Acquires Minority Interest in Mexico
Joint Venture
Skullcandy, Inc. (NASDAQ:SKUL) today updated its outlook for the
fourth quarter ended December 31, 2015.
Updated Fourth Quarter Outlook
For the fourth quarter, the Company now expects net sales to be
approximately flat with 2014 levels, or increase approximately 2%
on a currency neutral basis. The Company had previously forecasted
net sales to increase by approximately 5-7%, or approximately 8-10%
on a currency neutral basis, compared to the same quarter a year
ago. Based on the sales shortfall attributable to disappointing
holiday results, combined with the impact on gross margin from
product mix shift driven by a higher percentage of gaming headset
sales during the holiday season, the Company now expects fourth
quarter diluted earnings per share on a U.S. GAAP basis between
$0.20 and $0.22, compared to its previous outlook of $0.38 to
$0.40.
This new outlook includes a $1.6 million pre-tax allowance for
bad debt charge related to further challenges with a China
distributor. Excluding this China related charge and associated tax
rate impacts, fourth quarter diluted earnings per share is expected
to be between $0.25 and $0.27.
The Company’s financial results are subject to finalization and
audit of its financial closing procedures and results.
“During the fourth quarter, including the holiday period, we
experienced solid consumer demand for both the Skullcandy and Astro
brands. Skullcandy domestic sell-through increased mid-teens
year-over-year driven by a triple digit gain in our wireless
headphone business according to NPD data. At the same time,
Astro exceeded expectations and strengthened its connection with
elite gamers through the recent launch of our A40 TR suite of
products. However, we are disappointed that our strong
sell-through performances could not overcome the softness in the
U.S. audio headphone market which was unexpectedly down in the
fourth quarter. This headwind, as well as aggressive promotional
activity by our competitors, negatively affected our replenishment
business for Skullcandy branded products contributing to the
majority of our revenue miss, combined with a product mix shift
that negatively weighed on gross margins,” explained Skullcandy
President and CEO Hoby Darling.
“We also chose to minimize sales to discount channels to further
protect the Skullcandy brand and our retailers, as well as continue
the clean-up work with our largest China distributor during the
fourth quarter, as we shift to a more direct model in China,” added
Darling.
Darling continued, “Our recent market share gains and strong
pipeline of innovative new products have us cautiously optimistic
about our near-term growth prospects, particularly for our gaming
and wireless businesses. Our outlook is being balanced by the
challenging audio market conditions in the U.S. and our ongoing
work to improve certain international markets. As a result,
in 2016 we now expect net sales to grow in the mid to high-single
digits and earnings per share to grow at a mid-teens rate over 2015
results, excluding the 2015 Q4 bad-debt allowance for our China
distributor.”
The Company expects to report its actual results for the fourth
quarter and full year 2015 and provide a full year outlook for 2016
in March 2016. This press release contains certain non-GAAP
information, such as currency neutral basis, which is intended to
provide visibility into the Company’s operations by excluding the
effects of foreign currency exchange rate fluctuations.
*"Currency neutral basis," assumes the foreign exchange rates in
effect for the fourth quarter ended December 31, 2015 were in
effect for the fourth quarter ended December 31, 2014 and that
neither period receives the effect of foreign currency related
income or expense. For further details on currency neutral basis,
please refer to our previously filed 2015 Form 10-Qs.
Mexico Distribution
The Company announced that it has acquired the minority interest
in its Mexico joint venture and now operates a wholly-owned
subsidiary in this market. Darling explained, “We are excited to
now have full control of our business in Mexico. The Skullcandy
brand has resonated extremely well with consumers in this market
since launching a few years ago. By working directly with our
retail partners combined with additional demand creation
investments, we believe we can accelerate sales growth and increase
our market share at a faster pace.”
ICR Conference
The Company also announced that it will make a presentation at
the 2016 ICR Conference, held at the JW Marriott Orlando Grande
Lakes in Orlando, Florida. Management will host the presentation
currently scheduled for Wednesday, January 13, 2016 at 10:30 a.m.
Eastern Time.
The slides accompanying the presentation will be posted at
www.skullcandy.com under the Investor Relations section prior
to the presentation.
About Skullcandy, Inc.
Skullcandy, Inc. 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 brand 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. ASTRO Gaming
creates premium video gaming equipment for professional gamers,
leagues, and gaming enthusiasts. ASTRO Gaming was founded in the
pits of competitive gaming and has become synonymous with pinnacle
gaming experiences. 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, 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. The Skullcandy brand website can be found
at www.skullcandy.com. The ASTRO Gaming website can be found at
www.astrogaming.com.
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 anticipated 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. Important factors that could cause
actual results to differ materially from expectations are disclosed
under the “Risk Factors” section of the 2014 10-K filed with the
Securities and Exchange Commission ("SEC") on March 13, 2015 and
our 2015 10-Qs. Readers are urged not to place undue reliance on
these forward-looking statements, which speak only as of the date
thereof. 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.
Investor Contact
ICR
Brendon Frey
203-682-8200
Brendon.Frey@icrinc.com
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