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Executives

Hoby Darling – SVP, Strategic Development and General Counsel

Richard Woolcott – Chairman and CEO

Doug Collier – CFO and Secretary

Jason Steris – President and COO

Analysts

Mitch Kummetz – Robert Baird

Sean Naughton – Piper Jaffray

Jeff Van Sinderen – B. Riley

Christine Chen – Needham & Company

Sam Bitetti – Thomas Weisel Partners

Charu Sharma – KeyBanc

Claire Gallacher – Capstone Investments

Volcom, Inc. (VLC) Q4 2009 Earnings Call Transcript February 25, 2010 4:30 PM ET

Operator

Good afternoon. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Volcom quarter four 2009 conference call. All lines should be placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions)

Thank you. I would now turn the call over to Hoby Darling.

Hoby Darling

Good afternoon, everyone, and thank you for joining us today to discuss Volcom's 2009 fourth quarter and full year financial results. Joining me on the call today are Richard Woolcott, Volcom's Chairman and Chief Executive Officer; Jason Steris, Volcom's President and Chief Operating Officer; and Doug Collier, Volcom's Chief Financial Officer.

First, some housekeeping items before we start. If you'd like to be added to Volcom's email distribution list to receive company information or if you would like to change your contact information, please contact Evan Pondel at 310-279-5973.

In addition, please be advised that this conference call is being broadcast live on the internet at volcom.com, as well as earnings.com. A playback of this call will be available for one year and may be accessed on the internet at both sites.

Also please be advised that today's call will contain certain non-GAAP historical financial results, reconciliations to GAAP for this non-GAAP results may be viewed in our earnings press release which may be accessed at volcom.com.

Please note, that all information discussed on today's call is covered under the Safe Harbor Provisions of the Litigation Reform Act. The company's discussions today will include forward-looking information reflecting management's current forecast of certain aspects of the company's future.

In particular statements about the future in our guidance, outlook for future business, margins, financial performance, customer demand, growth and profitability all constitute forward-looking statements.

These forward-looking statements are based on management’s current expectations but they involve a number of risks and uncertainties. Actual results could differ materially from those stated or implied by these forward-looking statements. The risk and uncertainties associated with company’s business. Certain risk factors associated with our business are set forth in our Form 10-K for the year ended December 31, 2008 and subsequently filed quarterly reports on Form 10-Q.

The company disclaims any intent or obligation to update these forward-looking statements except as required by law. All forward-looking statements from today's call are qualified in their entirety by the foregoing cautionary statements.

With that said, it's my pleasure to turn the call over to Richard Woolcott. Richard?

Richard Woolcott

Well, thank you, Hoby. Good afternoon, everyone. When I look back at 2009, I can easily say, it was one of the most challenging years for our company and our industry. A turbulent economy turned the retail environment upside down and yet Volcom managed to rise to the challenge and successfully navigate to the worst economic period in decades.

In 2009 we accomplished two primary objectives. We stayed healthy and profitable and we planted seeds that we believe will position the company extremely well in the years to come. To achieve these goals our entire group protects the environment head-on group, ensuring that every aspect of the business was thoroughly reviewed, fine tuned and set for growth. I applaud the entire Volcom team for their relentless commitment, dedication and drive this past year.

And while 2009 created a seismic shift for us in our industry, it also marked the beginning of a new era for Volcom. I believe we are now emerging as a better organization and in a prime position to seize opportunities and take market share.

In the next five years, we intend to become a dominant player in our industry. Our roots are deep and our passion to push ourselves to the next level is at an all time high. We believe the capabilities we have developed will help drive long-term profitable growth. And we are now dedicating ourselves to a multi-year strategic direction that we believe will position Volcom as a global leader creating value for our shareholders.

This emphasis will require time and investment and a commitment to align our resources with our longer term goals. We firmly believe the time is now to pave the way towards becoming the number one brand in action sports.

Let me now review several aspects of our business and provide context for our growth plans for 2010 and beyond. As you know, the strength of our brand is the key ingredient to maintaining the health of our company. In order to maximize this strength while communicating to a wider audience, we have implemented several new and exciting marketing initiatives for the coming year. Just recently we hosted our first ASP surfing event, the Volcom Pipeline, the concert was held on the North Shore of Oahu, and was a huge success with significant internet reach, TV and media coverage.

We are also partnering with the Maloof Money Cup Skateboard Championships and will be sponsoring the street event at both Maloof contest this summer in Orange County, California and New York City. These events will be televised on Fox Network and broadcast live on both Fuel TV and the internet.

In addition to the Maloof in the Pipeline Pro, is the return of the Volcom tour with headlining rock band Masterdon and Volcom Entertainment supporting actor Valient Thorr. The U.S. part of the tour will consist of 29 stops, starting April 16th in Charleston, South Carolina and ending on May 22nd in Lexington, Kentucky.

The European leg of the tour just ended yesterday, it was sold our crowd at the world famous round house in London and the word on the street is that the tour is already a huge success.

And finally, in the fall of this year, we will be releasing our newest snowboard movie featuring Gigi Ruf in France. Along with these events we also intend to increase our print and online advertising, roll out additional in store displays and buildouts and plan to continue to focus on specific product campaigns that have already proven successful.

As you may recall, Denim was a driving force for our company in 2009 with new styles highlighted in a road tested marketing campaign. We also had strong success with our Proving Grounds campaign featuring technical designs for our board shorts and our Creedlers footwear. Additional, our Stone Age program continued to differentiate Volcom from other brands providing core retailers with exclusive product as a point of differentiation from larger retailers. I'd like to point out that this collection was recently awarded the Best Specialty Specific Store Line by TransWorld Business.

On top of these initiatives, we will continue to focus on our core athlete programs, let the Kids Ride Free contest, in-store promotional events, social media networking and general day-to-day branding attack.

Now let's take a moment and talk about product. We took decisive action in 2009 to better our product presentation and I believe we have made good progress in developing a superior product that performs as well as it looks. Specific product categories in each of the three boardsports, skate, surf and snow received particular attention.

Let's start with our denim. I’m pleased to report that our efforts to fine tune our collection has really paid off by offering a wider rate price points, fits and washes along with a focus marketing campaign, 2009 became the pivotal year for establishing ourselves as an action sports leader in denim.

We are excited to continue to build on this momentum and plan to incorporate new floor displays throughout 2010 to further enhance our in-store denim presentation. Board short is another that we continue to gain traction. Over the past 12 to 18 months we have dedicated ourselves in the pursuit of building the best board shorts available. With the focus approach on design, sourcing, production techniques, R&D at the Paypal, feedback from our team riders and retailer round tables, we’ve been able to grow this category and gain the respect as a top board short manufacturer. From our high performance, Bruce Mod, Dingo Mod, Dusty Mod and futuristic stretch construction 3-D Mod are collection is now ready to compete with the best of them.

