Logitech International S.A. (LOGI)
F3Q2012 Results Earnings Call Transcript
January 26, 2012, 8:30 a.m. ET
Joe Greenhalgh - VP IR and Corporate Treasurer
Guerrino De Luca - Chairman, Acting President and CEO
Erik Bardman - SVP - Finance and CFO
John Bright - Avondale Partners
Stefan Gachter - Helvea
Andy Hargreaves - Pacific Crest
Rob Lamb - Citigroup
Michael Foeth - Bank Vontobel
Michael Studer - Bellevue
Joern Iffert - UBS
Tavis McCourt - Morgan Keegan
Zahid Hussein - Citi
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I would now like to introduce today’s host, Mr. Joe Greenhalgh, Vice President of Investor Relations and Corporate Treasurer at Logitech. Please proceed sir.
Welcome to the Logitech conference call to discuss the company’s results for the third quarter ended December 31, 2011. The press release, our prepared remarks and slides, and a live webcast of this call are available online at logitech.com.
As noted in our press release, we have published our prepared remarks on our website in advance of this call. Those remarks are intended to serve in place of extended formal comments, and we will not repeat them on this call.
During the course of this call, we may make forward-looking statements, including forward-looking statements with respect to future operating results that are being made under the Safe Harbor and the Securities Litigation Reform Act of 1995. The forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those anticipated in the statements.
Factors that could cause actual results to differ materially include those set forth in Logitech’s Annual Report on Form 10-K dated May 27, 2011, and subsequent filings which are available online on the SEC EDGAR database, and in the final paragraph of the press release and prepared remarks, reporting third quarter results available at logitech.com.
The forward-looking statements made during this call represent management’s outlook only as of today, and the company undertakes no obligation to update or revise any forward-looking statement as a result of new developments or otherwise. This call is being recorded and will be available for replay on the Logitech website.
Joining us today is Guerrino De Luca, Chairman and acting President and Chief Executive Officer; and Erik Bardman, Senior Vice President of Finance and Chief Financial Officer.
I’d now like to turn the call over to Guerrino
Guerrino De Luca
Our Q3 results were consistent with the finding from the assessment of our business that we completed earlier last fiscal year. The most significant inhibitor through higher sales continues to product gaps across all of our retail product categories, particularly in the high-end, where we do not enough compelling offering to drive up sell.
One metric says it all; last quarter products rise above $100 represented just 16% of our retail sales. That figure was 24% one year ago.
Despite the general weakness of our offering in the high-end, many of our categories are performing well in the midrange and the low end, as demonstrated by the 8% year-over-year growth in unit shipment of our retail products in Q3.
The product gaps are particularly noticeable in the remote category. The remote that generated the highest sales in Q3 was the Harmony One; a product that we launched four years ago.
As successful as the Harmony One has been during that time, we are late to bring our next generation high-end remote to market. The biggest reason for this was a shifting of our digital home resources away from Harmony to bring Logitech Revue our Google TV box to market last year, during the timeframe when they normally would have been developing a replacement for the Harmony One.
We are making good progress on it now, and we will fill the gaps in our remote lines with the innovative offerings that we’ll ship during fiscal 2013.
Unlike remotes, the webcam category is one where we have consistently refreshed our product lineup during the last several years. However, some of these products have missed the mark, due to shifting consumer preferences.
Many consumers find the embedded webcam experience adequate for their video calling needs. Our product development focus has recently shifted to enabling experiences that cannot be easily achieved with an embedded webcam.
Let me turn now to digital music. Our large and growing market that is increasingly driven by the mobility lifestyle. As I have said before, we did not take advantage of this trend for a long while, given our focus on PC speakers and sound quality at the expense of mobility, convenience and frankly coolness. We have retargeted our product roadmap accordingly.
In the second half of Q3 we launched the first of our new digital music product, the Logitech’s Mini Boombox. We are pleased with the initial response to this mobile speaker and speakerphone combo priced at under $100. There is more to come in fiscal 2013.
While not yet fully visible in our results, I am pleased to report improved execution across many aspects of our business. One indicator was our Q3 gross margin of 36.2%, which reflected both supply chain efficiencies as well as the benefit of improved margins on a number of products.
Speaking of products, I am also pleased with the progress of the new product initiatives we’ve put in place over the past several months, both for the retail and enterprise market.