Garmin reported sales at its Outdoor resumed growing in the third quarter, while sales at its Fitness segment slowed from their torrid second quarter pace but remained in the mid-double digits.
Our strong year continued with a third consecutive quarter of revenue, operating income and pro forma EPS growth. Our non-automotive/mobile segments delivered 24 percent revenue growth and 70 percent of our operating profits. We believe we are well positioned with our current product portfolio while also investing for long-term sustained growth through further innovation and diversification, said Cliff Pemble, president and chief executive officer (CEO) of Garmin Ltd. Given the strong revenue and margin performance in the third quarter, we are revising our guidance as we now expect our revenue and pro forma EPS for the full year to be approximately $2.85 billion and $3.10, respectively.
Outdoor segment
Garmin’s Outdoor segment posted revenue growth of 19 percent in the quarter due to the strong performance of recently introduced products including the Fēnix 2, the Approach S6 and the Alpha series. Gross and operating margins remain strong at 65 percent and 42 percent, respectively. The significant revenue growth will allow Garmin to generate mid-single digit full year growth in the segment.
Fitness segment
The Fitness segment posted revenue growth of 43 percent in the quarter as the strong performance of numerous products and categories continued. Gross margins increased to 64 percent year-over-year while operating margins were relatively consistent with the prior year due to significant investments in advertising, sponsorships and point of sale displays to drive long-term market share gains.
“We believe these initiatives are already producing positive results and anticipate strong sales in the holiday quarter and beyond as we build market share in the growing global wearables category,” said Pemble. “We have recently announced two additional products in the fitness segment that highlight our commitment to innovation-the Vívosmart, our latest activity tracker which delivers smart notifications, and the Forerunner 920XT, our next generation multisport product with advanced running dynamics and connected features.”
Garmin also launched Connect IQ, an open platform for developers to create applications for Garmin wearables like the 920XT. “Connect IQ opens the door to a world of possibilities for our active lifestyle customers looking to expand the utility of their Garmin device,” Pemble said.
Guidance adjusted
Due to continued strong results in the third quarter, Garmin revised its guidance to reflect its outlook for the remainder of the year. Garmin now anticipates revenues of approximately $2.85 billion, the high end of its prior guidance, with gross and operating margins of 56 percent and 24 percent, respectively. Given the full year effective tax rate of 17 percent, Garmin forecast pro forma EPS of approximately $3.10. As indicated last quarter, 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 slightly lower margins in the fourth quarter.
| (in thousands, |
|
13-Weeks Ended |
|
39-Weeks Ended |
|
|||||||||||||||||||||
except per share data) |
|
Sep 27, | Sep 28, | Yr over Yr |
|
Sep 27, | Sep 28, | Yr over Yr |
|
|||||||||||||||||
|
|
|
2014 |
|
2013 | Change |
|
2014 |
|
2013 | Change |
|
|||||||||||||||
Net sales |
|
$ |
706,283 |
|
|
|
$ |
643,637 |
|
|
10% |
|
|
$ |
2,067,352 |
|
|
|
$ |
1,872,156 |
|
|
10% |
|
||
Automotive/Mobile |
|
|
307,558 |
|
|
|
|
|
322,520 |
|
|
-5% |
|
|
|
900,545 |
|
|
|
|
|
919,810 |
|
|
-2% |
|
Fitness |
|
|
116,171 |
|
|
|
|
|
81,007 |
|
|
43% |
|
|
|
367,137 |
|
|
|
|
|
237,660 |
|
|
54% |
|
Outdoor |
|
|
121,079 |
|
|
|
|
|
101,350 |
|
|
19% |
|
|
|
311,123 |
|
|
|
|
|
284,372 |
|
|
9% |
|
Aviation |
|
|
99,347 |
|
|
|
|
|
83,459 |
|
|
19% |
|
|
|
292,636 |
|
|
|
|
|
251,970 |
|
|
16% |
|
Marine |
|
|
62,128 |
|
|
|
|
|
55,301 |
|
|
12% |
|
|
|
195,911 |
|
|
|
|
|
178,344 |
|
|
10% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Gross profit % |
|
|
56 |
% |
|
|
|
|
55 |
% |
|
|
|
|
|
57 |
% |
|
|
|
|
54 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Operating profit % |
|
|
25 |
% |
|
|
|
|
24 |
% |
|
|
|
|
|
25 |
% |
|
|
|
|
21 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
GAAP diluted EPS |
|
|
($0.76 |
) |
|
|
|
$ |
0.96 |
|
|
NM |
|
|
$ |
0.79 |
|
|
|
|
$ |
2.29 |
|
|
-66% |
|
Pro forma diluted EPS (1) |
|
$ |
0.76 |
|
|
|
|
$ |
0.69 |
|
|
10% |
|
|
$ |
2.33 |
|
|
|
|
$ |
1.86 |
|
|
25% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
|
|
||||||||||||||||||||||||||
Garmin reported that total operating expenses in the quarter, including its Marine, Auto/Mobile and Aviation segments, were $223 million, an 11 percent increase from the prior year. Research and development investment increased 12 percent, while remaining consistent as a percentage of sales, driven primarily by fitness and aviation investments to support new product initiatives. Advertising increased 26 percent as Garmin launched television advertising campaigns and improved point of sale displays with many retailers to support new products in outdoor and fitness. Selling, general and administrative expense increased by 5 percent while remaining consistent as a percentage of sales in the quarter.
