B&O Says Accessories Will One Day Overtake Luxury TV Salesby
Play segment now makes up 43 percent of group’s revenue
Shares rise to highest in 6 years as new products drive profit
Bang & Olufsen predicted it will eventually book the majority of sales from more affordable headsets, portable speakers and computer-sound technology instead of the sleek, black and metal stereo systems and $10,000 TVs on which it built its luxury reputation.
B&O Play, which produces accessories and tuning software used in PCs and laptops, generated 43 percent of the group’s revenue last quarter, compared with 57 percent for the Bang & Olufsen segment, the Danish company said Friday. Play is expected to expand as much as 30 percent in the 12 months ending May 31, versus the “low single-digit” growth seen in the main segment.
“We used to be a company that had the Bang & Olufsen segment as our main business and the B&O Play business as a start-up, but now we’re at a stage where both are significant in size,” Chief Executive Officer Henrik Clausen said in a phone interview. “Pure mathematics indicate that over time the two business units will become equal in size and, if the development continues, B&O Play will become the relative largest.”
The Danish consumer electronics manufacturer has manged to turn the corner just in time away from static, big and expensive stereos and TVs to more nimble products like portable speakers, harnessing the cachet of the B&O brand while making it affordable to a broader range of consumers. Sales plunged abruptly after the financial crisis at B&O while revenue from the Play range, introduced in 2012, has been growing rapidly in recent years.
The success at B&O Play, combined with new luxury products that enticed top earners back into its stores, led Bang & Olufsen to a pretax profit of 31 million kroner ($4.4 million) in the fiscal second quarter compared with a loss of 23 million kroner a year earlier. The company forecast a 15 percent sales increase this year. The shares soared as much as 13 percent to the highest level in more than eight years.
“Transforming sales to profit has been the company’s Achilles heal for a long time,” Morten Imsgard, an analyst at Sydbank, said by phone. The second-quarter results “show that the company’s efficiency plans are working.”
The shares traded up 8.7 percent at 93.50 kroner as of 3:20 p.m. in Copenhagen, after touching their highest since October 2008.
B&O launched new TVs in August -- BeoVision 14, which costs as much as $11,500 for the biggest model with all the fixings, and BeoVision Horizon. (One of the company’s most expensive TVs, the BeoVision Avant, costs more than twice that.)
“It very important for B&O to keep introducing new products,” Imsgard at Sydbank said. “B&O’s sales always plunge when they fail to update their portfolio with new products and it’s tough for them to regain ground. Customers in this segment don’t want to buy luxury TVs that have been on the market for many years, they want something new.”
B&O’s revenue rose to 867 million kroner ($124 million) in the second quarter from 729 million kroner a year earlier, the company said on Friday. It had earnings before interest and tax of 37 million kroner, compared with a 14 million-krone loss the previous year. Management also clarified its full-year outlook, telling investors that sales will rise as much as 15 percent this fiscal year.
B&O became the target of a takeover speculation last year, when Chinese billionaire Qi Jianhong bought up roughly one-fifth of the company. The Danish company said in April it had terminated talks with Qi after failing to reach a formal agreement. Qi remains B&O’s largest shareholder.
“We have a major shareholder and he’s also represented on the board,” Clausen said. “There’s no direct involvement in the daily operations.”
The CEO said his focus is to make sure the company “can have a future as an independent Bang & Olufsen.”
“It’s always flattering that people think we’re interesting but it’s not something that I’m focusing on as I’m concentrating on developing the company,” he said.