Skullcandy, Inc. reported an net sales declined 30.4 percent in the first quarter ended March 31 as it slashed distribution to the off price retail channel in North America.
North America net sales decreased 37.9 percent to $28.7 million from $46.1 million in the same quarter of the prior year. The prior year’s first quarter was aided by lower retail customer inventory coming out of the holiday season and a packaging change that led to higher sales, creating a challenging year over year quarterly comparison.
Further, the company chose to scale back its sales to the highly discounted off-price channel by approximately 67 percent. This decrease was partially offset by an increase in gaming net sales of 43.8 percent.
Gross profit in the first quarter of 2013 decreased 35.6 percent to $16.5 million from $25.6 million in the same quarter of the prior year. Gross profit as a percentage of net sales, or gross margin, was 44.5 percent in the first quarter of 2013 compared to 48.1 percent in the first quarter of 2012. The decrease in gross margin is primarily due to a write off of $0.8 million related to end of life products (“EOL”). Certain reclassifications have been made to the 2012 balances to conform to the 2013 presentation so as to better reflect where these costs should reside in the statement of operations. For this reason, tooling depreciation and warranty related expenses are being included in cost of goods sold for all comparable periods.
Selling, general and administrative (SG&A) expenses in the first quarter 2013 increased 9.0 percent to $26.3 million from $24.1 million in the same quarter of the prior year. As a percentage of net sales, selling, general and administrative expenses increased to 71.0 percent from 45.3 percent in the same quarter of the prior year. SG&A expenses in the first quarter 2013 include $1.2 million in certain severance related expenses. During the three months ended March 31, 2013, the company recorded a loss of $2.0 million related to disposals of property and equipment for certain EOL products.
Income (loss) from operations decreased to ($9.8 million) from $1.5 million in the same quarter of the prior year.
Net loss attributable to Skullcandy, Inc. in the first quarter of 2013 was ($7.0 million), or ($0.25) per diluted share, based on 27.7 million diluted weighted average common shares outstanding. Net income attributable to Skullcandy, Inc. in the same quarter of the prior year was $1.1 million, or $0.04 per diluted share, based on 27.9 million diluted weighted average common shares outstanding. Excluding certain severance related expenses, non-GAAP adjusted net loss in the first quarter of 2013 was ($6.3 million), or ($0.23) per diluted share based on 27.7 million diluted weighted average common shares outstanding.
SKULLCANDY, INC. | ||
Three Months Ended March 31, | ||
2013 | 2012 | |
Net sales | $ 37,050 | $ 53,280 |
Cost of goods sold | 20,564 | 27,665 |
Gross profit | 16,486 | 25,615 |
Selling, general and administrative expenses | 26,311 | 24,131 |
Income (loss) from operations | (9,825) | 1,484 |
Other expense (income) | 539 | (48) |
Interest expense | 103 | 124 |
Income (loss) before income taxes and noncontrolling interests | (10,467) | 1,408 |
Income tax expense (benefit) | (3,387) | 267 |
Net income (loss) | (7,080) | 1,141 |
Net loss (income) attributable to noncontrolling interests | 33 | (24) |
Net income (loss) attributable to Skullcandy, Inc. | $ (7,047) | $ 1,117 |
Net income (loss) per common share attributable to Skullcandy, Inc. | ||
Basic | $ (0.25) | $ 0.04 |
Diluted | (0.25) | 0.04 |