Lower CE Sales Hit Q4 Results at Audiovox
Continued weakness in consumer discretionary spending impacted Audiovox’s fiscal Q4 2011 accessory sales, which were down as a share of net sales by 5.8 percent over fiscal 2010, the company said in its Q4 2011 earnings call Tuesday. “Sales of consumer electronics industry-wide remain lower, and our accessory products are largely attachment to CE sales,” said CEO Patrick Lavelle. Accessory sales results were largely due to sales declines in clock radios, camcorders, voice recorders, and antennas, which had been “positively impacted” in 2010 by the digital TV transition, according to Vice President Michael Store. Higher OEM sales and gains in mobile video and mobile security were offset by lower sales in the company’s fulfillment group, including the defunct Flo TV, satellite radio and portable DVD, he said. Overall Q4 2011 sales were $138 million versus $150 million in the comparable fiscal 2010 period, he said.
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Fiscal-year category trends tracked with the quarter, with accessory sales down, while mobile and international groups continued to show improvement, Lavelle said. Net sales for fiscal 2011 were $561.7 million compared with $550.7 million in fiscal 2010, up 2 percent, said Store. Audiovox is continuing its shift away from lower-margin products, Lavelle said. Gross margins for Q4 were 25.1 percent compared with 20 percent for Q4 F2010, he said. Lavelle said the company is on track, despite a blip during the recession, to continue a strategy it put in place in 2005 when it sold its cellular business to raise cash to buy companies “that would provide higher margins and distribution into new channels.” When Audiovox sold its cellular business, it was a $1.8 billion sales company with an infrastructure built to support that volume, Lavelle said. The company restructured overhead to match inventory with current sales, and through acquisitions it has re-tooled its product lines and “exited many lower-margin products,” he said. Consolidated gross margins at the end of fiscal 2004 were 7.8 percent, and today they're above 22 percent and expected to reach 25 percent this fiscal year, he said.
The purchase of Klipsch on March 1 was a continuation of that strategy, making the company the largest loudspeaker company in the world, Lavelle said. “Our patience has paid off” with the acquisition of Klipsch, he said, “which offers direct manufacturing in the U.S. and distribution into the CEDIA and commercial channels. He noted that high-end audio, although sold by big-box retailers as well is dominated by independents and custom installation specialists.
The company identified the high-margin accessories market as a target several years ago and as a result of acquisitions of companies including RCA and Terk, “We are a dominant global supplier in that space,” Lavelle said, growing the business from “essentially nothing in 2005” to what it projects will be $240 million worldwide in fiscal 2012. Its mobile OE business in 2005 was $20 million, and the company expects fiscal 2012 sales of $115 million as a result of projects with GM, Ford, Toyota, Chrysler, VW, Nissan, Kia, Porsche, and Bentley, he said.
Audiovox today is “a different company than we were a few short years ago, and is positioned well” for the long term, Lavelle said. The company projects $730 million in sales in fiscal 2012, tempered by a warning on various economic concerns including “the continued slow recovery at retail,” the surge in oil prices and commodities, China labor costs and the weaker dollar. “We have restructured, retooled and survived a devastating recession,” Lavelle said.