Garmin Manages Solid Growth Despite Fitness Wearables’ Downturn

Garmin, Ltd. noticed gross sales in its Fitness phase decline 28 p.c within the first quarter as a result of a normalization of demand for biking wearables from the pandemic-driven ranges within the prior yr, however positive factors for its Outdoor and Marine segments helped drive general progress within the interval.

Companywide, consolidated income of $1.17 billion grew 9 p.c over the prior yr’s quarter, simply above Wall Street’s steerage of $1.14 billion.

Fitness Segment Revenues Decline 28 Percent
In the Fitness phase, revenues fell to $220.9 million from $308.1 million a yr in the past. Operating revenue within the phase was almost break-even, at $580,000, down from $70.7 million a yr in the past. Gross margins eroded to 48.1 p.c from 56.3 p.c.

“All product classes declined, however the normalization of demand for biking merchandise was the primary contributor,” stated Cliff Pemble, president and CEO. He stated whereas income from health wearables declined on a mixed foundation, wearable machine income throughout all segments at Garmin skilled “sturdy progress.”

In the quarter, Garmin’s Fitness phase launched analysis from its Garmin Connect platform that confirmed the optimistic advantages of sleep when burdened and a hyperlink between modest exercise to decrease a resting coronary heart price.

Pemble stated, “We anticipated the primary half of the yr to be difficult for the Fitness phase as we evaluate towards the excellent efficiency of the prior yr. While the decline was higher than anticipated, we imagine these tendencies will reasonable within the again half of the yr as we transfer previous the pandemic swings of 2021 and profit from new product introductions.”

Fitness revenues grew 16 p.c year-over-year in 2021 to $1.53 billion after climbing 26 p.c in 2020.

Outdoor Segment Sales Climb 50 Percent
In the Outdoor phase, revenues within the first quarter climbed 50 p.c to $384.6 million,  as a result of demand for its journey watches. Gross and working margins have been 64 p.c and 39 p.c, respectively, leading to $149 million of working earnings, up 62 p.c from $92 million a yr in the past.

Said Pemble, “During the quarter, we introduced sweeping updates to our journey watch lineup, together with our flagship Phoenix 7 collection, that includes a particular new design with a touchscreen show and the Instinct 2 collection out there in two sizes, together with variations that may function indefinitely utilizing our unique solar energy expertise. We additionally introduced the all-new Epix with a vivid, AMOLED touchscreen show and class-leading battery life, as much as 16 days. We imagine there’s sturdy demand for these new merchandise and different classes on this phase can be a progress driver for the rest of the yr.”

Outdoor revenues grew 14 p.c year-over-year in 2021 to $1.28 billion after climbing 23 p.c in 2020.

Marine Segment Revenues Expand 33 Percent
In the Marine phase, income elevated 21 p.c to $254 million within the first quarter. Gross margins within the phase dropped to 50.6 from 58.0 p.c a yr in the past, leading to working earnings of $59 million, down 6.2 p.c from $62.9 million a yr in the past.

“We skilled broad-based progress throughout a number of product classes, led by chartplotters,” stated Pemble. “LiveScope has confirmed to be a halo expertise for Garmin. And the brand new LiveScope plus sonar system raises the bar with larger decision pictures and improved goal separation. We proceed to see sturdy demand for our marine merchandise and LiveScope plus builds on this momentum. We imagine it is a optimistic indicator of progress for the rest of the yr.”

Marine revenues grew 33 p.c year-over-year in 2021 to $875.2 million after climbing 29 p.c in 2020.

In its two remaining segments, gross sales within the first quarter grew 1 p.c within the Aviation phase to $174.8 million and climbed 11 p.c within the Auto phase to $1383 million.

Gross margin efficiency negatively impacted Garmin’s companywide earnings, which declined as a result of traditionally excessive freight prices mixed with the strengthening of the U.S. greenback. In addition, working bills elevated for numerous causes, together with larger worker headcount, elevated compensation prices and the rise of sure operational bills as enterprise actions continued to normalize.

Net earnings within the quarter slipped 3.8 p.c to $211.6 million, or $1.09, from $220.0 million, or $1.14, a yr in the past. On a proforma foundation, earnings fell 5.5 p.c to $214.7 million, or $1.11, from $227.3 million, or $1.18, a yr in the past. Wall Street’s consensus estimate had been $1.10.

Gross margin was 56.5 p.c, a 330 foundation level lower within the prior quarter due primarily to larger freight prices. Operating expense, as a share of gross sales, was 37 p.c, a 50 foundation level enhance. Operating earnings was $229 million, an 8 p.c lower. Operating margin was 19.5 p.c, a 300 foundation level lower.

“We carried out very nicely through the quarter,” stated Pemble. “Despite a mixture of outdated and new headwinds, provide chain constraints persist, which restricted the orders we might fill. Russia’s invasion of Ukraine created an unthinkable humanitarian disaster and additional sophisticated the worldwide financial outlook. Despite these challenges, demand for our merchandise stays sturdy, and we’re optimistic concerning the future.”

Garmin maintained its steerage first issued in February, calling for consolidated income of $5.5 billion and EPS of $5.90 a share.

Pemble stated, “Regarding our outlook for the remainder of the yr, I discussed a number of new and present headwinds we face, and we can’t predict the influence these may need on the enterprise. Also, the primary quarter represents the bottom seasonal quarter of our monetary yr, and far of the yr stays forward of us.”

Photo courtesy Garmin