Logitech 'Chasing Supply,' but Maintains Full-Year Outlook

“It’ll be an interesting holiday for a lot of companies,” said Logitech Chief Financial Officer Nate Olmstead on a fiscal Q2 earnings call Tuesday. Olmstead cited “tightness” in supply at the store level and said companies need to “make sure they can get on shelf,” in response to an analyst question on manufacturers' ability to meet demand in the holiday quarter. Q2 ended Sept. 30.

“We’re not immune to supply challenges,” Olmstead said. “We have good stock and supply -- our channels are at good levels -- but there are some products where we’re chasing components and chasing supply,” he said. Demand during the holiday “can be rather perishable,” he said, because of the need to meet specific dates. “We need to make sure that we can fulfill all the demand that we see.” He wouldn’t specify which categories could experience shortages.

In the quarter, Logitech took a percentage point hit to gross margin from a rise in ocean freight costs, Olmstead said, saying he expects that to continue through the fiscal year. The company reduced the amount of air freight it used as costs increased, “but the air freight rates have gone up such that we haven’t seen a real benefit from the reduction in air freight volume.” The company incurred additional costs for ocean freight, he said, saying transportation has been a “headwind since March.”

CEO Bracken Darrell said Logitech has managed supply chain challenges “well” throughout the pandemic but “is not immune to their effects.” The company continues to “proactively manage” the supply chain but expects “ongoing headwinds from higher logistics costs and prolonged delays and challenges of component availability.” The company believes its long-term relationships and wholly-owned production facility “should help us remain competitive in the current unprecedented supply-chain environment.”

Q2 gross margin was 42%, down 370 basis points from “last year’s elevated levels,” Olmstead said. That was expected, he said, and he sees gross margin remaining below current levels over the rest of this fiscal year, citing component and freight cost hikes. He also cited higher promotional spending this year over last that is “still below historical levels.” The company will continue to invest in retail point-of-sale marketing, which was minimal last year due to store closures and supply shortages.

In Q2, sales of video collaboration tools, a primary target for future growth at Logitech, dropped 4% year on year; sell-through grew double digits in all regions, it said. Darrell cited Frost & Sullivan figures saying just 8% of 90 million enterprise meeting rooms worldwide are video-enabled: “We’re working to change that.” Logitech expects growth in video collaboration sales for remote teaching and hybrid work opportunities.

Logitech’s pointing devices revenue grew 10% year on year and keyboards were up 15%, said the company. PC webcams dropped 9% vs. Q2 2020, but were more than triple the sales of the 2019 quarter. Sell-through rose year on year and the company grew share in the category by over 10 points over the last three months, it said. Sales of tablet accessories declined 3%.

Mobile speaker sales sank 11% in the quarter, as part of a planned pullback from the category to “reallocate our resources to faster growing market opportunities.” Audio and wearables dropped 15% vs. “very strong growth” in 2020. The company expects similar results for the second half. Smart home sales plummeted 35% year on year as Logitech discontinues production of Harmony remote controls.

Operating expenses increased 46% to $363 million on investment in marketing, sales coverage and product development. R&D spending grew 29% as the company secured new sources for constrained components and expanded engineering resources to support hardware and software development, it said. Q2 revenue grew 2% to $1.3 billion. The company reaffirmed its FY 2022 outlook of flat sales of plus or minus 5%. The stock closed 5.7% lower Tuesday at $84.32