Skullcandy (SKUL, Financial), creates world-class audio experiences through its Skullcandy, ASTRO Gaming and 2XL brands.
Founded at the intersection of music, sports, technology and creative culture, Skullcandy creates world-class audio and gaming products for the risk takers, innovators and pioneers who inspire us all to live life at full volume. From new innovations in the science of sound and human potential to collaborations with up-and-coming musicians and athletes, Skullcandy lives by its mission to inspire life at full volume through forward-thinking technologies and ideas and leading edge design and materialization.
Skullcandy, ASTRO Gaming and 2XL products are sold and distributed through a variety of channels around the world from the company’s global locations in Park City, Utah, San Francisco, London, Tokyo, Zurich, Mexico City and Shanghai as well as through partners in some of the most important culture, sports and gaming hubs in the world.
It is a unique lifestyle brand that is well positioned in the industry. It is a growth stock that is gaining growing popularity with customers. It is among the leading players in the headphone industry. It has a strong pipeline of innovative new products. The company wants to leverage its strong connection to youth and combine it with great products that excite the consumer and deliver amazing experiences at accessible price points.
The company reported first-quarter results with solid sales performance. Astro retail sales once again performed well.
First quarter results
Net sales in the first quarter increased by 1% and were $46.3 million ($45.6 million in the prior-year quarter).
Domestic (U.S.) net sales increased by 4% and were $31.8 million ($30.6 million in the prior-year quarter).
International (non-U.S.) net sales decreased by 3% and were $14.5 million ($15.0 million in the prior-year quarter).
Gross profit in the first quarter decreased by 7% and was $17.4 million compared to $18.7 million in the prior-year quarter. Gross margin decreased to 37.5% in the first quarter (40.9% in the prior-year quarter).
Selling, general and administrative (SG&A) expenses in the first quarter increased by 8% and were $24.1 million ($22.3 million in the prior-year quarter).
Operating loss in the first quarter was $6.8 million ($3.6 million in the prior-year quarter).
Net loss in the first quarter of 2016 was $4.9 million, or (17 cents) per share, based on 28.6 million weighted average diluted common shares outstanding.
As of March 31, cash, cash equivalents and short-term investments totaled $45.8 million ($23.6 million as of Dec. 31, 2015).
Inventories, net increased by 4% and were $43.2 million as of March 31 ($41.7 million as of Dec. 31, 2015).
The company didn’t have any outstanding debt.
Expectations
| Â |
Second Quarter |
Full Year |
|
Net sales growth |
To be within a range of (4%) to flat |
To range between 24 cents and 28 cents |
Strong attributes of the quarter
- Solid sales.
- The company took necessary actions to improve China's wholesale position.
- Innovative audio and gaming product introductions provide with added momentum.
- Good sales on the domestic front.
Focus
- Quickly adapting to changes in consumer preferences.
- Readily taking advantage of acquisition and other opportunities.
- Discounting excess inventory.
- Devoting greater resources to the marketing and sale of products, including significant advertising, media placement and product endorsement.
- Adopting aggressive pricing policies.
On a concluding note
The performance and lifestyle audio brand founded at the intersection of innovation and creative culture is reported as the most popular brand by units sold for the second consecutive year. According to The NPD Group, the leading market research company, Skullcandy was the No. 1-selling brand by units of total headphones and in-ear headphones for 2015.
It 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. It helped revolutionize the audio arena by introducing headphones, ear buds and other audio and wireless lifestyle products that possess unmistakable style and exceptional performance.
It has a strong revenue growth, and the future looks promising. It offers a varied range of products that suit the varied budgets of the customers. The new product introductions along with enhanced demand creation efforts are resonating with consumers. Its products are sold and distributed through a variety of channels in the U.S. and over 80 countries worldwide. Skullcandy offers a wide array of styles and price points and is 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.
It is doing well and investors should consider adding this company to their portfolios.
Disclosure: I do not hold any position in the company.
Start a free seven-day trial of Premium Membership to GuruFocus.
