Skullcandy Announces First Quarter 2014 Financial Results

Skullcandy Announces First Quarter 2014 Financial Results  PARK CITY, Utah, May 1, 2014 (GLOBE NEWSWIRE) -- Skullcandy, Inc. (Nasdaq:SKUL) today announced financial results for the first quarter ended March 31, 2014.  First Quarter Results    *Net sales: $39.1 million vs. $37.1 million   *Gross margin: 46.5% vs. 44.5%   *Selling, general and administrative expense: $22.1 million vs. $26.3     million   *Net loss per diluted share: $(0.12) vs. $(0.25)  "The focused execution of our five pillar growth strategy led to a solid start to 2014," said Hoby Darling, President and Chief Executive Officer of Skullcandy. "The first quarter marked our return to revenue growth as both our domestic and international markets posted positive gains. Equally important, gross margins stabilized and we were able to leverage operating expenses while continuing to invest in key long-term growth drivers such as demand creation, innovation and talent. As a result, our bottom line performance improved dramatically from a year ago, putting us on course to exceed our original profit targets for the full year. We are encouraged by our current momentum and believe our commitment to culture and operational excellence is providing our teams the foundation to continue building remarkable products and developing deep, authentic connections with our consumer."  Net sales in the first quarter of 2014 increased 5.5% to $39.1 million from $37.1 million in the same quarter of the prior year. North America net sales increased 1.3% to $29.0 million from $28.7 million in the same quarter of the prior year. International net sales increased 19.7% to $10.0 million from $8.4 million in the same quarter of the prior year. Included in the North America segment in first quarter 2014 and first quarter 2013 are net sales of $0.6 million and $2.1 million, respectively, of products that were sold from the United States to customers with a "ship to" location outside of North America. These sales represented an increase of approximately 1.2% to the International Segment, and an increase of approximately 7.2% to the North American segment compared to the same quarter in the prior year.  Gross profit in the first quarter of 2014 increased 10.2% to $18.2 million from $16.5 million in the same quarter of the prior year. Gross margin was 46.5% in the first quarter of 2014 compared to 44.5% in the same quarter of the prior year. The increase in gross margin was primarily attributable to a shift in product sales mix into higher margin products, decreases in shipping related costs, and reductions in warranty related costs.  Selling, general and administrative (SG&A) expenses in the first quarter of 2014 decreased 16.1% to $22.1 million from $26.3 million in the same quarter of the prior year. The decrease in SG&A expenses is primarily attributable to reduction in write-downs of tooling, fixtures and furniture, severance, performance-based compensation due to a change in accounting methodology which shifts the majority of the expense to later in the calendar year, and bad debt expense. As a percentage of net sales, SG&A expenses were 56.5% compared to 71.0% in the same quarter of the prior year. The Company continues to invest in marketing and demand creation efforts at the same level compared to the same quarter of the prior year with an increased focus on in-store displays and presence.  Net loss attributable to the Company in the first quarter of 2014 was $(3.5) million, or $(0.12) per diluted share, based on 27.8 million diluted weighted average common shares outstanding. Net income attributable to the Company in the same quarter of the prior year was $(7.0) million, or $(0.25) per diluted share, based on 27.7 million diluted weighted average common shares outstanding.  Balance Sheet Highlights  As of March 31, 2014, cash and cash equivalents totaled $48.2 million compared to $38.8 million as of December 31, 2013. The Company continued to have no outstanding debt. Accounts receivable decreased 37% to $36.4 million as of March 31, 2014 from $57.5 million as of December 31, 2013, which is consistent with the seasonality of our business. Inventory increased 5.9% to $42.7 million as of March 31, 2014 from $40.3 million as of December 31, 2013.  2014 Second Quarter and Full Year Financial Outlook  For the second quarter of 2014, the Company currently forecasts net sales to increase between 5% to 7% over 2013 levels and net income on a GAAP fully-diluted basis to be approximately breakeven.  For the full year 2014, the Company still forecasts net sales to increase in the mid to high single digit percentage range over 2013 levels. The company now expects net income on a GAAP fully-diluted basis to be between $0.16 and $0.20 per share, up from its previous expectation of $0.10 to $0.14 per share.  Call Information  A conference call to discuss the first quarter of 2014 results is scheduled for today, May 1, 2014, at 4:30 PM Eastern Time / 2:30 PM Mountain Time. A broadcast of the call will be available on the Company's website, www.skullcandy.com. Analysts and investors can participate in the live call by dialing (877) 407-0784 or (201) 689-8560. In addition, a replay of the call will be available shortly after the conclusion of the call and remain available through May 8, 2014. To access the telephone replay, listeners should dial(877) 870-5176 or (858) 384-5517 and entering conference ID number 13581157.  About Skullcandy, Inc.  Skullcandy is the original lifestyle and performance audio brand inspired by the creativity and irreverence of youth culture. Skullcandy designs, markets and distributes audio and gaming headphones and other accessory related products under the Skullcandy, Astro Gaming and 2XL by Skullcandy brands. Skullcandy was launched in 2003 and quickly became one of the world's most distinct audio brands by bringing unique technology, color, character and performance to an otherwise monochromatic space; helping to revolutionize the audio arena by introducing headphones, earbuds and other audio and wireless lifestyle products that possess unmistakable style and exceptional performance. The Company's products are sold and distributed through a variety of channels in the U.S. and approximately 80 countries worldwide. Visit skullcandy.com, or join us at facebook.com/skullcandy or on Twitter @skullcandy.  Forward-Looking Statements  Certain statements in this press release and oral statements made from time to time by representatives of the Company are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. In particular, statements regarding the Company's anticipated future financial and operating results and any other statements about the Company's future expectations, beliefs or prospects expressed by management are forward-looking statements. These forward-looking statements are based on management's current expectations and beliefs, but they involve a number of risks and uncertainties that could cause actual results or events to differ materially from those indicated by such forward-looking statements. Important factors that could cause actual results to differ materially from expectations are disclosed under the "Risk Factors" section of the 2013 10-K filed with the Securities and Exchange Commission ("SEC") on March 14, 2014 and in any subsequent reports the Company files with the SEC. Readers are urged not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. The Company does not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.                            -Financial Tables Follow-  SKULLCANDY, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands of dollars, except share and per share information) (unaudited)                                                                                                                  Three Months Ended March 31,                                                  2014           2013 Net sales                                         $39,080      $37,050 Cost of goods sold                                20,917         20,564 Gross profit                                      18,163         16,486 Selling, general and administrative expenses      22,080         26,311 Income (loss) from operations                     (3,917)        (9,825) Other expense                                     170            539 Interest expense                                  11             103 Income (loss) before income taxes and             (4,098)        (10,467) noncontrolling interests Income tax expense (benefit)                      (706)          (3,387) Net income (loss)                                 (3,392)        (7,080) Net income (loss) attributable to noncontrolling  (71)           33 interests Net income (loss) attributable to Skullcandy,     $ (3,463)      $ (7,047) Inc. Net income (loss) per common share attributable                  to Skullcandy, Inc. Basic                                             $ (0.12)       $ (0.25) Diluted                                           (0.12)         (0.25) Weighted average common shares outstanding                       Basic                                             27,835,483     27,700,765 Diluted                                           27,835,483     27,700,765   SKULLCANDY, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands of dollars) (unaudited)                                                                                                       March 31,2014 December 31,2013 Assets                                                      Current assets:                                             Cash and cash equivalents                   $48,165       $38,835 Accounts receivable, net                    36,421          57,549 Inventories                                 42,680          40,284 Prepaid expenses and other current assets   4,642           4,663 Deferred taxes                              3,118           4,097 Total current assets                        135,026         145,428 Property and equipment, net                 9,745           10,021 Intangibles                                 9,910           10,979 Goodwill                                    13,867          13,867 Deferred financing fees                     212             224 Deferred taxes                              2,563           2,395 Total assets                                $171,323      $182,914 Liabilities and Stockholders' Equity                        Current liabilities:                                        Accounts payable                            $14,627       $16,565 Accrued liabilities                         14,234          22,838 Deferred taxes                              331             55 Total current liabilities                   29,192          39,458 Deferred taxes                              1,659           1,742 Stockholders' equity:                                       Common stock                                3               3 Treasury stock                              (43,294)        (43,294) Additional paid-in capital                  133,552         131,428 Accumulated other comprehensive income      (145)           (171) (loss) Retained earnings                           49,719          53,182 Total Skullcandy stockholders' equity       139,835         141,148 Noncontrolling interests                    637             566 Total stockholders' equity                  140,472         141,714 Total liabilities and stockholders' equity  $171,323      $182,914   SKULLCANDY, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands of dollars) (unaudited)                                                                                                                               Three Months Ended                                                           March 31,                                                           2014      2013 Cash flows from operating activities:                                Net income (loss)                                          $ (3,392) $ (7,080) Adjustments to reconcile net income (loss) to net cash               provided by operating activities: Depreciation and amortization                              2,260     2,176 Loss on disposal of property and equipment                 689       1,956 Provision for doubtful accounts                            175       550 Deferred income taxes                                      1,003     (4,076) Noncash interest expense                                   12        64 Stock-based compensation expense                           668       933 Changes in operating assets and liabilities:                         Accounts receivable                                        20,821    40,955 Inventories                                                (2,518)   (9,588) Prepaid expenses and other current assets                  (637)     1,993 Accounts payable                                           (1,690)   (5,336) Accrued liabilities                                        (7,804)   (7,699) Net cash provided by operating activities                  9,587     14,848 Cash flows from investing activities:                                Purchase of property and equipment                         (1,608)   (712) Net cash used in investing activities                      (1,608)   (712) Cash flows from financing activities:                                Proceeds from exercise of stock options                    1,728     22 Income tax benefit from stock option exercises             (274)     3 Net cash provided by financing activities                  1,454     25 Effect of exchange rate changes on cash and cash           (103)     8 equivalents Net increase (decrease) in cash and cash equivalents       9,330     14,169 Cash and cash equivalents, beginning of period             38,835    19,345 Cash and cash equivalents, end of period                   $48,165 $33,514 Supplemental cash flow information:                                  Cash paid for interest                                     $ —       $ — Cash paid for income tax                                   1,294     5,405                                 SKULLCANDY, INC.                              SEGMENT INFORMATION                                  (unaudited)  The North America segment primarily consists of Skullcandy and Astro Gaming product sales to customers in the United States, Canada and Mexico (through the Company's joint venture). The international segment primarily includes Skullcandy product sales to customers in Europe and Asia that are served by the Company's European and Asian operations. Included in the North America segment for the three months ended March31, 2014 and 2013, are net sales of $0.6 million and $2.1 million, respectively, that represent products that were sold from North America to distributors in other countries.                               Three Months Ended                              March 31,                              2014      2013 Net sales                               North America                 $29,039 $28,665 International                 10,041    8,385 Consolidated                  39,080    37,050 Gross profit                            North America                 13,652    12,455 International                 4,511     4,031 Consolidated                  18,163    16,486 Income (loss) from operations           North America                 (3,887)   (9,367) International                 (30)      (458) Consolidated                  $ (3,917) $ (9,825)  CONTACT: ICR          Brendon Frey / Joe Teklits          203-682-8200          Brendon.Frey@icrinc.com          Joseph.Teklits@icrinc.com