Turning to outerwear in 2009, we introduced exclusive Gore-Tex Thermal Defense System, which creates maximum visibility and insulation through strategic three layer construction. We've had phenomenal feedback both from a performance standpoint as well as the design of the product. So far, sell-through this year for entire snow collection has been very good and we received a great reaction to next year's product line at SIA.

Overall, we are pleased with the success of this category. Creedlers is also demonstrates solid potential. We shift spring 2010 in early December to warm weather markets, including Puerto Rico and Hawaii and so far feedback has been great. Part of appeal is that line is piggybacking on the success of our Proving Grounds campaign, in addition to a strong array of styles for mans and juniors.

Now speaking of juniors’, this category was challenging for many in 2009 and while we are seeing success in swimwear, Creedlers and outerwear, the bulk of our juniors’ business is still facing certain hurdles. But fashion trends currently favor the action sports lifestyle or not. We believe there's still demand for brands like ours in the market.

Our design teams are working extra hard to make sure our product direction is on point and we intend to make Volcom juniors a resource – and we intend to continue to make Volcom juniors’ a resource for our retailers.

In order to better compete in this fast fashion market. We plan to leave room in our juniors’ line chasing the categories or hot items as we see trends taking off. Fashion tends to be cyclical and within time, we believe the juniors’ customer will gravitate back towards action sport lifestyle product and when this happens we intend to be ready to fulfill the demand.

I’d like to note that Volcom was recently ranked the hottest juniors’ apparel brand in the Baird board sport quarterly report for the holiday 2009. And in the same report, Volcom was also ranked the hottest men's apparel brand and Electric was ranked one of the hottest eyewear brands.

With all this great product, it is imperative that our distribution remains healthy and balanced. Our core business was the first to show some recovery in the past six months have been encouraging. Many of our customers have better aligned their inventories with sell-through and the less promotional environment has helped to prop up gross margins.

Although, sales were down overall the feeling out there that the worst is probably behind us and we are now in a build-back mode. Volvom is well represented at the core and growth going forward will come from taking market share along with fulfilling demand from our sell-through.

From a geographic standpoint, the West Coast was hit hard by the recession. However, we are seeing the environment starting to improve. The Midwest is also showing signs of recovery, along with the East Coast. In many of these areas, we are seeing more opportunities now than ever before to increase Volcom's in-store presence and we plan to take full advantage of this.

Outside of the core, we have spent considerable time with our specialty retailers and department stores to ensure everything from our in-store presentation to product mix is as strong as possible. We have also been focusing on specific marketing strategies to help drive traffic and have increased our efforts to build deeper retail partnerships.

In terms of PacSun, we are working closely with the new leadership and are excited about the changes there. PacSun continues to reiterate that Volcom is an important brand for them and lately we have been receiving solid feedback about our sell-through.

Overall, we are beginning to see our current business from PacSun pick up and we are planning our future business with them to continue to improve as our respective strategies start to take hold.

Finally, our Volcom brand of retail stores continue to serve as a good source for understanding the consumer, as well as, providing excellent brand exposure in key cities. We ended the year with 10 U.S. locations as well as two LS&S stores and three international stores.

We also have eight licensed outlet stores and seven licensed international stores. We continue to fine tune these existing operations and will likely not seek to expand this base too much in 2010.

One new initiative we are excited about this year is expanding Volcom’s online presence by implementing an interactive strategy including the launch of a new volcom.com website with a direct to consumer e-commerce platform. This strategy has been in the works for several years now and we believe this needed to be carefully and done right. We are currently planning for a midyear launch and we have been working with many of our key retailers to make sure this rollout is as smooth as possible.

Let's now spend a moment to catch up on Electric. The brand wasn't immune to the economic slowdown and the eyewear environment still remains challenging. But as times got tougher in 2009, the Electric team worked harder to lay the groundwork for the future.

Electric’s Q4 revenue was above plans, bolstered in part by a strong goggle season as well as slightly better than expected sunglass sales. The release in excellent sell-though of Electric Kyle Busch signature sunglass model played a strong role in advancing the strength of the brand.

With a more focused sales strategy and a ramped up product offering we are prepare to continue to build the business. At the recent tradeshows including Agenda, Expo, SIA and ISPO, all Electric's products received excellent reception, particularly the soft goods and the accessories. The brand’s iconic sport logo has been getting good coverage at the winter Olympics as well as the recent X-Games in Colorado.

In January, we expanded distribution for Electric sunglasses to approximately 100 sunglass hut locations and it should continue to broaden the exposure of the brand. Electric also recently launched a prescription eyewear line in Europe and we are excited to see how quickly this gains traction.

In addition to a product range that is by far the best it’s ever been the Electric continues to fine tune it’s operations and lay the seeds necessary to expand market share in the statue whether it's surf, skate, snow, motocross or NASCAR, Electric is well position and we remain confident in the brand’s potential.

I'd now like to turn to our global operations and start with Europe. Overall, Europe seems to be on par with the U.S. in terms of recovery. In Q4, we saw slightly better sell-through and reorders when compared with 2008. Holiday sales were good and average spending was slightly better than last year.

Top performing countries included Germany, Austria, France and Switzerland. Perhaps, one of the most important accomplishments in 2009 was strengthening of relationships with key customers. We also boosted our marketing presence in France with the signing of superstar pro surfer Joan Duru and we launched our first shop and shop concept store that is showing strong signs of success.

Our total door count at year end 2009 stayed steady as the new doors opened offset the closures we witnessed during the year. Now, going forward, we will continue to explore potential new distribution throughout the region, including specialty retail where possible.

Like France, our strategy is to ensure Volcom is firmly established at the core before we go – before going to the next level. The good news is that we believe Volcom is emerging from the recession better than most of the competition and we should bode well – which should bode well for our Europe business in 2010.

Looking at our other Volcom territories, we made great progress in our Asia-Pacific region, we are signing operations in Japan and improving product assortments. We are well established at the core in Japan and other image appropriate retailers.

The next opportunity for growth appears to lie in the further expansion of our existing distribution, attacking local product trends and shop and shop concept stores. The challenge is that the Japanese economy is still tough, which continues to hamper consumer spending. But our brand strength and foundation remains strong and should provide the momentum necessary as we move forward.

In terms of Australia, the economy is in better shape and the presence of our brand continues to grain traction. Working with our licensee we strengthen our management team and we are in the process of enhancing our sales, design and production groups, so that we can continue to attack the marketplace and become a more dominant player in this territory.

With that review, let me take a few moments to talk about the future. As we kickoff 2010, our strategic plan calls for us to take action now. With our hard earn following, a rock solid balance sheet flush with over $110 million in cash. Growing cash reserves from operations and no long-term debt, we believe we have the resources to step up our game and while the competitive landscape has other companies distracted by their own unique issues, we believe there is an important opening for us to become the number one brand and global market leader in action sports.

