SKUL Skullcandy, Inc. (MM)

• Net sales increased 38.2%
• Gross profit increased 33.1%
• Net income was $0.24 per diluted share

Skullcandy, Inc. (Nasdaq:SKUL) today announced financial results for the second quarter ended June 30, 2012.

Second Quarter Highlights (Q2 2012 vs. Q2 2011)

• Net sales increased 38.2% to $72.4 million, with domestic net sales increasing 34.1%, international net sales increasing 59.9% and online net sales increasing 22.8%
• Gross profit increased 33.1% to $35.7 million
• Net income was $6.8 million, or $0.24 per diluted share

Jeremy Andrus, Skullcandy's President and CEO stated, "We are pleased with our strong Q2 results. Our sales growth was once gain broad based, with all of our major channels of distribution on both the domestic and international side increasing double digits. We are also beginning to leverage expenses on the domestic side of the business and believe significant investments in product development, gaming and a direct distribution model in Europe are beginning to pay off as we prepare to launch our new line of Astro and Skullcandy gaming products as well as new headphones styles in the back half of the year."

Second Quarter Results

Net sales in the second quarter of 2012 increased 38.2% to $72.4 million from $52.4 million in the same quarter of the prior year. In the second quarter of 2012, domestic net sales increased 34.1% to $50.6 million, international net sales increased 59.9% to $16.5 million and online net sales increased 22.8% to $5.3 million.

Gross profit in the second quarter of 2012 increased 33.1% to $35.7 million from $26.8 million in the same quarter of the prior year. Gross profit as a percentage of net sales, or gross margin, was 49.2% in the second quarter of 2012 compared to 51.1% in the second quarter of 2011. The decrease in gross margin is mostly due to a shift in sales mix to higher price point products with lower gross margin structures.

Selling, general and administrative (SG&A) expenses in the second quarter 2012 increased 39.0% to $24.0 million from $17.2 million in the same quarter of the prior year. Approximately half of the increase was related to strategic investments in the Company's direct international and gaming platforms, including expansion of personnel. The other half of the SG&A increase consisted of $900 thousand of additional depreciation and amortization expense and approximately $2.4 million of infrastructure, public company compliance and variable expenses. The higher depreciation and amortization is the result of increased investments in a number of key strategic areas. This includes an in-house product design model, fixtures and point of purchase displays to improve the Company's in-store presentation, property and equipment to support operational growth and the purchase of certain intangible assets related to the Company's acquisition of the distribution rights in Europe. 

Income tax expense in the second quarter of 2012 increased $1.3 million to $4.3 million from $3.0 million in the same quarter of the prior year. The Company's effective tax rate decreased to 38.9% from 41.6% as a result of the impact of earnings in countries that have lower statutory rates than the United States.  All earnings in the second quarter of 2011 were from the United States for tax purposes. 

Net income in the second quarter of 2012 was $6.8 million, or $0.24 per diluted share, based on 28.0 million diluted weighted average common shares outstanding. Net income in the same quarter of the prior year was $4.3 million, or $0.22 per diluted share, based on 19.8 million diluted weighted average common shares outstanding. 

EBITDA in the second quarter of 2012 increased 31.2% to $13.0 million from $9.9 million in the same quarter of the prior year. For a reconciliation of EBITDA to net income, see the accompanying tables at the end of this release. 

Selected Balance Sheet Information

At June 30, 2012, cash and cash equivalents totaled $7.0 million compared to $2.8 million at June 30, 2011 and the Company had no long-term debt. Accounts receivable increased $17.0 million to $50.5 million at June 30, 2012 from $33.5 million at June 30, 2011. Accounts receivable at June 30, 2012 was impacted by the earlier timing of some of the Company's back-to-school shipments that occurred near the end of the quarter as well as longer credit terms with some international customers.

Inventories at June 30, 2012 were $55.2 million compared to $41.9 million on June 30, 2011, a 31.9% increase. The increase was primarily driven by incremental inventory related to the addition of the Company's direct business in Europe. Adjusting for the incremental European related inventory, total inventory increased 5.7%.

Outlook

For the full year 2012, the Company is reiterating its net sales and adjusted diluted earnings per share outlook of $280-$300 million and $1.10-$1.20, respectively. The adjusted diluted earnings per share outlook excludes $0.4 million of after-tax expenses related to the Monster litigation in the first quarter and assumes an effective tax rate of approximately 36.5% and diluted weighted average common shares outstanding of approximately 28.7 million.            

