Logitech International , S.A. (LOGI)
F1Q2 2013 Earnings Conference Call
October 25, 2012 08:30 a.m. ET
Mr. Joe Greenhalgh – VP of Investor Relations and Corporate Treasurer
Guerrino de Luca – Chairman & CEO
Bracken Darrell – President
Erik Bardman – SVP of Finance & CFO
Alexandre Peterc – Exane BNP
John Bright – Avondale Partners
Simon Schäfer – Goldman Sachs
Andrew Gardiner – Barclays
Tavis McCourt – Raymond James
Corey Barrett – Pacific Crest
Paul Coster – JP Morgan
Andrew Humphrey – Morgan Stanley
Andreas Mueller – Zurcher Kantonalbank
Maria Ancupova – AKO Capital
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I’d now like to introduce your host for today’s call, 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 second quarter ended September 30, 2012. The press release, our prepared remarks and slides and the 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 of 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 30, 2012 and subsequent filings, which are available online on the SEC EDGAR database, and in the final paragraphs of the press release and prepared remarks reporting second 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 statements 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 are Guerrino de Luca, Chairman and Chief Executive Officer; Bracken Darrell, President; 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
Thanks, Joe, and thanks to all of you for joining us today. The recent significant slowdown in the PC market took a toll on our sales in Q2. Sales in all of our PC-related retail product categories were below our expectations, and the category with the largest shortfall was pointing devices.
We believe the lower than anticipated sales in our PC-related categories were significantly influenced by the deteriorating condition in the global PC market, and it is increasingly clear that our pointing device category is the one most correlated with new PC sales at this point.
I must say I was quite pleased with the quality of our execution during Q2. In spite of the 7% decline in our sales compared to the prior year, we delivered slightly more operating income. And the primary driver of our improved leverage was the 210-basis-point increase in our gross margin, which reflected several operational improvements and more than offset the negative impact of a weaker euro.
We continued to execute per plan with our new product launches with the release of compelling new products for tablets, smartphones, digital home, Mac and Windows 8 in time for the holiday season. I’m excited about all of our new products, and let me highlight a few of them for you now.
As part of the late Q2 rollout of our line of Logitech UE music products, we launched the Logitech UE Mobile Boombox and ultra portable speaker that connects to aptitude smartphones or tablets at the same time to play and control music wirelessly from up to 15 feet away.
The Logitech UE Mobile Boombox sets a new price performance level in the emerging wireless speaker category. We decided to make our new Logitech UE operating initially available primarily through the Apple stores.
Distribution will expand significantly as we progress through the current quarter and beyond. We are now been lining up our products specifically designed to work with the Windows 8 touch interface including two touch enabled mice and a wireless touch pad.
We introduced our Logitech Broadcast Wi-Fi webcam which provided the flexibility to do more than other webcams including live streaming and shooting professional great videos from different perspectives. We also recently revised our Harmony remote offering with the Harmony touch, our first new IN Harmony in several years.
This is to say that our plan of revitalizing our product portfolio is on track. We are focused on large non-PC related categories as well as on preparing to take advantage of the major discontinuity in PC navigation brought by Windows 8.
Speaking of products, we are very pleased with the sales of our outlook in key cover, which includes a protected cover for the I-Pad screen as well as a built in keyboard that prepares via Bluetooth. This feature list does not do justice to the appeal of this product. It was our best selling product by far in Q2, all categories included and demand continues to be quite strong as we enter the holiday selling season.