But for Volcom to achieve and maintain best in class status at all levels and achieve our goal of surpassing the $0.5 billion revenue mark in the next five years, we believe we need to make strategic investments today to increase our market share tomorrow.

These include investments in our infrastructure to continue to create the highest quality product that is innovative and exciting, broadening our marketing reach with a clearly articulated message and expanding distribution opportunities globally to support growing demand.

With this in mind our action for the coming year will support what we believe is a very exciting longer term goal. A goal that we believe is worthy, achievable and builds long-term sustainable value for our customers, employees and shareholders.

And while we set our sights on higher financial and operational targets, we will never be at the expense of the health of our organization. Managed properly we believe we can produce both solid profitable returns in the short-term, while building our company for even greater achievement in not too distant future. As always I'd like to thank the entire Volcom family, our team riders, retailers and shareholders for their continued support and commitment.

With that, I'd now like to turn the call over to Doug to review our financial results for fourth quarter and full year. Doug?

Doug Collier

Thanks, Richard. Good afternoon, everyone. As Richard discussed in his remarks, we have spent the past year not only weathering the economic environment but also evaluating our opportunities at every level and in every territory around the globe. To ensure we can capitalize when the time is right. We believe that time is now.

For two decades we have pain stakingly built our most valuable asset, a global recognized brand that attracts, resonates and connects deeply with the global youth. Volcom is among the very top brands within this demographic and there is increasing evidence that there is a great opportunity to further broaden our appeal.

By the end of 2014, our goal is to nearly double last year's revenue of $281 million. We plan to maximize our opportunities to gain wider global exposure for our brands, while staying true to our core riding heritage.

In 2010, we intend to make continued calculated investments in our marketing and brand building efforts that we believe will create longer term returns for our shareholders. We have the financial resources to pursue the strategy, while also running a cash generating, profitable enterprise.

In addition to our revenue targets, we are also mindful of gross and operating margins and intend to focus on margin enhancing strategies throughout our organization. For annual consolidated gross margin, our target both this year and over the next few years is approximately 50%, as we achieved in 2009.

Our recent investments in global expansion including Japan and the U.K. and investments in marketing and branding initiatives, at mitigated growth and operating margins. However, beyond this year, we believe that we will again be able to leverage our SG&A and over time, our target is to return to Volcom historic industry leading operating margin in the 15 to 20% range.

Our financial success will come from integrated strategy that maximizes our wholesale distribution, international growth, exceptional Volcom and Electric Product, effective marketing and implementing an interactive strategy, including the launch of a new volcom.com website with a direct-to-consumer E-commerce site back [ph]. Our long term vision is built around the financial model that is intended to leverage expenses and generate incremental cash flow and profitability.

I'll now review our financial results for the fourth quarter ended December 31, 2009 which exceeded the guidance we provided in early November. In Q4, earnings per share exceeded the high end of our fourth quarter guidance by $0.10, driven by higher than projected revenue and gross margins.

Revenue was above planned in Europe and Electric, reflecting strong demand for our products. Gross margins exceeded planned in all three segments, underscoring better than projected sell-through of Volcom and Electric Product at retail and in overall less promotional environment.

Additionally, the improved retail environment resulted in less bad debt expense than we had projected. Further, we recognized an FX gain of 543,000 and our annual effective tax rate for 2009 was 31.7% compared to our projected rate of 34%. This lower than anticipated effective annual tax rate resulted in additional net income of approximately $683,000 in Q4.

For the quarter, total consolidated revenue decreased 8% to $64.2 million, compared with $69.6 million in Q4 of '08. Let me now break down our fourth quarter revenue by each of our three business segments, the U.S., Europe and Electric. First let us look at the U.S. segment which includes revenue from the U.S., Canada, Japan and most other international territories outside Europe as well as our domestic Volcom branded and LS&S retail stores.

Total revenue from our U.S. segment including royalties for the fourth quarter decreased 16% to $46 million compared with $54.9 million in Q4 2008. A breakdown of the U.S. segment product revenue in Q4 by categories is as follows. Our men's product revenue decreased 14% to $26.2 million for Q4, compared with $30.3 million in the fourth quarter of 2008.

Our junior's product revenue decreased 34% to $9.5 million versus $14.4 million in the fourth quarter of last year. Earlier, Richard discussed the challenges in the juniors market and our strategies to improve in this category.

Snow revenue increased 5% to $2.6 million, compared with $2.5 million last year. As Richard mentioned, the snow category performed well in all regions and reports from retailers indicated strong sell through. Boys revenue which includes our kid's line decreased 4% to $5.4, compared with $5.6 million in the fourth quarter of 2008.

Represent from our Creedlers footwear line was $596,000, versus $654,000 in the 2008 fourth quarter. Revenue from our girl's swim line was $752,000, versus $289,000 in Q4 of 2008.

International product revenue, which is reported as part of our U.S. segment and consists primarily of sale in Canada and Japan and does not include licensing revenue, was $14.8 million or 33% of our U.S. segment product revenue for the quarter, compared with $12.5 million or 23% for the comparable period in 2008. The increase primarily reflects incremental revenue in Japan as a result of the acquisition of the Volcom distributor in Japan in Q4 of 2008.

Looking at our U.S. segment revenue by distribution channel, revenue from our five largest accounts decreased 35% to $12.9 million in 2009 fourth quarter, representing 29% of U.S. segment product sales. In Q4 of 2008 revenue from our five largest accounts was $19.9 million and represented 37% of U.S. segment product sales.

As projected, revenue from PacSun, our largest customer decreased 42% to $6 million for the quarter or 13% of U.S. segment. Last year revenue from PacSun was $10.4 million or 19% of our U.S. segment product revenue. For the full year, revenue from PacSun was $30 million or approximately 11% of total consolidated revenue, a decrease of 42% as compared to 2008. This decrease was anticipated and accurately reflected in our plan and guidance. Volcom has a long standing relationship with PacSun and we are excited to be working closely with them and their new leadership.

Excluding PacSun, revenue from our next four largest accounts decreased 27% for the quarter. We are currently executing initiatives to maximize our business in this new environment with these accounts. This includes driving demand for Volcom products, through more nationally targeted advertising and marketing programs as well as upgrading in store merchandising. While we are not satisfied with the current sales to these accounts, we are encouraged by the improving trend over the last two quarters and by bookings for Q1, particularly with our men's products.

In Q4, revenue from accounts outside our five largest accounts, which represented 71% of U.S. segment product revenue for the quarter, decreased 6% to $32.4 million. In the fourth quarter of 2008, revenue from the same group was $34.5 million, representing 63% of total U.S. segment product revenue.

