Garmin, Ltd. saw sales in its Fitness segment decline 28 percent in the first quarter due to a normalization of demand for cycling wearables from the pandemic-driven levels in the prior year, but gains for its Outdoor and Marine segments helped drive overall growth in the period.

Companywide, consolidated revenue of $1.17 billion grew 9 percent over the prior year’s quarter, just above Wall Street’s guidance of $1.14 billion.

Fitness Segment Revenues Decline 28 Percent
In the Fitness segment, revenues fell to $220.9 million from $308.1 million a year ago. Operating profit in the segment was nearly break-even, at $580,000, down from $70.7 million a year ago. Gross margins eroded to 48.1 percent from 56.3 percent.

“All product categories declined, but the normalization of demand for cycling products was the main contributor,” said Cliff Pemble, president and CEO. He said while revenue from fitness wearables declined on a combined basis, wearable device revenue across all segments at Garmin experienced “robust growth.”

In the quarter, Garmin’s Fitness segment released research from its Garmin Connect platform that showed the positive benefits of sleep when stressed and a link between modest activity to lower a resting heart rate.

Pemble said, “We expected the first half of the year to be challenging for the Fitness segment as we compare against the outstanding performance of the prior year. While the decline was greater than expected, we believe these trends will moderate in the back half of the year as we move past the pandemic swings of 2021 and benefit from new product introductions.”

Fitness revenues grew 16 percent year-over-year in 2021 to $1.53 billion after climbing 26 percent in 2020.

Outdoor Segment Sales Climb 50 Percent
In the Outdoor segment, revenues in the first quarter climbed 50 percent to $384.6 million,  due to demand for its adventure watches. Gross and operating margins were 64 percent and 39 percent, respectively, resulting in $149 million of operating income, up 62 percent from $92 million a year ago.

Said Pemble, “During the quarter, we announced sweeping updates to our adventure watch lineup, including our flagship Phoenix 7 series, featuring a distinctive new design with a touchscreen display and the Instinct 2 series available in two sizes, including versions that can operate indefinitely using our exclusive solar power technology. We also announced the all-new Epix with a bright, AMOLED touchscreen display and class-leading battery life, up to 16 days. We believe there’s strong demand for these new products and other categories in this segment will be a growth driver for the remainder of the year.”

Outdoor revenues grew 14 percent year-over-year in 2021 to $1.28 billion after climbing 23 percent in 2020.

Marine Segment Revenues Expand 33 Percent
In the Marine segment, revenue increased 21 percent to $254 million in the first quarter. Gross margins in the segment dropped to 50.6 from 58.0 percent a year ago, resulting in operating income of $59 million, down 6.2 percent from $62.9 million a year ago.

“We experienced broad-based growth across multiple product categories, led by chartplotters,” said Pemble. “LiveScope has proven to be a halo technology for Garmin. And the new LiveScope plus sonar system raises the bar with higher resolution images and improved target separation. We continue to see strong demand for our marine products and LiveScope plus builds on this momentum. We believe this is a positive indicator of growth for the remainder of the year.”

Marine revenues grew 33 percent year-over-year in 2021 to $875.2 million after climbing 29 percent in 2020.

In its two remaining segments, sales in the first quarter grew 1 percent in the Aviation segment to $174.8 million and climbed 11 percent in the Auto segment to $1383 million.

Gross margin performance negatively impacted Garmin’s companywide earnings, which declined due to historically high freight costs combined with the strengthening of the U.S. dollar. In addition, operating expenses increased for various reasons, including higher employee headcount, increased compensation costs and the increase of certain operational expenses as business activities continued to normalize.

Net income in the quarter slipped 3.8 percent to $211.6 million, or $1.09, from $220.0 million, or $1.14, a year ago. On a proforma basis, earnings fell 5.5 percent to $214.7 million, or $1.11, from $227.3 million, or $1.18, a year ago. Wall Street’s consensus estimate had been $1.10.

Gross margin was 56.5 percent, a 330 basis point decrease in the prior quarter due primarily to higher freight costs. Operating expense, as a percentage of sales, was 37 percent, a 50 basis point increase. Operating income was $229 million, an 8 percent decrease. Operating margin was 19.5 percent, a 300 basis point decrease.

“We performed very well during the quarter,” said Pemble. “Despite a combination of old and new headwinds, supply chain constraints persist, which limited the orders we could fill. Russia’s invasion of Ukraine created an unthinkable humanitarian crisis and further complicated the global economic outlook. Despite these challenges, demand for our products remains strong, and we are optimistic about the future.”

Garmin maintained its guidance first issued in February, calling for consolidated revenue of $5.5 billion and EPS of $5.90 a share.

Pemble said, “Regarding our outlook for the rest of the year, I mentioned several new and existing headwinds we face, and we cannot predict the impact these might have on the business. Also, the first quarter represents the lowest seasonal quarter of our financial year, and much of the year remains ahead of us.”

Photo courtesy Garmin