Volcom

Kipley Pereles
Cait Blanton
Cassandra Phillips
Jenn Wheeler
Dan McGee
Brad Smith
 Volcom’s Profile
• Industry – Apparel – Footwear and Accessories
• The Brand: Symbolized by “The Stone”
• Motto: “Youth against establishment”

• Volcom headquarters- Costa Mesa - Orange County, CA.

• 19 Years in business- Richard Woolcott and Tucker Hall founded

Volcom in 1991

• Target market:
• Primarily teens and young adults

• Main product lines:

• Surf
• Skate
• Snow
• MX: Motorcross
Volcom’s Profile Cont..
• Main suppliers: Contract Manufacturer’s located in Mexico and China
(74% of products imported)

• Leading Customers: Specialty Boardsports Retailers 17th Street Surf,

B.C. Surf, Below the Belt, Froghouse and several retail chains: Macy’s,
Nordstrom, Pacific Sunwear

• 13 Branded Retail Stores

• Main competitors-Billabong, Quicksilver, Roxy, Hurley

• Net Revenue for 2009: $281 million

• EPS - $.89 for 2009, $.89 for 2008
• Total Assets- $253 million
• Market Capitalization- $498 million
• Stock market where traded- Public (NASDAQ:VLCM)
• Stock price, range (before and after crisis): Low $7.57 and High $51.00;
$16.74 (December 31, 2009)
Volcom’s Executive Summary

 Financial Ratios
 Liquidity & Profitability
 NPV Project
 Planning Process
 SWOT
 3-Year Financial Plan
 CAPM, WACC & Cost of Capital
 Contractual Agreement
Ratios - Liquidity

Volcom vs. Industry Avg: Quick Ratio

5.66 5.42
6 5.33
5
4
Times

2.69
3 Volcom
2 Industry Average
1
0
2007 2008 2009
Ratios - Profitability
Cash Flow Project

 Weak retail presence

 13 Across US
 9 Internationally

 Investment Project
 Increase Volcom’s retail stores
 Open 5 stores on the West Coast
Cash Flow Project
 Investment Overview
 Initial costs: $15,000,000
 Salvage value after five years: $10,000,000
 Sales increase 25% every year
 Cost of Goods Sold (COGS) is 50% of sales
 Administrative and other expense is 30% of sales
 Working Capital
 Year 1: $547,200
 Year 2: $729,600
 Year 3: $972,800
 Year 4: $1,595,734
 Year 5: -$2,127,646 (recovery anticipated)
Cash Flow Project
 Base Case Results
Base Case
Net Present Value (NPV) $12,861,374

Internal Rate of Return (IRR) 45.62%

Payback Period 2.5 years
 Acceptable project but warrants additional
investigation
 What-If Scenarios
 Sensitivity Analyses
 Cost of Capital=21%
 Project Summary

Volcom, Inv.

Project Summary
Best Case Base Case Base Case Worst Case NPV = 0 NPV = 0 Tax Rate
Sales +10% PVIF=14% WACC Sales - 10%, Revenue COGS 38%
COGS - 10% PVIF=21% COGS + 10% -43% 21%

NPV = $14,673,726 $19,222,183 $12,861,374 $2,567,025 $0 $0 $2,776,051

IRR = 50.22% 45.19% 45.62% 26.52% 20.94% 20.94% 27.66%

Payback = yrs 2.7 2.4 2.5 3.5 3.0 3.9 4.0

Planning Process

 Where are we?

 SWOT Analysis
 Where would we like to be?
 Strategic Plan Objectives
 How do we plan to get there?
SWOT - Internal
 Strengths
 Largest boardsport brand

 Third-party manufacturing

 Liquidity, leverage, & profitability

 Weaknesses
 Market competition

 Industry Market share

SWOT - External
 Opportunities
 Domestic – retail and brand acquisition

 International – product and distribution

 Threats
 Third party reliance – manufacturing,
distribution, retailers
 Retailer consolidation

 Decreasing consumer consumption

 Volcom vs. Industry Leaders
Statistic Industry Leader VLCM VLCM Rank

Market Capitalization NKE 34.27B 485.92M 10 / 25

P/E Ratio (ttm) RCKY 22.30 19.41 2 / 25

PEG Ratio (ttm, 5 yr expected) CWTR 2.39 0.91 9 / 25

Revenue Growth (Qtrly YoY) SKX 43.50% 13.30% 7 / 25

EPS Growth (Qtrly YoY) SKX 552.90% 78.40% 5 / 25

Long-Term Growth Rate (5 yr) DECK 22.63% 20.00% 5 / 25

Return on Equity (ttm) COH 42.75% 11.94% 9 / 25
Long-Term Debt/Equity (mrq) N/A
*Source – Yahoo Finance
Where would we like to be?

