Vizio to ‘Tiptoe’ Into Trading TV Margins for ‘Shelf Share’ Gains: CFO

The supply chain and logistical issues impacting all companies forced Vizio into nearly depleted TV inventories as recently as July. But the vendor now enters the peak holiday selling period fending off suggestions, as on a Q3 earnings call Tuesday (see 2111090081), of positioning itself as the loss leader in the holiday TV space in a grab for retail “shelf share” through aggressive promotional pricing at “razor-thin” margins.

Third-quarter device gross profit declined 56% year over year, said Vizio’s 10-Q Wednesday, the result of what Chief Financial Officer Adam Townsend called “strategic investments” to help rebuild inventories in advance of the holiday selling season. Vizio’s TV inventories “bottomed out” in July, said Townsend. Higher component and freight costs, plus more promotional pricing than Q3 a year earlier contributed to Vizio’s gross profit decrease in devices, he said.

Amid Vizio’s “increased confidence” in its ability to expand its Platform+ ad monetization business -- using higher TV unit sales as the fuel -- “we see a strategic opportunity to trade lower device margins to support greater retail shelf share,” said Townsend. Q3 revenue grew 134% year over year in Vizio’s Platform+ business, while device revenue declined 8%.

Townsend conceded Vizio will "tiptoe" into trading TV margins for shelf share and will “be careful” with the strategy. Asked by an analyst whether Vizio plans a loss-leader TV war strategy for the holiday, the CFO responded: “I don't know if we have to go that far right now. I think we are bringing the consumer a very compelling value proposition of great quality at a really amazing price. They are getting something that’s at a razor-thin margin to us.”

Vizio is working with retailers to “stimulate sales” early in the holiday selling period, said CEO William Wang on the call. “Amazing Vizio deals are there for everyone,” including a 75-inch P-series quantum-dot 4K model at Walmart for just under $750, he said. “The team spent a lot of effort” trying to “expedite” TV shipments to retail, he said. Overall component supplies from Asia “are getting a lot better,” he said. “We do see a pretty healthy inventory for us going into the holidays,” giving Vizio the confidence to go aggressive on pricing, he said.

For the holiday quarter, Vizio expects “sequential growth” in its TV unit shipments “as we continue to replenish channel inventories and benefit from the holiday season,” said Townsend. “We're going into the strong seasonal period of the year,” giving Vizio added confidence of sequential TV unit growth in Q4, he said. “We have worked very hard with our logistics partners and our retail partners to get inventories up,” he said. “We feel like we're in a really good position there.”

The CFO wouldn’t commit in Q&A to whether Vizio expects a year-over-year TV unit-volume increase from 2020's Q4, when TV demand was still surging amid COVID-19 restrictions. “It's kind of hard to comp against that number,” said Townsend of the 2.2 million TVs Vizio shipped in the holiday quarter last year.

Vizio is partnering with many of the world’s largest shippers, “and we use their scale and leverage and influence to make sure that things are prioritized,” said Townsend. He was asked if the company was paying up for priority shipping, and whether that lands Vizio priority handling at the ports, even when they are extremely congested. “When you get on land, then it becomes a very different dynamic,” he said. “You are dealing with making decisions around rail versus truck versus warehousing.”

The supply chain is “still very challenging,” said Townsend. “I don't pretend that it's not, but we have certainly used our team and their expertise. Our groups have been around for a long time. They have really great relationships and a lot of experience in this area, and so they've been able to get involved and mitigate these challenges as much as possible.”

Vizio is “in a better position” than it otherwise would have been without the strategic investments to replenish inventory, said Townsend. “It hasn’t been perfect for anybody, so still room to improve, and we are looking forward to some of these bottlenecks easing up with some time.” The stock closed 13.4% higher Wednesday at $19.67.