Call Information

A conference call to discuss the second quarter 2012 results is scheduled for today, August 2, 2012, at 4:30 PM Eastern Time/2:30 PM Mountain Time. A broadcast of the call will be available on the Company's website, www.skullcandy.com. Analysts and investors can participate in the live call by dialing (800) 575-5790 or (719) 325-2348. In addition, a replay of the call will be available shortly after the conclusion of the call and remain available through August 9, 2012. To access the telephone replay, listeners should dial (877) 870-5176 or (858) 384-5517 and enter ID #7548773.

About Skullcandy, Inc.

Skullcandy became one of the world's most distinct audio brands by bringing color, character and performance to an otherwise monochromatic space and helped revolutionize the audio arena by introducing headphones, earbuds and other audio and wireless lifestyle products that possess unmistakable style and exceptional performance. From the award-winning, optic-inspired Roc Nation Aviator headphones to the evolutionary fitting FIX earbuds and a roster of some of the world's finest athletes, musicians and artists, Skullcandy continues to redefine world-class audio performance and style. Visit skullcandy.com, or join us at facebook.com/skullcandy or on Twitter @skullcandy. 

Forward-Looking Statements

Certain statements in this press release and oral statements made from time to time by representatives of the Company are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, statements regarding the Company's guidance, outlook, future financial and operating results and any other statements about the Company's future expectations, beliefs or prospects expressed by management are forward-looking statements. These forward-looking statements are based on management's current expectations and beliefs, but they involve a number of risks and uncertainties that could cause actual results or events to differ materially from those indicated by such forward-looking statements, including, but not limited to, the Company's ability to extend the recognition and reputation of its brand, to continue to develop innovative and popular products, to respond to changes in consumer preferences, to grow its international business, to implement new sourcing initiatives and other factors that are detailed in the Company's annual report on Form 10-K for its most recent fiscal year and in other reports the Company files with the SEC, including the Risk Factors contained in the Company's annual and other reports, which are available at www.sec.gov. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company does not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.

-Financial Tables Follow-

Non-GAAP Measures

EBITDA, for the periods presented, represents net income before interest expense, income taxes, other expenses and depreciation and amortization. Adjusted EBITDA for the six months ended June 30, 2012 gives further effect to the recording of one-time legal expenses associated with the Monster litigation of $667 thousand. These expenses were associated with one-time legal expenses and management believes they do not correlate to the underlying performance of the Company's business. As a result, the Company believes that adjusted EBITDA provides important additional information for measuring the Company's performance, provides consistency and comparability with the Company's past financial performance, facilitates period to period comparisons of the Company's operations, and facilitates comparisons with other peer companies, many of which use similar non-GAAP financial measures to supplement their GAAP results. The Company's management team uses this metric to evaluate the Company's business and believes it is a measure used frequently by securities analysts and investors. Adjusted EBITDA does not represent, and should not be used as a substitute for income from operations or net income, as determined in accordance with GAAP. The Company's definitions of EBITDA and adjusted EBITDA may differ from that of other companies.

Non-GAAP Measures

Adjusted net income, for the periods presented, represents net income excluding expenses associated with legal expenses associated with the Monster litigation. These expenses relate to one-time legal expenses and management believes they do not correlate to the underlying performance of the business. As a result, the Company believes that adjusted net income provides important additional information for measuring its performance, provides consistency and comparability with the Company's past financial performance, facilitates period to period comparisons of the Company's operations, and facilitates comparisons with other peer companies, many of which use similar non-GAAP financial measures to supplement their GAAP results. The Company's management team uses this metric to evaluate the Company\'s business and believes it is a measure used frequently by securities analysts and investors. Adjusted net income does not represent, and should not be used as a substitute for net income, as determined in accordance with GAAP. The Company's definition of adjusted net income may differ from that of other companies.

CONTACT: Media:
         Alecia Pulman/Janet Reinhardt
         203-682-8200
         Alecia.Pulman@icrinc.com
         
         Investors:
         John Rouleau
         203-682-8342
         John.Rouleau@icrinc.com

Skullcandy, Inc. (MM) (NASDAQ:SKUL)
Historical Stock Chart
From Jun 2024 to Jul 2024

Skullcandy, Inc. (MM) (NASDAQ:SKUL)
Historical Stock Chart
From Jul 2023 to Jul 2024