Excluding the incremental revenue from our Japanese operation, revenue from these accounts decreased about 12%. Since mid-2009, we have begun to see signs of stabilization in our business outside our five largest accounts. This group primarily reflects what we refer to as core shops, which are geographically diverse and are important to our industry, given their influence on action sports culture. During the recession, we have worked closely with these accounts and are pleased to see the momentum and viability among this important group of retailers.

Now, let's look at the revenue from the Europe segment. Revenue from Europe was $12.9 million in the fourth quarter of 2009, compared with $10.9 million in the fourth quarter of 2008, an18% increase. The revenue increase over our previous guidance of $11 million, primarily reflected better than expected demand of Volcom product and better than planned FX rates.

In Q4 revenue, revenue by category in Europe is as follows. Men's increased 16% to $16.9 million, compared with $6 million in Q4 of 2008. Juniors increased 7% to $2.1 million, compared with $2 million in '08. Our snow business increased 30% to $3.2 million, compared with $2.4 million in Q4 of 2008. Boy's was $297,000 compared with $179,000 a year earlier. Creedlers was $101,000 versus $146,000.

Finally, revenue from our third business segment, Electric increased 40% to $5.3 million, compared with $3.8 million in Q4 of 2008. The Electric business appears to have hit a positive inflection point in Q3. And we are pleased to see this momentum continue in Q4.

Turning to gross margin on a consolidated basis, Q4 gross profit as a percentage of total revenue was 49.2%, compared with 44.4% in the same period in 2008. In our U.S. segment, Q4 gross margin on product was 48.1% compared with 42.7% in Q4 of 2008.

In general, retailers reported strong sell through of Volcom product which subsequently limited the negative impact of year end discounting. Additionally, the acquisition of the Volcom distributor in Japan has created efficiencies in our Japanese operation and has resulted in higher gross margins in that region.

In our Europe segment, gross margin as compared to 2008 was flat at 49%. Gross margin in the Electric segment grew to 52.6%, compared with 48.8% in Q4 2008. We are pleased to see this approach more historic levels as Electric experienced fewer product returns than in Q4 '08 and also sold more higher margin goggles.

Selling, general and administrative expenses on a consolidated basis were $28.1 million in the fourth quarter of 2009, versus $26.5 million for the same period in 2008. As a percentage of sales, consolidated SG&A expenses were approximately 44% of total revenue for the fourth quarter 2009, compared with 38% for the same period in 2008.

For the U.S. segment, total SG&A expenses increased to $18.5 million, compared with $17.6 million in Q4 of '08. Primarily reflecting increased domestic marketing and personnel costs, as well as increased infrastructure costs to support our Japanese distributor, acquired in Q4 of '08.

For the Europe segment, SG&A expenses in Q4 increased 19% to $6.1 million, compared with $5.1 million in Q4 of '08. This increase is primarily due to incremental expenses associated with the U.K. subsidiary and London retail store, as well as the new European warehouse in France.

In our Electric segment, SG&A expenses decreased to $3.6 million in the fourth quarter of 2009, compared with $3.8 million in the same period last year. Consolidated operating income for the fourth quarter was $3.4 million and operating margin was 5.4%. In the fourth quarter 2008, the company reported an operating loss of $11.8 million, reflecting impairment charges of $16.2 million.

U.S. segment operating income for the fourth quarter was $4 million. In 2008, operating income was $4.8 million which included an impairment charge of $1.4 million related to LS & S.

Europe segment operating income for the fourth quarter was $223,000, compared with $240,000 in the fourth quarter of 2008. Electric segment operating loss in the fourth quarter was $814,000, compared with the loss of $16.8 million last year, reflecting a 14.8 million impairment charge.

On a consolidated basis, the company recorded a provision for income taxes for the fourth quarter of this year, using a 31.7% annual effective tax rate. Consolidated net income for the fourth quarter of 2009 was $3.4 million or $0.14 per diluted share. This compares with a GAAP net loss for the fourth quarter of 2008 of $8.7 million or $0.36 per diluted share.

Excluding the non-cash impairment charges of $16.2 million as well as the foreign exchange loss related to Canada of $1.4 million, adjusted consolidated net income for the fourth quarter of 2008 was $3.3 million or $0.14 per diluted share.

Let me now take a minute to discuss the strength of Volcom's balance sheet. At December 31, 2009, the company had approximately $111 million in cash and short-term investments. As presented on the consolidated statement of cash flows, the company generated $16.8 million in cash from operations in the fourth quarter of 2009 and a total of $36.2 million for the year. We have no long-term debt, stockholders equity of $219 million and a current ratio of about 6.3:1.

Consolidated accounts receivable decreased 12% at $53.8 million at the end of Q4, compared with $60.9 million at December 31, 2009. The consolidated accounts receivable balance at December 31, 2009, represents day sales outstanding of 70 days, compared with 67 days at the end of the fourth quarter of 2008.

Consolidated inventory increased 23% to $33.3 million, compared to $27.1 million a year before. This increase in inventory consists primarily of spring 2010 products and styles from our Volcom basics program that carry over for several seasons. These goods were brought in earlier than in prior years and in larger quantities to be available for potential end season business.

On a consolidated basis, the inventory turn rate calculates to 4.6 times per year, or once every 79 days. Inventory turns calculated to 7.2 times per year at the end of Q4 2008, or once every 51 days. This decrease insurance reflects the additional inventory.

I'll now turn to our financial outlook for the first quarter of 2010. Consolidated 2010 first quarter revenue is expected to be between approximately 71 and 74 million. An increase of approximately four to 8% compared to the first quarter of 2009.

This includes anticipated revenue of approximately 43 to 46 million from the U.S. segment approximately 23 million from our Europe segment and approximately 5 million from Electric.

In Q1 we project revenue from PacSun to decrease approximately 24% to 6.4 million compared with 8.4 million in Q1 last year. Consolidated EPS for Q1 of 2010 is expected to be approximately in the range of 16 to $0.19.

We expect the Q1 tax rate to be approximately 33%. Fully diluted shares outstanding for the first quarter are expected to be approximately 24.4 million. As we look to the full year of 2010, we believe the economic outlook is indeed looking brighter but the shape and cadence continuing to illusive and is likely to be uneven globally.

It is difficult to provide accurate revenue forecast for the full year. As was mentioned, we believe that it's important for Volcom to capitalize on the many opportunities before us. And this will initially require increased spending to drive incrementally greater revenue in the future.

While many factors will affect SG&A for 2010 at this time our target projected estimate for the consolidated operating expenses is approximately 125 million for the year. Included in these expenses are additional expenses for new hires, salary reinstatements. As well as appropriate incentive programs for all employees.

New marketing and branding initiatives that include print and online advertising, instore racks and displays, as well as major events sponsorships such as the Volcom pipeline pro and the two – money cup contests.

Increased expenses can develop our international business including new distribution centers and ERP systems upgrades in Europe and Japan. And investments in the development of our interactive strategy including the new website launch and related direct to consumer e-commerce platform.

