Skullcandy records strong Q4

Press Release:

Skullcandy Q4 2014 Revenue Grew 34% to $96.8 Million and Earnings Doubled to 26 Cents
Twelve Months Ended 2014 Revenue Grew 18% and Earnings Increased to 27 Cents

PARK CITY, Utah, March 5, 2015 (GLOBE NEWSWIRE) — Skullcandy, Inc. (SKUL) today announced financial results for the fourth quarter and year ended December 31, 2014.

Fourth quarter 2014 results versus same quarter in prior year

• Net sales: $96.8 million vs. $72.2 million (+34%)
• Gross margin: 43.3% vs. 43.5%
• Selling, general and administrative expense as a percentage of net sales: 32.1% vs. 35.9%
• Operating income: $10.8 million vs. $5.5 million (+97%)
• Net income per diluted share: $0.26 vs $0.13 (+100%)

Twelve months ended 2014 results versus twelve months ended 2013

• Net sales: $247.8 million vs. $210.1 million (+18%)
• Gross margin: 44.6% vs. 44.3%
• Selling, general and administrative expense as a percentage of net sales: 39.9% vs. 46.7%
• Operating income (loss): $11.8 million vs. $(5.0) million
• Net income (loss) per diluted share: $0.27 vs $(0.11)

“We delivered strong fourth quarter results highlighted by 34% revenue growth, doubling earnings per share from a year ago and capturing the #1 position in for total headphone units sold at domestic retail for full year 2014. Our recent performance demonstrates that our strategy of exciting our consumer through innovation and leveraging our brand and capabilities into adjacent audio categories is working,” said Hoby Darling, President and Chief Executive Officer. “2014 marked an important inflection point in the evolution of our company. The business is becoming more diversified, our teams are aligned and hungry for success, and we have a clearly defined roadmap for the future that is working. The foundations have been set for 2015 and we are on full attack.”

Net sales in the fourth quarter of 2014 increased 34% to $96.8 million from $72.2 million in the same quarter of the prior year. Domestic (U.S.) net sales increased 37% to $70.6 million from $51.6 million in the same quarter of the prior year. International net sales increased 27% to $26.3 million from $20.6 million in the same quarter of the prior year.

Net sales in the twelve months ended 2014 increased 18% to $247.8 million from $210.1 million in the prior year. Domestic (U.S.) net sales increased 19% to $174.7 million from $147.2 million in the prior year. International net sales increased 16% to $73.1 million from $62.9 million in the prior year.

Gross profit in the fourth quarter of 2014 increased 33% to $41.9 million from $31.4 million in the same quarter of the prior year. Gross margin was 43.3% in the fourth quarter of 2014 compared to 43.5% in the same quarter of the prior year. The 20 basis point decrease in gross margin was due to a shift in product mix towards high growth products with lower margins, including gaming and wireless speakers, together with higher air freight related charges in connection with west coast port slowdowns.

Gross profit in the twelve months ended 2014 increased 19% to $110.6 million from $93.1 million in the prior year. Gross margin was 44.6% in the twelve months ended 2014 compared to 44.3% in the prior year. The 30 basis point increase in gross margin for the year was due to operational improvements in our retailer returns processes, lower warranty and logistics costs, and increased licensing revenue.

Selling, general and administrative (SG&A) expenses as a percentage of net sales in the fourth quarter of 2014 decreased 380 basis points to 32.1% from 35.9% in the same quarter of the prior year. The decrease in SG&A expenses as a percentage of net sales was primarily due to the operating leverage created by sales growth, combined with decreases in certain operating expenses.

SG&A expenses as a percentage of net sales in the twelve months ended 2014 decreased 680 basis points to 39.9% from 46.7% in the prior year. The decrease in SG&A expense as a percentage of net sales was primarily due to the operating leverage created by sales growth, and decreases in bad debt expense, certain operating expenses and asset disposals.

Operating income in the fourth quarter of 2014 increased by $5.3 million, or 97%, to $10.8 million from $5.5 million in the same quarter of the prior year.

Operating income (loss) in the twelve months ended 2014 increased by $16.8 million to $11.8 million of income from a loss of $5.0 million in the prior year.

Other expense in the fourth quarter of 2014 increased by $0.7 million to $0.8 million as a result of currency effects in Europe, Canada, Japan and Mexico.

Other expense in the twelve months ended 2014 increased by $1.0 million to $1.6 million as a result of currency effects in Europe, Canada, Japan and Mexico.

Net income in the fourth quarter of 2014 was $7.4 million, or $0.26 per diluted share, based on 28.8 million diluted weighted average common shares outstanding. Net income in the same quarter of the prior year was $3.6 million, or $0.13 per diluted share, based on 28.1 million diluted weighted average common shares outstanding.

Net income in the twelve months ended of 2014 was $7.6 million, or $0.27 per diluted share, based on 28.6 million diluted weighted average common shares outstanding. Net loss in the prior year was $3.0 million, or $0.11 per diluted share, based on 27.7 million diluted weighted average common shares outstanding.

Balance Sheet Highlights

As of December 31, 2014, cash, cash equivalents, and short-term investments totaled $36.6 million compared to $38.8 million as of December 31, 2013. This decrease is due to the later timing of sales in the fourth quarter versus one year ago with a corresponding increase in accounts receivable and ending inventory. The Company continued to have no outstanding debt. Accounts receivable increased 29.2% to $74.4 million as of December 31, 2014 from $57.5 million as of December 31, 2013, which is consistent with the growth and timing of sales in the fourth quarter. Inventory increased 36% to $55.0 million as of December 31, 2014 from $40.3 million as of December 31, 2013, which is consistent with current revenue growth rates and logistics contingency planning for potential shipping disruptions.

About Skullcandy, Inc.

Skullcandy is the original lifestyle and performance audio brand inspired by the creativity and irreverence of youth culture. Skullcandy designs, markets and distributes audio and gaming headphones and other accessory related products under the Skullcandy, Astro Gaming and 2XL brands. Skullcandy was launched in 2003 and quickly became one of the world’s most distinct audio brands by bringing unique technology, color, character and performance to an otherwise monochromatic space; helping to revolutionize the audio arena by introducing headphones, earbuds and other audio and wireless lifestyle products that possess unmistakable style and exceptional performance. The Company’s products are sold and distributed through a variety of channels in the U.S. and approximately 80 countries worldwide, including the company’s website at www.skullcandy.com.