Skullcandy Inc. reported a loss of $1.6 million, or 5 cents a share, in its second quarter ended June 30, impacted by costs related to its sale process, litigation and customer bankruptcies.
“We are pleased with our second-quarter results. The success we saw with our brands in a challenging retail environment is a testament to the consumer focus and passion of our team. For the Skullcandy brand, we saw significant strength in our largest domestic accounts led by our expanded wireless portfolio, which helped fuel sell-through at a rate that exceeded the overall headphone market according to NPD. Wireless is the future of audio and the Skullcandy brand is winning. For the Astro Gaming brand, we continue to experience strong growth and expect the fall launch of the new A50 headset to set the standard for the best console gaming headset in the market. 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,” said Skullcandy, Inc. President and CEO Hoby Darling.
Net sales in the second quarter of 2016 and 2015 were $57.3 million and $57.4 million, respectively. Domestic net sales increased 4 percent to $42.3 million from $40.7 million in the same quarter a year ago. International net sales decreased 10 percent to $15.0 million from $16.7 million in the same quarter a year ago, primarily due to significantly decreased sales in China.
Gross profit in the second quarter of 2016 decreased 4 percent to $23.6 million, from $24.5 million in the same quarter a year ago. Gross margin decreased to 41.1 percent in the second quarter of 2016 from 42.7 percent in the same quarter a year ago, primarily due to continued clean-up in China.
Selling, general and administrative (SG&A) expenses in the second quarter of 2016 increased 9 percent to $25.5 million, from $23.5 million in the same quarter a year ago. The increase in SG&A expenses is primarily due to certain transaction costs related to the company’s sale process, customer bankruptcies, litigation, personnel related expenses, demand creation and research and innovation expenses. These increases are partially offset by decreases in administrative costs. As a percentage of net sales, SG&A expenses increased 400 basis points to 45 percent as compared to 41 percent in the same quarter a year ago. Excluding certain non-routine costs related to the sale process, litigation and customer bankruptcies, SG&A expenses were up 3 percent year over year.
Operating (loss) income in the second quarter of 2016 was $(2) million, a decrease of $3 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 change in operating (loss) income year over year was $1.6 million.
Net (loss) income in the second quarter of 2016 was $(1.6) million, or (5 cents) per share, based on 28.7 million weighted average diluted common shares outstanding, and net (loss) income in the same quarter a year ago was $1.2 million, or 4 cents er share, based on 29.0 million weighted average diluted common shares outstanding.
Second-quarter 2016 results include pre-tax expenses of approximately $1.3 million, or 3 cents of net income per share, in certain non-routine costs related to our sale process, litigation and customer bankruptcies.
Balance Sheet Highlights
As of June 30, 2016, cash, cash equivalents and short-term investments increased 75 percent to $41.2 million, compared to $23.6 million as of December 31, 2015. The increase was primarily due to the company’s collection efforts on receivables from fourth-quarter sales and a decrease in early payments with certain vendors. Accounts receivable, net decreased 37 percent to $53.1 million as of June 30, 2016, from $84.9 million as of December 31, 2015. Inventories, net increased 7 percent to $44.5 million as of June 30, 2016, from $41.7 million as of December 31, 2015. The company continued to have no outstanding debt as of June 30, 2016.
Photo courtesy of Skullcandy.
