Costa Mesa-based clothing maker Volcom Inc. is emerging from the downturn with a big ambition.
“We firmly believe the time is now to pave the way toward becoming the No. 1 brand in action sports,” Chief Executive Richard “Wooly” Woolcott told analysts during a recent conference call.
Volcom, which makes clothes inspired by surfing, skateboarding, snowboarding, art, music and film, has fared better than others during the downturn—the worst for the county’s clothing makers in recent memory.
The brand, edgier than other action sports clothing labels, has managed to hold favor with young people as competing urban, fast fashion and other styles have ruled during the recession.
In February, Volcom surprised Wall Street with a better-than-expected quarterly profit and sales and a generally upbeat outlook.
Fourth-quarter sales were down 8% from a year earlier to $64 million, but better than the $62.7 million analysts expected.
Volcom reported an adjusted fourth-quarter profit of $3.3 million, versus a loss of $8.7 million a year earlier.
Analysts on average were looking for a profit of $940,000.
“Volcom’s gross margin improved year over year, as the company limited discounting,” wrote Jeff Van Sinderen, an analyst at B. Riley & Co., in a note. “The brand performed relatively well at retail versus competitors.”
For the current quarter, Volcom said it projects sales of $71 million to $74 million, which would be up 4% to 8% from a year earlier.
Volcom, which sells through chain stores, surf shops and about 20 of its own stores, projected a profit of $3.7 million to $4.5 million, up about 12% from a year earlier.
The company said it expects “increased revenue growth as the year progresses, primarily reflecting the company’s forecast of a generally strengthening global economy throughout 2010.”
Volcom’s shares are up about 20% for the year with a market value of about $450 million last week.
The company “is well-positioned for long-term growth through both its domestic and international wholesale distribution, as well as its own retail stores,” wrote Christine Chen, an analyst with Needham & Co., in a recent note.
She cited the brand as “one of the fastest growing apparel/accessories brands in board sports with a strong aspirational lifestyle image.”
Market Breakdown
Solid market share numbers are hard to come by, but Volcom likely is the No. 3 company in its segment after Huntington Beach-based Quiksilver Inc. and Irvine’s Billabong USA, part of Australia’s Billabong Inter-national Ltd.
Other rivals include Nike Inc.’s Hurley International LLC in Costa Mesa and upstarts such as Rvca Clothing of Costa Mesa.
Volcom has issues to stare down: the lingering retail slump, ongoing challenges in the highly competitive market for clothes for teen girls and young women and problems plaguing its top retailer, Anaheim-based Pacific Sunwear of California Inc.
As a whole, clothing retailers still are trying to bounce back from the big downturn of last year.
February was another down month of sales for independent surf, skate and snow shops, according to a monthly survey by Robert W. Baird & Co. Still, it was one of the better monthly results in a while, suggesting the market is stabilizing.
“As retailers are being a little more aggressive with their orders for fall 2010 than spring 2010, we’re encouraged that the sales trend for (Volcom) and (Quiksilver) could improve from the first half to the second half of the year,” analyst Mitch Kummetz wrote in the report. “We expect a better performance from (Volcom) than (Quiksilver) based on the relative strength of each company’s brands.”
Marketing
Volcom is making big marketing pushes. It recently hosted its first Association of Surfing Professionals event, a concert on the North Shore of Oahu. It’s partnering with the Maloof Money Cup Skateboard Championships, sponsoring the street event at the Maloof contest in Orange County and New York this summer. And it’s set to begin the U.S. portion of its Volcom music tour with rock band Masterdon.
The European leg of the tour was a hit, Woolcott said during the conference call.
Clothing bright spots include Volcom’s denim, boardshorts and its Creedlers sandals. Its Stone Age collection, a line of clothing exclusively sold by action sports retailers, was awarded the Best Specialty Specific Store Line by trade publication TransWorld Business.
“Overall, the feeling out there is that the worst is probably behind us and we are now in a build-back mode,” Woolcott said.
Juniors
Volcom also ranked as the hottest juniors apparel brand in Robert W. Baird’s board sport quarterly report for the holidays.
Being a hot brand in the juniors market is no easy feat. Fast fashion—trendy, stylish cheap clothes—has taken the market by storm, leaving action sports apparel makers and retailers by the wayside.
Volcom has held its own. The company’s swimwear offerings, Creedlers girls’ sandals and what it calls outerwear—snow pants, jackets, fleece and sweaters—have done well.
But what’s hot one day can be out the next among juniors.
That can work in favor of Volcom, said Lawrence Creatura, a fund manger for Pittsburgh-based Federated Investors Inc., in a MarketWatch article.
“Other brands are older and more mature,” he said. “This is a fresher brand, which has more authenticity in the eyes of many of its customers.”
Volcom plans to leave room in its juniors line so it can mimic last-minute trends and hot fashions. It’s also brought in spring clothing and accessories earlier this year and expanded its basics offerings—plain T-shirts and such—so they can carry over season to season.
PacSun
The company also is working to lessen the pinch it’s feeling from Pacific Sunwear’s woes.
Sales from PacSun, a mall store chain that’s Volcom’s largest customer, dropped 42% to $6 million in the fourth quarter. PacSun made up 13% of sales in Volcom’s U.S. segment, which includes North America and Japan.
A year earlier, revenue from PacSun was 19% of sales for the segment.
Earlier this month, Volcom’s shares took a hit when PacSun warned of a loss for the current quarter that was three times what analysts had been expecting.
Volcom said it’s looking for ways to maximize its business with its other big accounts, which, excluding PacSun, saw a 27% decline in revenue for the fourth quarter.
The company doesn’t break out its biggest customers after PacSun. Other large retailers include Zumiez Inc. of the Seattle area, Cincinnati-based Macy’s Inc., Tilly’s Inc. of Irvine and Seattle-based Nordstrom Inc.
The plan to boost sales through other retailers “includes driving demand for Volcom products, through more nationally targeted advertising and marketing programs as well as upgrading in-store merchandising,” Chief Financial Officer Doug Collier said during the conference call.
For the most part, analysts seem on board.
Volcom continues to “penetrate doors and build market share,” Chen of Needham said.
“We believe Volcom is well-positioned for long-term growth through increased U.S. and international wholesale penetration, as well as its own retail stores when the environment picks up,” she said.
The brand remains strong, Van Sinderen of B. Riley said.
“We continue to feel that there is potential to return to significant growth, but the timing and magnitude remain challenging to pinpoint,” he said.
Gomez is a former Business Journal editor and a freelance writer based in Long Beach.
