It’s never a good sign when the third sentence out of the mouth of the CEO on his company’s quarter-ending conference call is, “None of us could have ever imagined a landscape deteriorating the way that is has just a year ago, however this is our new reality and we must adjust and manage our business accordingly.”
Those were the words of Richard Woolcott of Volcom, Inc. (VLCM) last Thursday afternoon.
The Southern California-based action sports-inspired apparel maker also forecast earnings for the current quarter to be below analyst estimates and said it would not provide an annual outlook anymore due to the “lack of visibility into future business.”
Needless to say, shares of Volcom fell hard in trading the following day, by nine percent.
For the quarter ended December 31, Volcom earned 14 cents per share, excluding charges, while analysts were expecting profit of 16 cents per share. Including a non-cash impairment charge on goodwill and intangible assets and a foreign exchange loss, the company posted a loss of 36 cents per share for the quarter.
Revenue rose slightly to $69.6 million from $69.1 million a year ago, but only due to a couple of acquisitions made during the year.
Mr. Woolcott said a variety of items impacted the core Volcom business and the Electric business (which produces and sell sunglasses and goggles). For the core business he said revenue came in as planned, but a highly promotional environment impacted gross margins; a non-cash impairment charge related to the acquisition of its two newly-acquired L&S stores; and sudden and unexpected currency devaluation in Canada against the U.S. dollar.
In the electric business he noted that revenue came in well below plan and below the company’s initial and reduced targets which brought operating expenses out of line and the continued softening of the business resulted in a non-cash impairment charge of $14.9 million.
Running Lean
The company isn’t taking the current weakness lying down. Since it expects current year revenue to come in below that of 2008 its main goal is to keep Volcom financially healthy. Controlling costs is a major part of its plan and to that end the company recently reduced its domestic in-house workforce by 8 percent.
It has also instituted a company-wide salary reduction of 15 percent for the CEO, a 10 percent decrease for the senior management team and salary decreases throughout the ranks. “Taken together, these initiatives are expected to translate into meaningful cost savings… and should reduce our selling, general, and administrative expenses for 2009 below that of 2008,” said Mr. Woolcott.
The slump in the economy is a severe one to be sure. Volcom is seeing falling sales at the mall-based retailers that carry its goods, like Zumiez and Pacific Sunwear. But Mr. Woolcott believes marketing efforts will continue to strengthen the company’s brands and strong balance sheet which shows nearly $80 million in cash and little debt will help it through the lean times.
The current price isn’t a bad entry point.
This article was written by Jamie Dlugosch, contributor to InvestorPlace Media. For more actionable insights likes this, visit www.InvestorPlace.com.
