Image source: Skullcandy.
(NASDAQ: SKUL) reported its second-quarter results after the
market close on Aug. 9. The company agreed to be acquired by
Incipio Group in June, a move that will allow Skullcandy to
continue its turnaround efforts without the pressures of being
publicly traded. The second quarter was lackluster for the
company, with revenue declining and higher costs leading to
losses. Here's what investors need to know.
Skullcandy: The raw numbers
Earnings per share
Data source: Skullcandy Q2 earnings report.
What happened with Skullcandy this quarter?
Various headwinds negatively affected Skullcandy's results
during the second quarter.
- Ongoing problems in China and retailer bankruptcies hurt
- International sales dropped 10% year over year to $16.7
million, due mostly to decreased sales in China.
- Gross margin decreased 160 basis points to 41.1%, also due
to problems in China.
- While sales declined, operating costs increased, knocking
down profitability. SG&A expenses rose 9% year over year,
with the company blaming costs related to its acquisition,
retailer bankruptcies, litigation, personnel-related expenses,
demand creation, and research and innovation expenses.
Skullcandy didn't provide an outlook for the third quarter or
the full year.
What management had to say
Skullcandy CEO Hoby Darling tried to emphasize the
We are pleased with our second quarter results. The success
we saw with our brands in a challenging retail environment is a
testament to the consumer focus and passion of our team. For
the Skullcandy brand, we saw significant strength in our
largest domestic accounts led by our expanded wireless
portfolio which helped fuel sell-through at a rate that
exceeded the overall headphone market according to NPD.
Wireless is the future of audio and the Skullcandy brand is
winning. For the Astro Gaming brand, we continue to experience
strong growth and expect the fall launch of the new A50 headset
to set the standard for the best console gaming headset in the
market. While our overall Company results were hampered by some
temporary headwinds including the ongoing clean-up of
our China region and several retailer bankruptcies
around the world, we are excited as a team to be on full
When Skullcandy's acquisition by Incipio was announced in
June, Darling praised the move:
We are excited to be joining forces with Incipio
Group as we believe it's in the best interests
of Skullcandy and our shareholders. The combination
of our two companies allows us to better serve our consumers
and retailers with focused, best-in-class products in multiple
categories. We share a common culture, vision and commitment to
driving innovation and this merger will allow our two teams to
amplify their efforts going forward. Also, importantly, we
remain deeply committed to our teams, retail partners,
ambassadors and community.
Skullcandy originally accepted an acquisition offer from
Incipio for $5.75 per share, but a better offer from Mill Road
Capital Management led Incipio to increase its offer to $6.10 per
share. Skullcandy's board of directors is recommending that
shareholders accept the new offer and tender their shares.
Skullcandy's acquisition comes at a time when the company is
struggling with a variety of issues. While investors are getting
a hefty 37% premium over the stock's closing price on June 22,
the offer price is far lower than the $11 per share that
Skullcandy stock traded for in early 2015. With a choice between
continuing its turnaround efforts as a public company or
combining with Incipio, Skullcandy is throwing in the towel and
taking the deal.
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