We understand that we are increasing our expenses significantly. However, we believe it is the right time to position Volcom for incremental success in the coming years. We clearly have the financial resources to implement this strategy.

In putting forth this outlook we want to remind everyone of the complexity of asset reassessing future earnings and revenue growth given the challenging economic and credit environment.

The difficulty in predicting sales by key retailers including PacSun changes in fashion trends and consumers preferences and source and cost. As the current economic environment stabilizes and eventually begins to improve.

We believe that Volcom with its worldwide brand strength, quality products, solid cash position and dedicated team of employees, athletes, sales reps and distributors around the globe is one of the best positioned action sports companies in the world. Now we'll open the call for questions.

Question-and-Answer session

Operator

(Operator Instructions) your first question comes from Mitch Kummetz with Robert Baird

Mitch Kummetz – Robert Baird

Yeah. Thanks and good quarter, guys. I've got a few questions. Let me start with your outlook for pack and what you're expect to be down in the first quarter and you’re going to be against a tough comparison two year ago for that business and then for 2009 it fell off in Q's two through four. I know trend back was going through this transition whether converting these value stores back to I guess some more normal concept. So how do you think about that business moving forward past Q1 or Q1 you expect it to be down? You expect increases in PacSun over the balance of the year?

Jason Steris

Hey Mitch. This is Jason here. Yeah. As we stated 24% down in our Q1 and we kind of stripped that apart and look at our men's business versus girls business. We definitely see to drive with that right now being in the men's business and looking further out into Q2 and kind of where our teams are focused on right now is we're looking at our May and our June, kind of mid-summer deliveries now putting those bias together. formulating those presentations, kind of tied in to some of the instore stuff and then looking at further and to back to school buys right now and from what we're seeing and kind of based on our holiday performances in there and just start over initiatives that we've been working on for some time with the team, we're definitely seeing positive momentum there and you're spot on with that little bit of a tough comp in Q1 of '09. And we do see things getting better and I'd say even on the junior side as we get further into I think the back half we'll see more improvements there on that side of the business. So overall, it feels like it's heading in the right direction.

Mitch Kummetz – Robert Baird

And then – there is some in the press release that came out during you guys know the expect increase revenue growth as the year progresses and your target for Q1 is up four to 8%. If you actually pull PacSun out of that, it looks like it's more in the neighborhood of high single digits to low double digits. How would you expect the revenue to progress over the course of the year? Should we be thinking about something in the 10% range or so based on easier PacSun comparisons and may be some improvement in your prebook orders and then just sort of second question, how do you fall pre-recorders follow compared to spring? Do you see improvement on a sequential business as you go through the year with those prebooks?

Richard – Woolcott

Hey Mitch, this is Richard here. I'll jump in and may be you still want to follow-up with that. Buts it’s a good question and its one where – we are studying close with this revenue. It's a little bit still – it's still a little elusive right know because as things start to turn around here you got different pockets getting better you got other pockets that are may be not improving as quickly so. I don't think we want to jump too forward-looking with the revenue yet. We have some idea for budget reasons. But from trying to project too far in advance on the revenue side, I think it's just premature. We have a pretty good idea of what Q1 is.

But again a lot is going to happen with how quickly weather turns. You have Easter on the way. I think inventories are in line right now. But if demand picks up, there could be fill-in business. You got to work the business with what is in front of you from a prebook perspective so – we are just not ready to get too far ahead with revenue and I think as the year progresses, what we all believe and hope for is that as things improve, obviously, the landscape in our market improves too. And our business continues to pick up as we go into the back half like Jason was talking about. It's really tough to put your finger on it right now because we're just coming out of the gates. Every indicator feels like there's bright spots and a positive movement but we don't want to get ahead of ourselves.

Mitch Kummetz – Robert Baird

Okay.

Richard – Woolcott

We all got to kind of keep an eye on things. And we are going to have another call and we'll no more in 60 days. So far, we just did all our trade shows. What we did – the information we did get was holiday we had a very strong holiday for Volcom across all of our channels. And particularly with the snow season, we're having one of the best snow seasons with El Niño, particularly in the Southern California area. And snow sold well, got a great reaction. Our back to school product has gotten a good reaction right out the gates we are seeing good sell through with spring ’10 so – our indicators are good. But we got to play it by ear here.

Mitch Kummetz – Robert Baird

Do you think you picked up market share with your spring prebooks? Jason what do you –

Jason Steris

Yeah. Mitch. I think there's definitely categories and things we've been working on for some time. Working with our key retailers and expanding some of our instore sections. Expanding some of the categories whether it's Creedlers or the girls swim, I think we're taking some market share there, our board short program right now is strongest to date and I definitely say we've taken a little bit of market share there. And reports we're seeing. That's the name of the game right now for us. And we're definitely seeing some of that in our spring '10 bookings.

Mitch Kummetz – Robert Baird

One last question. On the SG&A, the target 125 million for the year. Did you say anything about Q1? I don’t think I heard you saying anything about Q1?

Jason Steris

We did not say anything about Q1.

Mitch Kummetz – Robert Baird

Let me ask you then. That's about a 14 million increase for the full year. Should we expect similar increases over the quarters, like three and a half per quarter or that also represents about a 13% increase, should we think of it more in terms of the percentage increase or is it concentrated in any particular quarter?

Jason Steris

I think in general in looking at our business this year, I don't see anything materially different than the past. How that east going to fall, we didn't discuss that specifically. There's nothing too much different then how we have been in the past.

Mitch Kummetz – Robert Baird

Okay. So like the pipe contest doesn't add a big piece of the first quarter or anything like that?

Jason Steris

Don't – didn't break it out like that.

Mitch Kummetz – Robert Baird

Okay. Al right. Thanks, guys, good luck.

Jason Steris

All right. Thank you, Mitch.

Operator

Your next question comings from Sean Naughton with Piper Jaffray.

Sean Naughton – Piper Jaffray

Hi, guys. Thanks for taking my call.

Jason Steris

Hi. Sean

Sean Naughton – Piper Jaffray

So the juniors business obviously a pretty tough category for most people in action sports. But it sounds like you guys did get some nice trade reviews from trans-world. And sounds like you're incrementally encouraged about the business. Do you feel like you're at least – that you're taking share within the action sports space of the junior business and what has been the feedback from retailers that you've heard in terms of the sell through early in the spring season?

Richard – Woolcott

Hey, Sean. This is Richard here. May be Jason and I can give you some color on this. What we're seeing right now when you take a step back overall in the industry as we all know, the juniors business is very competitive right now. And there's a lot of outside forces that are on trend right now such as the fast fashion and others. And looking at our industry, actually today there's a big industry conference going on right now about the juniors industry, about the juniors business. And there's been a lot of information that's come over with a lot of retailers talking about the juniors business also. And collectively as a group. Nobody is walking away from this juniors business.

