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

5.425.665.33

2.69

01

234

56

2007 2008 2009

Tim

es

Volcom

Industry Average

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

Acceptable project but warrants additional investigation What-If Scenarios

Sensitivity Analyses

Cost of Capital=21%

Base Case

Net Present Value (NPV) $12,861,374

Internal Rate of Return (IRR) 45.62%

Payback Period 2.5 years

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

Revenues $280.6 $326.7

$362.1

$401.6

Net

Income

$20.7 $27.1

$28.2 $32

Total

Assets

$253 $284

$315.1 $350.2

*millions 2009 2010 2011 2012

Annual Plan Qtrly Results 2010

Revenues $79.7 $64.1 $107.8 $75.1 $326.7

Net

Income

$6.4 $1.0 $19.6 $10.9 $37.9

*millions 1Q 2Q 3Q 4Q Year 2010

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:

Year Revenue OCF Forecasted

Pieces

Expected

Price /

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

Questions?

End.