By Thomas J. Ryan
Skullcandy Inc. (Nasdaq:SKUL) reported a loss of $1.6 million, or 5 cents a share. The loss partly reflected pre-tax expenses of $1.3 million, or 3 cents a share, related to its sale process, litigation and the bankruptcies at Sports Authority and other customers.
As previously reported, Skullcandy agreed to be acquired by Incipio LLC for $5.75 a share in a deal valued at $177 million. The headphones specialist then launched a one-month “go-shop” period to explore other offers and received one from Mill Road Capital for $6.05 per share in cash.
On August 3, Incipio lifted its bid to $6.10 per share, or a total of approximately $188.6 million, and the board is recommending the Incipio offer. A tender offer for shareholders to approve the offer will expire on August 17.
The sale would come as the once high-flying audio and gaming brand seems to be regaining some traction in the marketplace, at least in the U.S..
Sales in the second quarter were basically flat, at $57.3 million against $57.4 million a year ago. Domestic sales increased 3.9 percent to $42.3 million, while international sales slumped 10.2 percent to $15 million, primarily due to significantly decreased sales in China.
The bottom line was impacted by a decrease in gross margins to 41.1 percent in the latest quarter from 42.7 percent in the same quarter a year ago, primarily due to continued clean-up in China.
SG&A expenses also increased 8.5 percent to $25.5 million (or up 400 basis points to 45 percent of sales), primarily due to certain transaction costs related to the company’s sale process, customer bankruptcies, litigation, personnel related expenses, marketing investments and research and innovation expenses, officials said. The increases were partially offset by decreases in administrative costs.
Operating loss in the second quarter of 2016 was -$2 million, compared to $1 million in the same quarter a year ago, driven by a lower gross profit and increased SG&A expenses. Excluding certain non-routine costs related to the sale process, litigation and customer bankruptcies, the operating loss would have been -$450,000 against earnings of $1.15 million.
“We are pleased with our second-quarter results,” said Skullcandy Inc. President and CEO Hoby Darling. “The success we saw with our brands in a challenging retail environment is a testament to the consumer focus and passion of our team.”
Among the highlights, the Skullcandy brand saw “significant strength” in its largest domestic accounts, led by its expanded wireless portfolio. The sell-through rate exceeded the overall headphone market, Darling noted.
The Astro Gaming brand continued to experience strong growth and is expected to gain a boost from the fall launch of the new A50 console gaming headset.
Said Darling, “While our overall company results were hampered by some temporary headwinds including the ongoing clean-up of our China region and several retailer bankruptcies around the world, we are excited as a team to be on full attack.”
Lead photo courtesy Skullcandy