From the retailers standpoint. They're standing behind it. They want accurate action sport branded product, they want to have floor space dedicated to it. And they want to do the best job possible to merchandise the best product possible. And we're in the same boat here. Our teams internally are diving deep to make sure that our collection is on point. We have the right price points, that we're on trend and we're playing our role in this kind of collective vision of action sports of the action sports juniors market. So everybody from the manufacturer to the retailer is really focused on it right now. And there are some bright spots. I mean, just recently, there's good juniors business happening. We just got some reports in Hawaii. Around the world, the outerwear for the juniors is doing good.

Our swim is doing good. Our sandal business is doing good. And there is even little pockets for just the core of our business too. But I think we have a little ways to go right now. And I think we've got to be ready and be prepared for when that fashion cycle comes back more towards action sport products for girls. That we as a group are prepared. And that's really what the focus is right now. So I think collectively as an industry, you're going to see a ramp-up, just a heightened approach to it. And it's interesting that we're talking about it today. Because there's a big industry conference and our marketing directors advantage girls design as if they are right now here in Southern California on the Genius market are there in Southern California meeting on the juniors market.

Sean Naughton – Piper Jaffray

That's good to hear. And then secondly on the retail sell through reports that you get back and what you're seeing in your own direct to retail business, have you seen in terms of the first six, seven weeks of the quarter here, have you noticed a decrease in the sales volatility from week to week or things pretty challenging on that metric.

Jason Steris

Hey, Sean. This is Jason here. Speaking on behalf of the Volcom branded stores, I can say this past month, February so far has been up. We're seeing positive signs there. With a few more days to go here in the month. But overall, encouraging to see those numbers. And kind of with our retail partners out there and spending time with them and seeing their reports as they come through. I mean, definitely get a little bit of a mixed reed with the cost depending on the region. And I'd say there's definitely some positive reports out there. And there's still some pockets of guys struggling. Burt overall I say, it feels more positive than not.

And just having our indicator of our stores keeps up to date up to date having them spread out whether it be Hawaii or Colorado, New York, kind of a diverse mix of kind of just a good sampling there and what we're seeing in the Volcom looks positive. So overall, it feels like there's optimism out there. And I think as we just move in to getting towards Easter, the last two weeks of March I think will be important kind of that ramp up getting prepared for that first week of April there at least right in the Easter week there.

So I think we have always great weather with snow and now it needs to kind of shift on to more of a spring season and I think a lot of it is going to rely on in that weather. But we're kind of heading right into that next sample point there about how that retail environment is overall. So I think the stages are set. I mean we need the weather to cooperate. And we're right lane a lot mid-April I think.

Sean Naughton – Piper Jaffray

Great. And then lastly on Electric, I know it's a relatively small portion of the business. But what is it going to take for that business to get back to profitability? Should we expect more from the top line? Or is it a margin story that's happening there? And can we expect profitability in this business in the near term or 2010?

Richard Woolcott

Hey, Sean. This is Richard here. Great question and I think with Electric, the one area we are very focused on right on is the revenue area. In terms of the expenses, don't really want to cut too much more there. And the margin actually margin is pretty good. And really we're focused on the revenue side of things. I think there's a lot of distribution potential out there already. And we talked about it a little bit. We just in Q1, we open opened 100 sunglass hut stores. I think there's just a lot of opportunity from a revenue side in terms of gaining more market share. And although it's going to take time to do that, I think it's doable. The brand is very strong right now. Probably, the strongest the brand has been in terms of sell through in the market. And then from its product assortments are strong too. So it’s really just rolling up the sleeves and getting out there and building revenue.

In terms of '10, again kind of what I was saying earlier in the call was we're really not comfortable yet to talk about revenue too far out in advance. So in terms of Electric, we just got to keep plugging away and building sales. At some point, we will hit the inflection point as the company gets bigger that we’re going to begin to see it show a profit. But we got our work cut out for us right now. We got to build those sales.

Sean Naughton – Piper Jaffray

Thanks. Best of luck in the first quarter.

Richard Woolcott

Thank you.

Operator

Your next question comes from Jeff Van Sinderen with B. Riley.

Jeff Van Sinderen – B. Riley

Good afternoon and congratulations on the earnings. I guess my first question relates to your guidance and what you're factoring in terms of that launch business in March and then also sort of how that plays into what we are seeing in terms of the weather? Obviously, February was extremely stormy and maybe you can give us a sense of what you're hearing from the stormier regions and what you retailers are telling you there and if there's any sense of how business is trending in those areas versus California where the weather hasn't been so bad.

Jason Steris

Hey, Jeff. This is Jason here. Being at the end of February here, we're pretty close to the end of the quarter, so kind of projecting out from March right now. Looking at the out launch business that we have factored into our plan up against the bookings and what we've already shipped. It's a pretty conservative number we have there in terms of just what we're using there. It’s kind of what we've been trending at and what we feel achievable based on our – just kind of what we've been seeing over the patterns of the last few weeks there.

And again it's not a huge number in terms of the out launch there. So I feel it's doable. I don't think it's something that we're going to by any means blow out of the water. But I think it's something we can get our arms around and accomplish, even with if there's a potential problem with the weather. We have seen some of those pockets that you're speaking of where things did shut down a little bit in terms of reorder business and all that and may be pushing that a little bit of inventory some of the orders out a tad bit.

But overall, I think we've gotten through most of those. And again we've got what almost little over four weeks to close the quarter. And we have pretty good visibility and I think we've shaped our plan to where we think we can come in to.

Jeff Van Sinderen – B. Riley

Okay. Good. And can you remind us one the prebook for fall where that window closes and where you are in that process?

Richard Woolcott

Yeah. That closes about mid-March. We've been through a round of about four major trade shows along with a handful of regional shows, there's a couple more going on right now. And now it's just the order collecting process is happening where the buyers have seen everyone's lines and they're doing their buys and they are coming in and we're seeing a lot of orders come in over the last three or four weeks and we’re still kind of in that midpoint of orders coming in. But Middle of March we'll have our bookings for fall and snow.

Jeff Van Sinderen – B. Riley

Okay. Good. And then I know you mentioned February performance in your own retail stores. And I think you said there were comp in positive, just wondering if you can give us any color on your own retail store performance in Q4? What happened in terms of comps, what happened in terms of margins? And so what progression you saw there?

Doug Collier

Yeah. Hey, Jeff. This is Doug. As you know that's a really small part of our business. And it doesn't really have that big an impact on the overall performance. But as Richard brought up great for us to look at what's going on in the market, what’s going on with products and does give us a pretty good read on what's going on around the country.