 Strategic Plan Objectives:

 Increase boardsport market share and
influence
 Expand Volcom’s retail presence and
infrastructure
 Expand International growth, profitability
and market share
How do we plan to get there?

 Diversify retail mix

 Expand domestic retail stores
 Acquire brands poised for growth
 Expand International Operations
 Europe
 UK Brands
 Europe (mainland) headquarters and distribution
 Asia
 Japanese distribution
Financial Projections - SLRP
*millions 2009 2010 2011 2012

Revenues $280.6 $326.7 $362.1 $401.6

Net $20.7 $27.1 $28.2 $32

Income

Total $253 $284 $315.1 $350.2

Assets
 Annual Plan Qtrly Results 2010
*millions 1Q 2Q 3Q 4Q Year 2010

Revenues $79.7 $64.1 $107.8 $75.1 $326.7

Net $6.4 $1.0 $19.6 $10.9 $37.9

Income
Capital Asset Pricing Model

 R(f)= 3.3%
 R(m)= 14%
 Beta= 1.67
 R(e)= Rf + (Rm-Rf)
*β
 R(e)= 21.17%
Market Value of Equity

 Stock Price=
$20.50
 Shares
outstanding=
24,300,000
 MVE=
$498,150,000
Pricing Structure

 Description of Opportunity
 Risk vs. Return
 Current and Forecasted Economic Conditions

 Markup
 Summary Table:
Expected
Forecasted
Year Revenue OCF Price /
Pieces
Piece
1 18, 000,000 4,402,007 11 M $27
2 22,500,000 5,747,207 26 M $29
3 23,000,000 5,951,207 17.5 M $31
Contractual Agreement

 Assessed Annually at end of Q4

 Effective Date for Pricing
 Quarterly Stipulations
 Max. order size
 Penalties
 Invoice Date and Billing Date
Agreement with 2’ Distributor

 Huntington Beach Flagship Store

receives order for 250,000 pieces of
Volcom branded clothing to be sold to
2’ distributor in Hawaii
 5 shipments of 250,000 pieces
 Payment Terms: 15/10, net 30
Termination

 Costs:
 Operating Expense
 Parts and Assets
 One time Costs
 3rd Party Contracts
 Wind Down Services
 Base Price Discounted Price
Sale Price $27
Initial Markup 23.00%
List Price $33.21

Pieces ordered 250,000 250,000

Cash Discount 15%

Savings per Piece $4.98

Total Price $28.23

Sum Total $8,302,500.00 $7,057,125.00

Tax 32%

Shipping and
Handling $3,375 $3,375

Total $10,937,767.50 $9,297,608.63

Total Savings: $1,640,158.88

Shipping and Handling per Piece ordered 100 $45.00 Order Minimum
1000 $112.50
10,000 $337.50
100,000 $1,350.00
500,000 $6,750.00 Order Maximum
Termination Costs Assuming Hawiian distributer breaches contract

Cost Items: % from Op Exp

Salary (Overhead and Office) $310,000.00 7.04%
Payroll (taxes included) $31,000.00 0.70%
Outside Services $300.00 0.01%
Supplies (Office Operation) $75.00 0.00%
Repairs / Maintence $210.00 0.00%
Advertising $2,000.00 0.05%
Vehicle, Deliver and Travel $4,000.00 0.09%
Accounting and Legal $12,000.00 0.27%
Mortgage $850,000.00 19.31%
Telephone/Internet/IT Service $1,500.00 0.03%
Utilities $3,000.00 0.07%
Insurance $90,000.00 2.04%
Taxes $43,000.00 0.98%
Depreciation $100,000.00 2.27%
Parts:
Depreciation $100,000.00 2.27%
Assets:
Unearned Discount $1,668,802.50 37.91%
Equipment Lease $19,000.00 0.43%
One Time Costs:
Transaction Fees $2,400.00 0.05%
Professional Services $5,000.00 0.11%
Third Party Contracts:
Vehicle Lease $2,000.00 0.05%
Litigation $18,000.00 0.41%
Consulting Services $30,000.00 0.68%
Wind Down Services:
Service Continuation $10,000.00 0.23%
Professional Services $150,000.00 3.41%

Risk @ 20% $880,401.40

Grand Total of Cost $4,332,688.90

End.

Questions?