Volcom Delivers Decent 4Q

Volcom Inc. (VLCM), delivered net earnings of 7 cents per diluted share for fourth-quarter 2010, which was down 50% compared with 14 cents per share in the same period a year ago.  However, the quarter’s result marginally surpassed the Zacks Consensus estimate of 6 cents.

For full-year 2010, Volcom reported net earnings of 91 cents per share compared with 89 cents a year ago. The full-year earnings were in line with the Zacks Consensus Estimate.

Volcom’s net income for the fourth quarter of 2010 plunged 52.9% to $1.6 million from the year-ago net income of $3.4 million. For the fiscal year 2010, Volcom reported net income of $22.3 million compared with $21.7 million in 2009.

Revenue and Margins

Net sales for the quarter grew 22.4% to $78.6 million from $64.2 million in the year-ago quarter, mainly due to 20.5% growth in Electric segment of the company. The Zacks Consensus Estimate came in at $78 million.

For full fiscal, net sales went up by 15.2% to $323.2 million compared with $280.6 million in the same period a year ago. The Zacks Consensus Estimate for the year was $323 million.

Segment wise, revenue at U.S. (which includes revenues from the U.S., Canada, Japan and many other territories outside Europe, as well as the company’s branded retail stores) surged 18% to $54.3 million, revenue at Europe remained flat at $12.8 million, and revenue at Electric climbed 16.7% to $6.4 million compared with  the fourth quarter of 2009.

Volcom’s' gross margin dipped to 45% compared with 49.2% in the prior-year quarter, due to poor performance in the U.S. segment, partially offset by decent performance in the company’s Electric segment. For the full year, gross profit shot up to $159 million compared with $140.8 million a year ago.

Quarterly operating income plunged 61.8% to $1.3 million compared with $3.4 million in the prior-year quarter. For the fiscal year 2010, the company’s operating income improved to $30.3 million compared with $29.9 million a year ago. Selling, General and Administrative Expenses increased to $34 million, compared to $28.1 million in the comparable period.

Other Financial Updates

Volcom ended the year with cash on hand of $80.3 million and no long-term debt. At the end of the fiscal year 2010, Volcom reported total inventories worth $41.4 million. Net cash used in investing activities stood at $15.9 million at the end of the year.

Volcom signed a definitive agreement to terminate the current Volcom outlet license agreement and purchase the assets related to the operation of the 10 existing Volcom outlet stores, which are located in California, Nevada, Washington and Utah. The company anticipates completing the transaction by mid-2011. Terms of the transaction were not disclosed.

Guidance Updates

For the first quarter 2011, the company expects total consolidated revenue to be in the range of $83 million to $86 million, and fully diluted earnings per share in the range of 16 cents to 19 cents.

For full-year 2011, Volcom expects total consolidated revenue of approximately $366 million to $371 million, and fully diluted earnings per share in the range of $1.08 to $1.14.

Volcom, which faces stiff competition with Quicksilver Inc. (ZQK - Snapshot Report), maintain a Zacks #4 Rank, which translates into a short-term Sell recommendation. However, our long-term recommendation for the stock remains Neutral.

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