Skullcandy, Inc. reported net sales for the second quarter increased 38.2 percent to $72.4 million, with domestic net sales increasing 34.1 percent, international net sales increasing 59.9 percent and online net sales increasing 22.8 percent.


“Our sales growth was once again broad based, with all of our major channels of distribution on both the domestic and international side increasing double digits,” aid Jeremy Andrus, Skullcandy's President and CEO. “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.”


In the second quarter of 2012, domestic net sales increased 34.1 percent to $50.6 million, international net sales increased 59.9 percent to $16.5 million and online net sales increased 22.8 percent to $5.3 million.
 
Gross profit in the second quarter of 2012 increased 33.1 percent 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 percent in the second quarter of 2012 compared to 51.1 percent 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 percent 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 percent from 41.6 percent 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 percent 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.



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 percent and diluted weighted average common shares outstanding of approximately 28.7 million.