcom clothes, kept their name and management teams.
Laguna Surf & Sport is expected to add about $1 million to Volcom’s projected $346 million in 2008 revenue.
Meanwhile, Volcom has been opening stores under its own name.
In the past few months, the company opened its own stores in New York’s Soho and Boulder, Colo. It plans to open a Bruce Irons signature store in Waikiki and a Volcom store in Las Vegas later this year.
By the end of 2008, Volcom expects to have 12 U.S. stores. Internationally, it will have 11 stores, nine of which are run by licensees.
“We planned to continue to build our retail business slowly, seeking our geographic locations that make sense,” Woolcott said.
Next up: Volcom plans to move its
warehouse to a new Irvine location, which should meet its needs for the next 10 years. The warehouse has newer equipment that should improve operations, according to Volcom.
The company expects to move by year’s end. Volcom’s old warehouse is set to be converted to office space.
