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Skullcandy Reports Third Quarter 16% Net Sales Growth

PARK CITY, Utah, Nov. 5, 2015 (GLOBE NEWSWIRE) -- Skullcandy, Inc. (NASDAQ:SKUL) today announced financial results for the third quarter ended September 30, 2015.

Third quarter 2015 reported results versus the same quarter a year ago

  • Net sales: $67.2 million vs. $58.1 million, up 16% (up 19% currency neutral)
  • Gross margin: 41.0% vs. 45.3%, down 430 basis points (down 272 basis points currency neutral)
  • Selling, general and administrative expense (SG&A): $24.5 million vs. $22.7 million, up 8%
  • SG&A expense as a percent of net sales: 36.4% vs. 39.2%
  • Operating income: $3.1 million vs. $3.6 million, down $0.5 million (up 29% currency neutral)
  • Earnings per share $0.08, up 8% (up 29% currency neutral)

"Our third quarter performance was highlighted by twenty two percent net sales growth in the U.S. and fourteen percent constant currency net sales growth in our international markets. Our product innovation, demand creation and distribution strategies are resonating with Skullcandy (SKUL) and Astro consumers around the world," said Hoby Darling, President and Chief Executive Officer. "Our deep relationship with our consumer, coupled with our ability to be nimble and quick to market allows us to serve our consumer innovative and creative products that align with current trends. Our new Skullcandy wireless ear buds and headphones are a great example and an awesome addition to our existing product lineup that already includes several of the best-selling styles at retail. Strong sell-through of our new wireless products and increased year over year sales of our traditional wired products contributed to Skullcandy being the number one chosen headphones in the US for the fourth consecutive quarter. At the same time, Astro continues to dominate the high end of the gaming market with its leading portfolio of next-generation compatible headsets that now include Halo 5 and Call of Duty licensed editions. We remain very confident in the strategic course that we have set for the Company."

Net sales in the third quarter of 2015 increased 16% to $67.2 million from $58.1 million in the same quarter a year ago, or an increase of 19% on a currency neutral basis. Domestic (U.S.) net sales increased 22% to $47.0 million from $38.5 million in the same quarter a year ago, due to increases in both Audio and Gaming categories. International (Non U.S.) net sales increased 3% to $20.2 million from $19.5 million in the same quarter a year ago, or an increase of 14% on a currency neutral basis, primarily due to increased audio product sales in India, Australia, China and increased gaming product sales in Europe.

Gross profit in the third quarter of 2015 increased 5% to $27.6 million from $26.3 million in the same quarter a year ago, or an increase of 12% on a currency neutral basis. Gross margin decreased to 41.0% in the third quarter of 2015 from 45.3% in the same quarter a year ago primarily due to approximately 160 basis points of negative foreign currency effects and product mix shift towards generally lower margin wireless and gaming products.

Selling, general and administrative (SG&A) expenses in the third quarter of 2015 increased 8% to $24.5 million from $22.7 million in the same quarter a year ago, or an increase of 10% on a currency neutral basis. The increase in SG&A expenses is primarily due to increases in demand creation, research and innovation, personnel, and in-store display depreciation expenses, partially offset by a decrease in foreign sales tax. As a percentage of net sales, SG&A expenses decreased 280 basis points to 36.4% as compared to 39.2% in the same quarter a year ago.

Operating income in the third quarter of 2015 was $3.1 million compared to $3.6 million in the same quarter a year ago, but was up 29% on a currency neutral basis. This slight decrease in operating income is due to a lower gross margin percentage and increased SG&A expenses to fund future growth, partially offset by net sales.

Net income in the third quarter of 2015 was $2.3 million, or $0.08 per share, based on 28.8 million weighted average diluted common shares outstanding. Net income in the same quarter a year ago was $2.1 million, or $0.07 per share, based on 28.5 million weighted average diluted common shares outstanding. On a currency neutral basis, net income increased 30%.

*"Currency neutral basis," assumes the foreign exchange rates in effect for the three months ended September 30, 2015 were in effect for the three months ended September 30, 2014 and that neither period receives the effect of foreign currency related income or expense. See the supplemental financial information for additional information regarding currency neutral basis.

Balance Sheet Highlights

As of September 30, 2015, cash, cash equivalents, and short-term investments totaled $13.9 million compared to $36.6 million as of December 31, 2014. This decrease mostly reflects the Company's implementation of accelerated payment programs with certain contract manufacturers that began during the second quarter of 2015. In part due to the accelerated payment programs, our Accounts Payable and Accrued Liabilities decreased $11.6 million and $10.4 million from December 31, 2014 to September 30, 2015, respectively. The Company expects to realize product cost reductions and gross margin benefits as a result of such accelerated payment programs. Furthermore, the decrease in cash, cash equivalents, and short-term investments was also due to payments for in-store displays that were placed into service. The Company continued to...


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