Richard Woolcott

But, I think Jeff, maybe to add to that a little bit. Definitely from Q4 to what we're seeing now, we're seeing more of a positive trend now in terms of selling comps in our own stores than we were in Q4 which is basically very similar to what we're hearing with some of the our key retailers too. You can see Q4 started to ramp up and now it's being backed up by more of a positive – some positive signs in this month, in February. So it's trending kind of the same.

And I think the big point it's just encouraging and it's encouraging for our internal teams to start to see some bright spots out there because everybody has been hunkered down in this recessionary period. And it's always good to see positive signs and that motivates the team and it’s particularly even the retail team. And they see that and we're encouraged. It sets a good mood as we go into the New Year with strategy for '10.

Jeff Van Sinderen – B. Riley

Yeah. That's good to hear. And I know you pretty much covered what you think SG&A is going to be this year. But I wonder if you can break down a little bit or just give us a sense of what the waiting is in terms of where those incremental dollars are flowing, whether it’s going, if there's a heavier weighting going into advertising and marketing or the in-store displays or any color you can give us on that?

Richard Woolcott

Yeah. Sure, Jeff. I'd say it kind of breaks down into four big categories, would be the bulk of the increase. Looking at our people, marketing and branding initiatives, looking at international and then our interactive strategy. And we talk about people, that's new higher, that’s annualized new hires, people that brought in, in our e-commerce department, active department, Director of e-commerce, merchandiser programmers, those people, we were annualizing people now in the girls department, girls sales manager, social media director, a lot of new positions in the company.

Also we've gone back and we’ve done a salary reinstatement. We did a salary reduction last year and we've got everybody back up to speed. And then also implemented in appropriate incentive program for all of our team here to so and if we can hit these goals, then our team is going to be rewarded. So that's one bucket. You've got the marketing and branding initiatives. And that’s your print and online advertising, a lot of in-store racks and displays really focusing with our retail account and then some of the bigger event sponsorships like the pipeline pro contest in the The Maloof Money Cup sponsorships.

Internationally, we've got a new warehouse opened at end of last year. We're going to annualize those costs in Europe. And that’s really sets the table for the foreseeable future for our distribution needs in Europe. And some related infrastructure there. That's really going to be a growth territory for us. In Japan, same thing. We took over the distributorship. They needed the warehouse facility pieces stuffs and additional infrastructure. And then the last one is our overall interactive strategy. New website, direct-to-consumer e-commerce, so I think those four are the big buckets for the SG&A increases.

Jeff Van Sinderen – B. Riley

Okay. Great. Thanks very much. And good luck.

Richard Woolcott

Thanks, Jeff.

Operator

Your next question comes from Christine Chen with Needham & Company.

Christine Chen – Needham & Company

Thank you. And solid quarter. Congratulations.

Richard Woolcott

Thank you.

Christine Chen – Needham & Company

Wanted to ask, I mean I know you were not at the trade shows in Vegas. But we were hearing comments that the major department stores are starting to make a big push in the skate category for fall and back to school. I don't know if you're seeing the same at the trade shows you've be at. And then I am wondering with your new account in Canada West 49, if any of that was in fourth quarter numbers or if it’s really a 1Q thing? It doesn't look like your products on the website yet even though you have a brand header for it but when I try to pull out the products on the website yet. Thank you.

Jason Steris

Yeah. Hi, this is Jason. I can share that. In terms of Macy's, were you saying Macy's or department stores overall in general?

Christine Chen – Needham & Company

It’s department stores in general.

Jason Steris

Yeah. Okay.

Christine Chen – Needham & Company

But if want to comment on specifically on Macy's I'd love to hear that too.

Jason Steris

We have heard nothing specific in terms of overall direction of, hey; we're going heavy in skate now. But definitely, working with department store groups that we work with. We definitely saw some excitement around the fall products. And even just with our recent sell-through through holiday and our spring bookings and everything. I'd say there's overall some really good excitement around that area. But I can't speak to any specific strategy, maybe increasing in the skate. But just by the reaction that we got it seems encouraging and in line with what you're saying.

In terms of West 49, that's going to be a summer delivery for us. So we have not shipped them yet. So you'll see that sort of in that overlap kind of between Q1 and Q2, mostly in Q2. And we're excited about that. And I think that answers your question.

Christine Chen – Needham & Company

Great. Thank you.

Jason Steris

Thank you, Chris.

Operator

Your next question comes from Sam Bitetti with Thomas Weisel Partners.

Sam Bitetti – Thomas Weisel Partners

Thanks. Yeah, this is Sam in for Jim. I was hoping you could touch little bit on inventories. What caused the shift in shipment timing? And is there a way to quantify the impact of that? And how are you guys thinking about inventory for the ambulance of the year?

Jason Steris

Hey, Sam. This is Jason here. Yeah, let me kind of walk you through that inventory as Doug had in his prepared remarks kind of what the two pieces of that really consist the bizarre. Our spring 2010 products which is our new merchandise that we brought in, some of that earlier than we did last year. And then the other component of that is our which we call the Volcom basic styles and those are core products that carry over season to season and kind of through the last 18 months as we've been building our lines and focusing more on categories with a little more whether it be the price points or basics program, the product that retailers have been looking for kind of foundation buy as we've increased that overall style sort of skew count in our product mix. So with that said, that core program has grown a little bit in terms of the overall inventory count just based on expanding our styles.

When we look at our inventory, our main concern is to look at inventory that does not have orders on it or it's old inventory in terms of previous seasons, so if I'm looking back right now. I'm looking from holiday back to anything from fall '09 and further back, we're very clean in terms of our inventory and the majority, I'd say almost all of our inventory is around the spring '10 products and go forward products.

So that strategy for us has been really just to be prepared for this end-season business that could potentially kick up. And kind of when we look at how retailers are buying a little more in season, they are still doing prebooks but there's a need to maximize. Business does get a little bit better we want to be there and prepared to fill that in. But not at the risk of having a ton of inventory of stuff that's going to be old in 90 days. So with our strategy of having little bit longer shelf lifestyles in there has given that kind of put us in the position and it worked a bit for Q4 as well where we kind of weaned off the holiday inventory and in terms of reorder business we are able to put it in some in the spring '10 products. So that's been the strategy. We've been working on it. And we feel our inventories are appropriately aligned with our plan. And we got a very, very close eye on them as we are in a little bit more of a build-back mode. We definitely have our eye more so on inventory than ever before to make sure that we can maintain those gross margins.

Sam Bitetti – Thomas Weisel Partners

Great. That's helpful. Thanks.

Operator

Your next question comes from Edward Yruma with KeyBanc.

Charu Sharma – KeyBanc

This is Charu for Ed. I just had a couple of quick questions. One on the online side of the business, so the online pricing for hard goods, is that impacting at all your physical either retail stores or store locations? And I guess just on online pricing in general is there anything you can do to kind of avoid predatory pricing there and then the second I had was on the denim. You've been a leader in denim for years. You talked about that being a strong space for the past quarter. Are you worried about that space getting too crowded particularly with the vertically integrated retailers? Just, if you could elaborate on that a little bit more.

