Margins at Garmin Ltds Outdoor and Fitness segment dropped significantly in the fourth quarter ended Dec. 29 as its outdoor line up aged, sales of its lower margin Forerunner 10 sports watch took off and it again failed to ship a new line of high-end GPS-enabled cycling computers.

Revenues at Garmins Fitness segment increased 10 percent to $104 million in the quarter, due in large part to strong sales of the Forerunner 10 GPS-enabled watch for entry-level, value-conscious runners. Gross margins were 60.2 percent, down 410 basis points as product mix shifted toward the lower-margin Forerunner 10. Operating income dipped 12.3 percent to $40.8 million. Garmin expects the Forerunner 10 and its recently launched GPS-enabled Edge 510 and 810 cycling computers to drive growth in 2013.

For the full year, Fitness revenues increased 8 percent to $322 million, contributing $112 million of full year operating income. Growth in the segment fell slightly short of full-year expectations due to continuing delays in the release of a new line of power meters for cyclists that will be marketed under the Vector name. Garmin said the Vector line, which it had planned to launch in February 2012, will now launch mid-year, after the peak selling season for bicycling shops.

The Vector is a very complicated and precise instrument and we felt like we needed to take more time to make sure we could meet the expectations of customers who were going to be very, very demanding in that particular market space, said President and CEO Cliff Pemble.

The Fitness segments gross margin for the full year was up 260 basis points as full-year mix was positive and Garmin does not anticipate significant margin decline in either Fitness or Outdoor in 2013.  In 2013, we will have product introductions across the price spectrum, so we dont anticipate a significant gross margin decline in Fitness, said Kevin Rauckman, CFO and treasurer.

Outdoor revenues declined 2 percent to $119 million in the fourth quarter coming off robust 35 percent sales growth in the year earlier quarter. Gross margins fell 540 basis points to 62.4 percent. Operating margin was 39 percent, down 1,000 basis points from a year earlier as ASPs declined and margins contracted due to life cycle pricing on many of the companys more popular devices. Operating income reached $46.6 million, down 22.0 percent from the fourth quarter of 2011. For the full year, Outdoor revenues reached $401.7 million, up 11 percent. Gross margins slipped 8 basis points to 64.9 percent, while operating income increased 1.9 percent to $164.6 million.

In the Outdoor segment growth came from the newer categories of golf and dog-training products, including a full year of revenue contributions from Tri-Tronics, the dog training company Garmin acquired in the second half of 2011. Top sellers included the Fenix wrist watch, a ruggedized device featuring GPS navigation with altimeter, barometer, and compass functions. The Approach S3 golf watch, which offers a touch screen and built-in database of courses across the globe, also performed well. Finally, the Alpha Track and Train system, which integrates technologies of Garmin and Tri-Tronics into a single device for the sport dog market, sold well.

Garmin expects sales from the Outdoor and Fitness segments to grow between 5 and 10 percent in 2013 lead by the Approach S2 for the golf community and the BarkLimiter and the Delta series designed for both the pet and sport dog markets.