Garmin has announced selected preliminary financial information for its fiscal second quarter which ended 27 June 2015 and updated full year 2015 guidance.
Garmin expects to report second quarter 2015 revenue in the range of US$770-775 million with a gross margin of approximately 54%. A year-on-year decline was driven primarily by currency movements negatively impacting sales by US$55-60 million year-over-year on a constant currency basis across all consumer segments and a more promotional pricing environment in the fitness segment.
Operating margin is expected to be approximately 21.5% as Garmin continues to invest in research & development and advertising. Given an increased tax rate in the quarter, the resulting second quarter diluted earnings per share (EPS) is expected to be in the range of US$0.70-0.72. (Garmin does not expect any material non-GAAP adjustments to EPS.)
Garmin expects to report second quarter 2015 revenue growth in the fitness segment of approximately 5%. The sequential slowdown in fitness revenue growth resulted primarily from ‘the strong channel fill in second quarter 2014’.
Although Garmin’s sell-in growth was muted, the company believes that sell-through volumes across much of its fitness portfolio continue to grow at a more robust pace in 2015. The reduced revenue growth in the quarter, along with promotional pricing, increased advertising investment, and the unfavorable currency movements impacted the operating margin in the fitness segment which Garmin expects to be approximately 21%.
“Revenue performance was in line with our expectations in light of the difficult currency environment caused by a stronger US dollar,” said Cliff Pemble, President and CEO of Garmin. “However, ongoing weakness of the Euro coupled with a stronger Taiwan Dollar has created further gross margin pressure. Additionally, the current competitive environment in the fitness market necessitates more aggressive pricing with higher advertising expenses.”
He continued, “We are revising our full year outlook to reflect the dynamics we face in the current operating environment.”
For the full year, Garmin continues to expect revenue of approximately US$2.9 billion, unchanged from prior guidance. While fitness growth slowed in the second quarter, the company expects that it will improve in the second half as sell-through trends continue to show growth, new products are launched and Garmin finds benefits from its advertising investments.
Thus, Garmin still anticipates full year fitness growth of approximately 25%. Total company gross margin is expected to be in the range of 54-55% driven primarily by currency movements and promotional pricing. Previously, gross margin was expected to be approximately 56%.
With expected increased investments in advertising and research & development, Garmin expects an operating margin in the range of 20-21% compared to prior guidance of 23%. Given an effective tax rate of 18-19%, Garmin now expects pro forma diluted EPS of approximately US$2.65 for full year 2015, compared to prior guidance of US$3.10.
Garmin will report second quarter 2015 results before the market opens on Wednesday 29 July 2015 and will hold a conference call for the financial community at 10:30 ET that day to further discuss second quarter financial results and full year expectations, which ‘may include a discussion of other forward-looking and material information about business and financial matters.’
