Garmin’s reported sales by its Fitness segment soared 79 percent in the second quarter ended June 28 as consumers snapped up its Vivofit fitness trackers, lower priced Forerunner smartwatches and a new cycling computer.
The fitness segment posted revenue growth of 79 percent in the quarter on the strength of Vívofit (shown to the right), Garmin's first activity tracker, and recent biking and running product introductions including the Edge 1000 and the Forerunner 15, 220 and 620. Gross margins were steady at 65 percent year-over-year while operating margins improved to 42 percent as sales growth significantly outpaced operating expense growth. “While much has been said about these markets being crowded, we are committed to exploration, development and delivery of innovation that customers desire across our broad range of fitness and wellness products,” said Cliff Pemble, president and chief executive officer (CEO) of Garmin Ltd. “With this commitment, we believe we can maintain our leadership and deliver ongoing revenue growth in this segment.”
The Outdoor segment posted a slight revenue decline compared to the strong performance achieved in the second quarter of 2013. Gross and operating margins contracted compared to the prior year due primarily to inventory reserves and advertising expenses associated with the Virb action camera. Garmin launched the Approach S6 for the golf enthusiast during the quarter. The S6 delivers one-of-a-kind swing metrics in a wristwatch. Metrics include swing tempo and swing strength paired with a tempo training feature.
“Our great start to 2014 continued with a second consecutive quarter of revenue, operating income and pro forma EPS growth,” said Pemble. “We are excited to see the positive consumer reception for many of our recently introduced products and are maintaining our focus on innovation and diversification to drive further growth opportunities.“
2014 guidance
With strong results in the first half of 2014, Garmin updated its guidance and now anticipate revenues of $2.75-$2.85 billion, improved gross and operating margins and a lower pro forma effective tax rate. The result of these changes is a pro forma EPS range of $2.95 – $3.05. The guidance anticipates promotional pricing for the holiday season, as well as higher spending in marketing and advertising to support new product categories resulting in margins that are lower than what was experienced in the first half of the year.
With strong results in the first half of 2014, Garmin updated its guidance and now anticipate revenues of $2.75-$2.85 billion, improved gross and operating margins and a lower pro forma effective tax rate. The result of these changes is a pro forma EPS range of $2.95 – $3.05. The guidance anticipates promotional pricing for the holiday season, as well as higher spending in marketing and advertising to support new product categories resulting in margins that are lower than what was experienced in the first half of the year.
Adjusted 2014 Outlook
2014 Update | Prior | |||||||||
Revenue | $2.75 – $2.85 B | $2.6 – $2.7 B | ||||||||
Gross Margin | ~56% | 54 55% | ||||||||
Operating Income | $650 – $675 M | $530 – $565 M | ||||||||
Operating Margin | ~24% | ~21% | ||||||||
Tax Rate (Pro Forma) | ~15% | 17% | ||||||||
EPS (Pro Forma) | $2.95 – $3.05 | $2.50 – $2.60 |
On July 24, 2014, Garmin’s Board of Directors approved an intercompany restructuring that will move certain US subsidiaries out from under our Taiwanese subsidiary. This change in corporate structure will provide access to historical earnings that were previously permanently reinvested, and will allow us to efficiently repatriate future earnings to fund dividends, share repurchases, and acquisitions. In order to change our corporate structure and access historical earnings, Garmin will make one-time cash tax payments of approximately $300 million over the next year.
Garmin Selected Financial Results
Second Quarter
| (in thousands, | 13-Weeks Ended | 26-Weeks Ended | ||||||||||||||||||||||||||||||||||
| except per share data) | Jun 28, | Jun 29, | Yr over Yr | Jun 28, | Jun 29, | Yr over Yr | ||||||||||||||||||||||||||||||
| 2014 | 2013 | Change | 2014 | 2013 | Change | |||||||||||||||||||||||||||||||
| Net sales | $ | 777,848 | $ | 696,563 | 12 | % | $ | 1,361,069 | $ | 1,228,520 | 11 | % | ||||||||||||||||||||||||
| Automotive/Mobile | 350,036 | 344,701 | 2 | % | 592,988 | 597,290 | -1 | % | ||||||||||||||||||||||||||||
| Fitness | 150,678 | 84,216 | 79 | % | 250,965 | 156,653 | 60 | % | ||||||||||||||||||||||||||||
| Outdoor | 106,059 | 106,856 | -1 | % | 190,044 | 183,022 | 4 | % | ||||||||||||||||||||||||||||
| Aviation | 97,295 | 88,042 | 11 | % | 193,289 | 168,511 | 15 | % | ||||||||||||||||||||||||||||
| Marine | 73,780 | 72,748 | 1 | % | 133,783 | 123,044 | 9 | % | ||||||||||||||||||||||||||||
| Gross profit % | 57 | % | 55 | % | 57 | % | 54 | % | ||||||||||||||||||||||||||||
| Operating profit % | 28 | % | 24 | % | 25 | % | 20 | % | ||||||||||||||||||||||||||||
| Pro forma diluted EPS (1) | $ | 1.02 | $ | 0.76 | 34 | % | $ | 1.57 | $ | 1.16 | 35 | % | ||||||||||||||||||||||||
| (1) See attached table for reconciliation of GAAP EPS to pro forma diluted EPS | ||||||||||||||||||||||||||||||||||||
Garmin Ltd. And Subsidiaries | ||||||||||||||||||||||||||||||||
Revenue by Geography (Unaudited) | ||||||||||||||||||||||||||||||||
| 13-Weeks Ended | 26-Weeks Ended | |||||||||||||||||||||||||||||||
| Jun 28, | Jun 29, | Yr over Yr | Jun 28, | Jun 29, | Yr over Yr | |||||||||||||||||||||||||||
| 2014 | 2013 | Change | 2014 | 2013 | Change | |||||||||||||||||||||||||||
| Net sales | $ | 777,848 | $ | 696,563 | 12 | % | $ | 1,361,069 | $ | 1,228,520 | 11 | % | ||||||||||||||||||||
| Americas | 411,348 | 383,537 | 7 | % | 716,156 | 669,349 | 7 | % | ||||||||||||||||||||||||
| EMEA | 300,427 | 256,401 | 17 | % | 521,030 | 447,177 | 17 | % | ||||||||||||||||||||||||
| APAC | 66,073 | 56,625 | ||||||||||||||||||||||||||||||
