By Charlie Lunan
Garmin Ltd. (Nasdaq:GRMN) said double-digit growth at its fitness and outdoor segments enabled it to blow past Wall Street estimates in the second quarter and raise its guidance for the full year.
The results show that one of the industry’s GPS leaders is successfully navigating the onslaught of fitness trackers, despite its own previous cautions of pressures from the influx. Garmin also continues to successfully move away from its previous reliance on personal navigation devices, much of which the consumer has replaced with smartphones mapping apps.
Investors rewarded the company July 27, sending its stock price up more than 12 percent, to $52 per share and a new 52-week high.
Garmin reported total revenue of $812 million, up 5 percent over the prior year, with fitness, outdoor, marine and aviation collectively growing 20 percent over the year-ago quarter and contributing 70 percent of total revenue. Gross margin expanded to 57 percent compared to 54.2 percent in the prior year quarter, and operating margin expanded to 24.7 percent compared to 21.5 percent in the prior year quarter.
GAAP EPS was 85 cents, up 18 percent over the prior year, and 25 percent higher than Wall Street’s consensus estimate of 65 cents.
“Fitness and outdoor achieved impressive revenue and profit growth driven by our strengthening position in the wearables market,” said Cliff Pemble, president and chief executive officer (CEO) of Garmin Ltd.
Aviation and marine also delivered revenue and profit growth while auto remains a solid base of profit contributions to the overall business.
Fitness Takes Off
Fitness revenue grew 34 percent in the quarter driven by wearable devices, including an expanded assortment of the company’s Elevate wrist heart technology, which is now available in running and outdoor watches as well as activity trackers. During the quarter, Garmin began shipping Vivoactive HR and Vivofit 3 activity trackers as well as the Forerunner 735XT multi-sport-capable running watch, the Vivosmart HR + smart activity tracker with GPS and Vivomove, a fashionable analog watch with activity tracking features and a one-year battery life. Downloads of more than 2,000 watch apps from Garmin’s Connect IQ App store surpassed 13 million since its launch in early 2015.
Garmin estimates its share of the GPS-enabled smart wearable market in the United States at 57 percent, up from 43 percent a year ago. It pegged its share of the U.S. activity tracker market at 10 percent.
Segment gross margin was flat at 56 percent while operating margin improved to 25 percent from 21 percent in the prior year and contributed to a 60 percent growing in operating income.
Outdoor gets Boost from DeLorme, Wearables
Sales at the outdoor segment grew 23 percent, driven half by wearable devices and half by a full quarter of contributions from recently acquired DeLorme products. Gross and operating margins were 64 percent and 36 percent, respectively, and contributed to a 31-percent increase in operating income.
Product launches during the quarter included the Astro 430 dog tracker, the Oregon 700 line of handheld devices and the Approach X40 golf smart watch during. The golf watch features Elevate heart rate technology and a built-in database that provides distance to the front, middle and back of the green for 40,000 golf courses.
In its marine segment, operating income grew 19 percent thanks to an 8-percent increase in revenue. Gross margins reached 58 percent and operating margins expanded to 26 percent.
$1 Billion in Cash
Garmin ended the quarter with more than $1 billion in cash and inventory valued at $508.3 million, up about 11 percent from a year earlier. Executives said they see no evidence of new products stacking up in its distribution channels and would not comment on their M&A activities.
Thanks primarily to a stronger outlook for its outdoor and fitness segments, Garmin raised guidance for full-year revenue and pro forma earnings per share by 10 and 11 percent, respectively. Revenue is expected to reach $2.9 billion, while earnings per share are forecast to be approximately $2.50. The new forecast assumes promotions in the back half of the year will result in a gross margin of about 55 percent and operating margin of about 19 percent, up 50 and 100 basis points, respectively, from its February forecast.
Lead photo courtesy Garmin
