Volcom Files IPO
As Volcom Inc. shifts its focus from thrashers to investors in preparation for its forthcoming initial public stock offering, the company will have to grapple with one detail other than share price: What will happen to its management and culture, which boast an “anti-establishment brand image,” after the company joins the establishment on the NASDAQ?
Ending months of speculation about the next direction for the iconoclastic maker of clothing for action-sports aficionados, Costa Mesa, Calif.–based Volcom filed to raise as much as $86.3 million in an IPO. The move comes at a time when boardsports are attracting the masses and Volcom is one of the leaders of the pack with its buzz and top-selling products.
Retailer Eric John said the irony is that behind Volcom’s unconventional marketing stands a fiscally conservative and disciplined corporation that goes by the books when it comes to credit, production, sourcing, shipping, finances and inventory. John said Volcom is the best overall brand for surf, skate and snowboard apparel in his Laguna Surf & Sport shops in Laguna Beach and Aliso Viejo, Calif., which began stocking Volcom soon after the clothing company was founded in 1991.
John said he has known Volcom Chief Executive Officer Richard Woolcott for 20 years and that Volcom Chief Operating Officer Jason Steris worked in his store before joining the apparel manufacturer. John said he does not think Volcom will pursue much licensing out of concern that ventures into hats, belts and ancillary lines would dilute the brand. “Cool kids wouldn’t dress that way anyway,” he said.
But John said he expects to see more Volcom-branded stores. (Volcom runs one store in Los Angeles and licenses two shops in Indonesia and France.) Whether Volcom’s new stores will affect his business depends on location, John said. “I’m sure they’ll be sensitive to their existing distribution,” he noted.
Woolcott declined to be interviewed because Volcom is in a “quiet period” following the filing of a prospectus with the Securities and Exchange Commission and preceding the IPO. The lore is that he and Tucker Hall started Volcom after they had snowboarded almost nonstop for two weeks in Lake Tahoe and decided to concentrate on the three sports they enjoyed: surfing, snowboarding and skateboarding. Hall has since left the company but remains a shareholder. Woolcott, 39, who previously had a surf sponsorship from now-competitor Quiksilver Inc., also serves as president and director. Described by his employees as the first in the water and the last out, Woolcott has worn matching outfits—such as tuxedo shirts with the sleeves ripped off—with his young workers at trade shows. His father, Reneacute;, who provided $5,000 to start Volcom, is chairman.
As stated in the prospectus filed on April 29, Volcom believes that “future success is highly dependent on the contributions, talents, personality and image of Richard Woolcott. hellip; While our other key executive officers have substantial experience and have made significant contributions to our business, Richard remains a driving force behind our brand image and philosophy.”
By the numbers, Volcom is ready for the big time. Revenue rocketed from $2,600 in the company’s first year to $113.2 million in 2004, when Pacific Sunwear of California Inc. accounted for roughly 27 percent of Volcom’s sales. Last year, Volcom posted a net profit of $24.6 million and gross profit margins of 48.6 percent.
Volcom’s margins are on par with Australian-based Billabong International Ltd.’s, which are the highest in the industry, noted Christy Lowe, managing director at USBX Advisory Services LLC in Santa Monica, Calif. That fact is pretty impressive for a company of Volcom’s size, she said.
Billabong, in comparison, has five times the revenue of Volcom. “Usually the smaller companies don’t have the scale to have attractive margin structure,” she said.
Lowe said investors are interested in a Volcom IPO. “There is certainly a demand out there for more ways to participate in the action-sports sector,” she said, noting that the only standalone public companies in the category are K2 Inc., Quiksilver, Billabong, Oakley Inc. and Orange 21 Inc. (formerly known as Spy Optic).To satisfy Wall Street, Volcom will have to continue growing through new product lines and other methods. A designer in Volcom’s juniors department said in March that the company plans to launch a swimwear line in Spring 2006.
Wachovia Securities, D.A. Davidson & Co. and Piper Jaffray will underwrite the IPO. Details such as the number and price of shares that Volcom will offer and a date for the IPO were not specified. Volcom said it plans to use $20 million from the IPO to pay off debt and spend the remainder on advertising, developing its infrastructure in Europe, and other purposes.
Volcom said the following people will join its board prior to the offering: Douglas Ingram, general counsel at Allergan Inc.; Anthony Palma, president and chief executive officer of Easton Sports Inc.; Carl Womack, chief financial officer of PacSun; and Kevin Wulff, president and chief operating officer of American Sporting Goods Corp.
Volcom also will head to court in July 2005 when a jury trial begins for a lawsuit filed by Active Wallace Group, the Chino, Calif.–based owner of Active Mailorder and Active Ride Shop, against the company in the California Superior Court for Los Angeles County. Filed in August 2002, the lawsuit alleges violation of certain competition laws, breach of contract and unfair business practices, according to the SEC filing.
