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Roth Capital Maintains Buy On Skullcandy Following 2Q14 And Full Year EPS Guidance

In a research report issued today, Roth Capital analyst Dave King reiterated coverage with a Buy rating on shares of Skullcandy (SKUL) and a $10 price target, following SKUL’s 2Q14 and full year EPS guidance, which exceeded expectations on higher gross margin and continued expense savings.

King noted, “With a strong balance sheet and renewed focus on brand, Skullcandy is now seeing positive traction in several areas, while benefiting from a trend back toward higher-margin in-ear headphones”.

The following bullets contain some highlights from the report:

  • 2Q14 EPS of $0.06 came in above our breakeven estimate and consensus of $0.01, driven by lower expenses, higher gross margin, and a lower tax rate. Revenues grew 6% YOY to $53.9M, slightly above our $53.3M estimate and in-line with consensus, driven by similar growth both domestically and internationally.
  • Management guided 3Q14 revenue up 7%-9% YOY to ~$53.5M-$54.5M, above our $53.0M estimate and in-line with consensus of $53.9M, while maintaining full year sales guidance. This assumes continued international growth, increased distribution, and product category expansion. Management raised 2014 EPS guidance by $0.06 to $0.22-$0.26, above our $0.15 projection and consensus of $0.19.
  • Gross margin improved 10bps YOY to 45.0%, ahead of our 44.5% projection, primarily due to a better product mix and reduction in sales to off-price international channels. Core SG&A expense fell 4.3% YOY to $22.9M, below our $23.5M projection due to lower personnel costs, licensing royalties, co-op retail spending and delayed marketing spending for subsequent quarters. For the year, management continues to see expenses trending lower as a percentage of sales toward 40%.

According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform analyst Dave King has a 3.1% average return and a 31.8% success rate. King has a 0.1% average return when recommending SKUL, and is ranked #1564 out of 3195 analysts.

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