Gross profit in the third quarter of 2012 increased 18.5 percent to
$34.1 million from $28.8 million in the same quarter of the prior year.
Gross profit as a percentage of net sales, or gross margin, was 48.0
percent in the third quarter of 2012 compared to 47.5 percent in the
third quarter of 2011.
Selling, general and administrative (SG&A) expenses in the third
quarter 2012 increased 14.2 percent to $23.5 million from $20.6 million
in the same quarter of the prior year. As a percentage of net sales,
selling, general and administrative expenses decreased to 33.1 percent
from 33.9 percent in the same quarter of the prior year.Income from operations increased 29.1 percent to $10.6 million from $8.2 million in the same quarter of the prior year. Income from operations as a percentage of net sales increased to 15.0 percent from 13.6 percent in the same quarter of the prior year.
Net income attributable to Skullcandy, Inc. in the third quarter of 2012 was $6.5 million, or $0.23 per diluted share, based on 28.1 million diluted weighted average common shares outstanding. Net income attributable to Skullcandy, Inc. in the same quarter of the prior year was $1.0 million, or $0.04 per diluted share, based on 26.3 million diluted weighted average common shares outstanding. Excluding the one-time expenses related to a capital transaction in 2008, adjusted net income in the third quarter of 2011 was $4.5 million, or $0.17 per diluted share based on 26.3 million diluted weighted average common shares outstanding. For a reconciliation of adjusted net income to net income, see the accompanying tables at the end of this release.
“We are pleased with our third quarter results, in which operating
income increased over 29 percent and was driven by solid sales growth,
margin expansion and expense leverage,” said Jeremy Andrus, Skullcandy's
president and CEO. “With the successful launch of a new line of Astro
Gaming and Skullcandy gaming headsets, we continue to broaden our
customer base and diversify our business. Early feedback on our new
gaming headsets has been overwhelmingly positive and we believe this is a
meaningful new growth opportunity for Skullcandy.
Other exciting upcoming new product launches include two premium
on-ear and over-ear styles, Navigator and Crusher, which combine
cutting-edge performance and design with Skullcandy's proprietary
Supreme Sound."
As of Sept. 30, 2012, cash and cash equivalents totaled $1.9 million
compared to $14.9 million at September 30, 2011 and the company had no
long-term debt. As of September 30, 2012, the company had $22.9 million
of availability under its credit facility. Accounts receivable and
inventory were $60.0 million and $55.4 million, respectively, at
September 30, 2012. While accounts receivable is up significantly on a
year-over-year basis, last year's third quarter accounts receivable
included only approximately one month of Europe direct sales, and is,
therefore, non-comparable. For the nine month period ended September 30,
2012, working capital increased $16.3 million to $88.4 million, or 22.5
percent, which is less than net sales growth of 32.0 percent for the
same period. Outlook
The company is tightening its net sales outlook for the full year 2012 to $290-$300 million from a previous outlook of $280-$300 million. A mix shift toward higher-priced, lower margin products and cautiousness regarding the retail environment in Europe and the escalating U.S. promotional environment heading into the important holiday season creates less visibility around gross margin and operating expenses. As a result, the company is revising its adjusted fully diluted earnings per share outlook for 2012 to $1.00-$1.04 from a previous outlook of $1.10-$1.20. This adjusted earnings per share outlook excludes $0.4 million of after-tax expenses related to the Monster litigation in the first quarter and assumes an effective tax rate of approximately 36.5 percent and diluted weighted average common shares outstanding of approximately 28.3 million.
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