Skullcandy Second Quarter Operating Income and Earnings Per Share Exceed Expectations; Raises Guidance for Full Year Earnings Per Share
PARK CITY, Utah, Aug. 6, 2015 (GLOBE NEWSWIRE) — Skullcandy, Inc. (SKUL) today announced financial results for the second quarter ended June 30, 2015.
Second quarter 2015 results versus the same quarter in the prior year
- Net sales: $58.0 million vs. $53.9 million, up 8% (up 10% currency neutral)
- Gross margin: 42.8% vs. 45.0%, down 220 basis points (down 130 basis points currency neutral)
- Selling, general and administrative expense (SG&A): $23.8 million vs. $22.9 million, up 4% (up 7% currency neutral)
- SG&A expense as a percent of net revenue: 41.1% vs. 42.6%
- Operating income: $1.0 million vs. $1.3 million, down $0.3 million (down $0.02 million currency neutral)
- Net income per share: 4.2 cents vs. 5.5 cents, down 24% (up 17% currency neutral)
“Everything we do at Skullcandy and Astro puts the consumer at the center. We strive to inspire people to live life at full volume through our innovations, products, and brand storytelling,” said Hoby Darling, President and Chief Executive Officer. “Through this dedication to our consumer, Skullcandy once again was the number one headphone choice in units for the second quarter and year to date. Astro also outpaced its competition in the gaming market growing nearly three times faster than the industry during Q2. Our product quality and innovation engine continues to strengthen as evidenced by the accolades and Editor’s Choice awards the Grind and Strum, two recent product introductions, received from leading audio publications while Astro continues to design the best high end gaming headphones in the world.
“We continue to make smart investments in innovation and demand creation, with double digit year over year increases in spend, while maintaining tight control over non-revenue driving expenses. Looking ahead, we are well positioned to add more fuel to our revenue engine as we see accelerating growth and new shelf space during the upcoming holiday season to kickoff next year with great brand and product momentum.”
Net sales in the second quarter of 2015 increased 8% to $58.0 million from $53.9 million in the same quarter of the prior year, or an increase of 10% on a currency neutral basis. Domestic (U.S.) net sales increased 5% to $41.3 million from $39.5 million in the same quarter of the prior year due to increases in both Audio and Gaming categories. International (Non U.S.) net sales increased 16% to $16.7 million from $14.4 million in the same quarter of the prior year, or an increase of 24% on a currency neutral basis, due to increased audio sales in the Japan, China, Australia and India and increased gaming sales in Europe.
Gross profit in the second quarter of 2015 increased 3% to $24.8 million from $24.2 million in the same quarter of the prior year, or an increase of 7% on a currency neutral basis. Gross margin decreased to 42.8% in the second quarter of 2015 from 45.0% in the same quarter in 2014 primarily due to approximately 90 basis points of negative foreign currency effects and product mix shift towards gaming products, which carry lower margins than our audio products.
Selling, general and administrative (SG&A) expenses in the second quarter of 2015 increased 4% to $23.8 million from $22.9 million in the same quarter of the prior year, or an increase of 7% on a currency neutral basis. The increase in SG&A expenses is primarily due to double digit increases in demand creation, research and innovation expenses, and in-store asset depreciation, partially offset by decreases in bad debt and personnel expenses. As a percentage of net sales, SG&A expenses decreased to 41.1% as compared to 42.6% in the same quarter of the prior year.
Operating income in the second quarter of 2015 decreased $0.3 million to $1.0 million from $1.3 million in the same quarter of the prior year, though it was stable, decreasing $0.02 million on a currency neutral basis. This slight decrease in operating income is due to a lower gross margin percentage and increased SG&A expenses to fund future growth, generally offset by higher sales.
Net income in the second quarter of 2015 was $1.2 million, or $0.04 per share, based on 29.0 million weighted average diluted common shares outstanding. Net income in the same quarter of the prior year was $1.6 million, or $0.06 per share, based on 28.5 million weighted average diluted common shares outstanding. On a currency neutral basis, net income increased 19%.
“Currency neutral basis,” assumes the foreign exchange rates in effect for the three months ended June 30, 2015 were in effect for the three months ended June 30, 2014 and that neither period receives the effect of foreign currency related income or expense.
Balance Sheet Highlights
As of June 30, 2015, cash, cash equivalents, and short-term investments totaled $19.2 million compared to $36.6 million as of December 31, 2014. This decrease mostly reflects the Company’s implementation of accelerated payment programs with certain contract manufacturers that began during the second quarter of 2015. In part due to the accelerated payment programs, our Accounts Payable and Accrued Liabilities decreased $9.3 million and $16.8 million from December 31, 2014 to June 30, 2015, respectively. The Company expects to realize product cost discounts and gross margin benefits in the future as a result of such accelerated payment programs.
Furthermore, the decrease in cash, cash equivalents, and short-term investments was also due to payments for in-store displays that were placed into service during the quarter. The Company continued to have no outstanding debt. Accounts receivable decreased 27% to $54.6 million as of June 30, 2015 from $74.4 million as of December 31, 2014. Inventories increased 11% to $61.2 million as of June 30, 2015 from $55.0 million as of December 31, 2014. In conclusion, since the beginning of the second quarter of 2015 and the implementation of the accelerated payment program, our current assets less current liabilities improved by approximately $2 million from March 31, 2015 to approximately $115 million at June 30, 2015.
2015 Full Year and Third Quarter Financial Outlook
For the full year 2015, the Company continues to forecast net sales to increase 13-15% over 2014 levels. The Company also raises guidance for net income on a U.S. GAAP fully-diluted per share basis of a range of $0.41 to $0.43 per share, an increase from its previous guidance of $0.36 to $0.40.
For the third quarter of 2015, the Company currently forecasts net sales to increase at a growth rate of 17-19% over 2014 levels and net income on a U.S. GAAP fully-diluted per share basis of a range of $0.07 to $0.08.
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, earbuds, speakers and other accessories under the Skullcandy, Astro Gaming and 2XL brands. Skullcandy launched in 2003 and quickly became an international audio brand by bringing innovation, bold color, character and performance to an otherwise monochromatic audio space. Skullcandy products are sold and distributed through a variety of channels in the U.S. and approximately 80 countries worldwide, including the Company’s websites at www.skullcandy.com and www.astrogaming.com. Skullcandy offers a wide array of styles and price points and are expanding into complementary audio products and categories such as sports performance, women’s and wireless offerings, as well as partnerships with leading manufacturers to license the Skullcandy brand and enhance audio quality.
