Voxx Quarterly Sales Lower Than Expected; Chip Shortages Persist

The company’s Q2 loss widened to $10.9 million from $692,000 in the year-ago quarter. Gross margin was 23.3% vs. 26%, Voxx said. Conditions in Q2 “were weaker than anticipated,” Lavelle said, citing “geopolitical shocks,” continuing impact from COVID-19 and inflation rates that “we have not seen in decades,” which have driven up business costs for companies and retail prices for consumers.

Voxx went into the quarter “knowing it would be a difficult year” due to continued supply chain issues, inflation and fears of a recession, Lavelle said. Though the company planned for first-half weakness based on chip availability, OEM customers' production schedules and lower inventory purchases by retailers, “global economic conditions worsened which led to a decline in discretionary spending and retailers taking further action to mitigate risk,” he said.

CE sales were $88 million vs. $97 million in the prior-year quarter. Voxx's Premium Audio product sales dropped to $69.2 million from $76.1 million; other CE product sales were $18.8 million, down from $20.8 million. Lavelle attributed the decline in Premium Audio sales to lower domestic sales of premium home theater, wireless speakers and sound bars, along with lower European sales, due to supply chain constraints chip shortages, plus a decline in consumer spending. Higher sales of Onkyo and Pioneer products and the company’s PAC Australia subsidiary helped offset CE declines.

The year-over-year decline in other CE product sales was primarily due to economic conditions globally, Lavelle said. “All nonessential leisure products are feeling the pinch -- TVs, gaming systems, video systems and laptops, to name just a few,” he said. “Our major retailers have lowered their levels of inventory carry because of lower sell-through and the fact that they know that the supply chain is full and they can avail themselves of product quickly.”

Voxx expects to be profitable in the second half, said Lavelle, based on resuming automotive shipments to Stellantis, new programs coming online and an improved inventory situation with holiday products after missing some sales last year due to supply chain disruptions. Second-half sales will depend on what happens with the economy and “how strong does the consumer feel going into the holiday season," he said.

Based on first half results and customer projections for second half, Voxx took “significant actions over the past few months to cut costs across the board,” Lavelle said. He estimated actions involving “operational improvements” and expense reductions totaling about $16 million covering “freight surcharges, vendor reductions, container reductions, patent expirations, terminations, executive and board pay cuts and more,” he said. Not all actions will be permanent, he said.

Expanding on cost-cutting moves in Q&A, Lavelle said $9 million of the $16 million were in savings, $7 million in “improvements.” He cited furloughs, terminations and bonus reductions, “senior executive and board pay cuts” and cuts to third-party partner expenses, shows and travel. The company put in freight surcharges to offset higher freight charges, he said.

On whether any operating segments were spared budget cuts, Lavelle said Voxx has been very careful not to cut engineering “because we have a number of launches that are in front of us in [fiscal] 2024 that we have to meet.” Budget cuts were in areas where “we can maintain our ability to operate and our ability to meet the launch dates that our customers expect.”

Voxx does business with “some of the biggest retailers in the world,” Lavelle noted, saying "they all missed their numbers," coming out of Q1 and dramatically cut back inventories. “They were selling through merchandise but not reordering,” he said. “Their mantra was to bring down the overhead of inventory they’re carrying and that they’ve worked on for the better part of this year.” Management believes consumers “still have money,” and retailers will have to reorder to hit holiday sales targets. Stocking levels are better than in the past two years, Lavelle said: “If they need it, they can order it and they’ll get it.”

Sales in Voxx’s automotive segment plunged 18.7% to $37.2 million, with OEM product sales accounting for $16.4 million due to chip and parts shortages that hampered production, Lavelle said. Aftermarket sales suffered due to lower car inventory on used car lots, he said. The company posted revenue of $300,000 for its biometrics unit, a slight year-on-year increase, he said.

Chief Financial Officer Michael Stoehr said Voxx has new retail customers, new OEM programs and “many new products either in market or under development” along with the inventory on hand, or in transit, to meet customer needs in the second half. Voxx increased its inventory carry over the year “to ensure we have what we need, and we’ll continue to diligently manage the supply chain to optimize capital resources.” The company's biggest obstacle is “the economy and the current global environment," he said.