Voxx CE Segment Took FY Q1 Hit After Retailers 'Just Cut Back on Buying'

CE sales at Voxx dropped 5.5% to $88.9 million in its fiscal Q1 ended May 31 “largely due to many of the big box retailers cutting inventory immediately after their Q1 results,” said Voxx CEO Pat Lavelle on an earnings call Tuesday. The stock plunged 26% Tuesday to close at $6.73.

“As our fiscal first quarter starts in March, this had a direct impact on our Q1 results,” said Lavelle. Consumer demand “looks consistent,” he said, “but the big box retailers simply just cut back on buying.” Voxx is “watching this closely” and will "adjust purchases scheduled to keep pace with consumer sentiment.”

Despite economic pressures, Lavelle sees “positive momentum building” based on “very strong” demand for Onkyo and Pioneer products since Voxx’s Premium Audio Co. (PAC) subsidiary and Sharp bought the assets of Onkyo Home Entertainment’s audio/video business for $30.8 million in September (see 2109090028).

At that time, Lavelle said, PAC acted to secure longer lead products, some as far as 42 weeks out, as it worked through supply chain issues. Many of the products will start coming in toward the end of summer, “and we will be positioned in the second half of the year to ramp up production and grow revenue,” he said. Voxx will support North American and Australian customers, with hopes to expand worldwide “where interest remains high.”

Near term, the addition of Onkyo, Integra, Pioneer, Pioneer Elite, Teac and Esoteric brands “should help offset any pullback by the consumer,” Lavelle said. Voxx expects to “significantly grow our audio business.” He referenced new product launches over the next two quarters that “should trigger an increase in demand” for Klipsch and Jamo products. Planned introductions include a new reference line from Klipsch, Jamo home theater systems, portable speakers, sound bars and subwoofers.

On how inflation is affecting business, Lavelle said, “When the consumer is facing fuel, food and increased home prices, we see a slowdown at the [promotional] level,” which large retailers are also seeing. Price increases the company has instituted have helped improve margins and offset a lot of the higher costs of bringing products in, he said. “But they’re not mitigating any volume drops due to the consumer pulling back,” he said.

The luxury market hasn’t shown signs of a spending pullback, Lavelle said, and that’s where a lot of the company’s premium audio gear is sold. It “remains to be seen” whether that will continue, he said. “If the Fed continues to tighten and the stock market continues to go down, the wealth effect would affect the luxury market at some point. But we haven’t seen that in any major way, at this point.”

Voxx moved a lot of manufacturing out of China to Malaysia, Taiwan, Vietnam and Mexico in response to the tariffs imposed by the Trump administration, Lavelle said. “However, when you really look at the situation, a lot of the raw material -- no matter where we’re producing the product and doing the finished goods -- a lot of the raw material is still coming out of China,” he said. “We’re trying to move as much as we can so that we have a good balance within our manufacturing capability across the world in locations that have the capability of doing the type of manufacturing we need.”

Lavelle said container pricing is ranging $11,000-$15,000 depending on whether it’s the East or West coast, “but it doesn’t appear it’s going to jump up into the $20,000 range.” Rising interest rates “will destroy some demand, and that should moderate any increases that we see as we move into the Christmas holiday season.” Voxx is on track to have enough inventory for Q4 because it “brought a lot of product in early to make sure that we had it. So between what we have in inventory and what we have afloat that is due to arrive prior to the holiday season, we feel pretty comfortable we have everything that we need."

The company’s automotive business was hit in Q1 by continued shortages in components, parts and chips, Lavelle said. Revenue in the segment fell 7.2% year on year in the quarter to $39.6 million. OEM product sales were $16.7 million vs. $14.9 million, driven by higher sales of OEM rear-seat entertainment systems, partially offset by ongoing supply chain constraints. Aftermarket product sales were $22.9 million vs. $27.7 million a year ago.

“The global scarcity of chips is hitting the car manufacturers particularly hard, and it continues to impact both our OEM and aftermarket automotive business,” Lavelle said. OEM customers “are producing what they can,” but chip shortages “are leading to much lower car production and it is estimated to be down 20% year on year, coming in between 13 million and 14 million new light trucks and cars," he said. The shortage of inventory on new car lots is also putting a dent in aftermarket sales, he said.

Shortages will persist, but demand pullback in other industries that use the same types of chips, such as computers and crypto mining hardware, could lead chipmakers to "pivot" and allocate more to carmakers, he said. That could alleviate near-term car supply pressure, he said.

Higher labor costs in the U.S. have affected OEM gross margins, Lavelle said. Voxx has mitigated some of that impact through price increases but “more is needed to improve margins,” so the company is moving some OEM production lines to Mexico “where labor is roughly half the cost.” The production facility is slated to be ready in August with shipping to begin at the beginning of September, he said.

Long term, Lavelle is optimistic about Voxx's automotive business, based on $750 million in new automotive awards secured and those pending, along with strong pent-up demand for new cars. Another $300 million could be awarded over the next five years, he said, based on ongoing discussions.

Overall, net sales in the quarter were $128.7 million, down 6.1% year on year, the company reported. The CE segment's gross margin increased 80 basis points to 27.4% led by higher sales of Onkyo products and the positive impact from price increases during the year, it said.