Logitech Cautious on 2nd Half Revenue Outlook in 'Choppy' Market

Logitech shares fell more than 10% Tuesday morning after the company’s fiscal Q1 report reflecting a cautious revenue outlook and weaker gross margins. The company maintained a fiscal year outlook of flat sales growth in constant currency, “plus or minus five percent.” Shares closed 10.3% lower Tuesday at $108.45.

Revenue in second half of FY 2021 grew 100%, said Chief Financial Officer Nate Olmstead on an earnings call, calling it a “tough compare.” Market choppiness due to COVID-19 unknowns are making six-month predictions difficult, he said. “We’re going to have inventory available to grow faster if the opportunity’s there,” Olmstead said: “We’re going to pull back hard if things slow down.” He noted Europe “looked like it was on path to reopen strongly, and unfortunately it’s had to take a pause,” a scenario that’s also playing out in parts of the U.S.

On back-to-school sales, Olmstead said Logitech would typically have higher revenue in Q2 than in Q1, but this year “seasonality is out the window.” BTS season was strong last year, and Logitech is prepared for a strong BTS season this year, “but I think we have to see how that plays out. Compared to prior years, I’m not really counting on typical seasonality for a lot of things,” said the executive. Logitech plans to raise its promotional spend for holiday season and expects a sales boost from high-profile sales events.

Logitech's Q1 revenue increased 66% to $1.31 billion for the quarter ended June 30, said the company, which had growth across most categories as it benefited from COVID-19 work-at-home and entertainment trends. Computer webcam sales jumped 73% in Q1 year on year after doubling a year ago, it said. Keyboards and combo sales were up 44%, video collaboration sales grew 72% and gaming was up 76%, it said. Wearables grew 57% on strong mic and retail headset sales and double-digit Jaybird earbud sales.

Mobile speakers continued their decline, falling 5% in the quarter as Logitech continues to “redeploy our investments to other growth market opportunities.” Smart home sales fell 12%. The company ended production of Harmony remotes and expects the category to decline again in Q2.

Higher transportation costs led “headwinds” that Olmstead said will lead to a decline in gross margins over the next few quarters. Though air freight levels are expected to decrease this year, they remain at historically high levels; at the same time ocean freight rates have jumped 40%-50% on the spot market, Olmstead said. “While ocean is still a lot more attractive than air, those rates have gone up from their historic levels, too.”

On industrywide components shortages, Olmstead cited a “tough environment” and said Logitech will work off a strong balance sheet “to secure components where we can” and “build up those buffer stocks” so it can deliver product globally. The company has “good availability now” and believes it has a competitive advantage. Inventory includes a mix of finished goods and components in distribution centers ready to be shipped, he said.

Logitech hasn’t raised prices and doesn’t have immediate plans to, said CEO Bracken Darrell, saying some costs of shortages could be temporary, “so we'll see.” To help offset higher logistics costs, the company is focusing on expanding in categories with higher margin profiles, including software, Olmstead said.

Darrell noted the wide range of reopenings and pullbacks due to the pandemic. “It’s choppy around the world,” he said, “and it will stay highly uneven for some time.” He said cultural and technological trends born from the pandemic will continue, including videoconferencing, work-at-home and user-generated content. Bracken commented on Logitech’s ability to identify future trends and address them by entering categories and creating innovative products. The company is the market leader in more than half the categories it’s in today, though it wasn’t present, or had little presence, in over half the categories a decade ago, he said.

Bracken announced that Vice President-Finance Ben Lu is leaving the company to take a chief financial officer position at another firm. That company will make an announcement soon, he said.