Jason Steris

Yeah, sure. This is Jason here. Yeah, the E commerce strategy for us is an exciting one and sort of a two part process. One sort of an overhaul of our website and refreshing the home page and all that, all our social media and just connection with our consumers out there, our Volcom army that we call it. So that's one part of it and then the other part on the business side of just the eCommerce strategy is an exciting one that we are working on for some time and spending a lot of time with our retailers and figuring out some ways that we can support them throughout this process and through those discussions to your question, we found that the number one concern is the online pricing and how we can control that and if we're going to go direct, how do we do that.

So what we're working on the union lateral pricing policy that will be for the online business only. Our retail partners along with ourselves – we won't break price until a certain set date depending on the season and if we can all follow that which is our goal, we would be able to have a level playing field for everyone and in terms of that consumer looking for goods, he might go back to a brick and mortar store buying good, if there's not all these great deals online so to speak.

So that kind of answers that part of your question and the second part was on the denim, kind of how we're – we're looking at that right now. You know, we've been in that business for a long time. We see a lot of opportunity just with the in-store and I think from a marketing standpoint and we've had great product for a lot of years and we have had great sell through.

But in terms of just connecting that message with the consumer and the instore presentation and the fulfillment process of it, I mean, a lot of times you might go into a store and you'll break sizes and you might not get back into those until next season and just the full commitment from inventory stock through marketing straight to the consumer, we think we can sell more denim to that customer out there.

And we're on the branded side of things. We have the best athletes and all of our sports. And in terms of the other vertical competition that's out there, it's definitely something to watch. But I think definitely a lot more loyalty on the men's side of the business right now and with our program continuing to just get better and you know specifically marketing that denim program to those kids out there, it's shown to be successful and we do think there's growth opportunity. Again going back to the floor space out there and broadening that section just where you walk in, you just go, okay, there's that Road Tested Volcom branching section and it's tied to the print. And there is a stock on it and retailers are out of it, we can back it up from hardware house. So kind of full circle bringing that program together.

Richard Woolcott

Yeah. And Charu, this is Richard here. What it also does to, there's – there are ad shoots to the actual classic denim pieces, whether it be like your corduroy, your work wear and your Chinos too. So we do have an array of other bottoms that are surrounded and merchandised around the denim in the Volcom presentations in the stores.

So the denim is kind of the hood ornament that we're really promoting but it also helps drive the customer to other parts of our bottoms programs. And we've seen that particularly when cords come in and out of style. And then particularly, we have a very strong business in the Chino area too. And it's very skate driven and that's what the skate team is wearing right now between that and the Chinos. So we are going to stay as long as that's what the kids want, we're going to back it.

Charu Sharma – KeyBanc

Great.

Richard Woolcott

We feel we have balance in the line. I know what you're saying. If things start to slow down, other competitions comes in, are we going to be able to be flexible with a change in trend and I think we have that built in our line.

Charu Sharma – KeyBanc

Well, I was also trying to understand the point of differentiation of the denim, which it sounds like, is more on the brands, which have been – styles that are offered as opposed to the price points. Is that a fair comment?

Richard Woolcott

Yeah. There is a – we have a wide variety of fits. We have a library of fits and washes that I think are customer out there is – he might be wearing a skinny jean, Ergo baggier jean, may be more in teen or something in between. And I think we have a very diverse stable of fits and washes and it's a good foundation that we have. So it's not just one customer or one trend. It's widely spread amongst a big age group and a particular kid.

Doug Collier

And from a pricing standpoint too, there's a nice – there's a good range of prices from your entry level on up to your kind of your high end washes. So there's a little bit there for each retailer, depending on what their needs are and what their customer base is coming in and asking for. What we've tried to do is really have a presentation that covers all the basis for our retail group.

Charu Sharma – KeyBanc

Great. Thank you.

Richard Woolcott

Thank you.

Doug Collier

Thank you.

Operator

(Operator Instructions) Your next question comes from Claire Gallacher with Capstone Investments.

Claire Gallacher – Capstone Investments

I have a quick question for you here. You talk about gross margins staying about the 50% level both here in the near term and over a several year period. Could you talk about where you foresee sourcing costs going again both in the near term and over a longer-term period?

Doug Collier

I'm sorry. Which cost?

Richard Woolcott

Sourcing costs.

Jason Steris

Yeah. This is Jason here. You know what we're looking at right now is we're seeing things pretty stable with our program and things could change over there definitely. And when I say over there, I'm speaking of China where we're making the majority of our products and definitely could be fluctuation with the currency over there and you got to be prepared for all that stuff and I think definitely we are in terms of having other options in our sourcing library.

Kind of when we look further, I can't predict what it's going to be. So the one thing that we can kind of put into our plan is assuming prices are somewhat in the ballpark or where they are now. Of just leveraging programs and having better global programs with our subsidiaries, our licensees, at some point a sourcing office, somewhere in the world tying teams together to just to leverage and get the economies of the scale going. So I think, with that along with some of the other strategic things we have in our plan, we think we can maintain those margins.

Claire Gallacher – Capstone Investments

So you're not seeing any major change then from 2010? Are you not projecting any change from 2010 versus what you're seeing this past year?

Jason Steris

No.

Claire Gallacher – Capstone Investments

Okay. Okay. And just one other quick question from macro related, with what's going on with Greece over in Europe. Have you seen or heard of any consumer spending trends? Any kind of changes with the consumer in your western European business just with may be consumer confidence dropping or kind of fear taking hold over there?

Richard Woolcott

Hi, Claire. This is Richard. Yeah. We just had our European team has been here all week working on some product and we've been talking a lot about the effects over there with the issues in Greece. And so far, we haven't seen anything that's – where we see is going to be an issue from a consumer spending standpoint. We definitely have our eye on it. It seems like from the feedback we're getting, things have stabilized over there from some of the worries we were having last year about the economy overall in Europe.

And all this new information that's come out in the last couple of weeks about Greece, it heightens our awareness of like now what do we have to deal with over there. So far, it hasn't equated to a real issue for our account base and a worry with the consumers that are buying Volcom. We still see things relatively stable right now. So we've got our eye on it and we're in constant communication with our management team over there and if anything were to change, we'll definitely let you guys know on the next call, it seems like things are pretty stable.

Claire Gallacher – Capstone Investments

Okay. Great. Thanks Richard. Have a good luck.

Richard Woolcott

Okay.

Operator

Those are the questions.

Richard Woolcott

That's it. Okay, well just wanted to say thank you to everybody for joining us today on the call and I'm very excited about the future and we look forward to catching up again on the next call in a couple of moths. Thank you.

Operator

This concludes today's conference, you may now disconnect.

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Source: Volcom, Inc. Q4 2009 Earnings Call Transcript
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