2013 will be better for SKUL than expected by most
Q4 2012 was not as good as it appears and Q1 2013 is not as bad as it appears. When Q4 2012 numbers were put out SKUL started rallying hard during the after hours session. The number were quite nice and showed that the stock was highly undervalued. Then the announcement regarding Q1 2013 came out and the stock tanked.
So what really happened? How could Q4 be so nice and the following Q1 be so ugly? There are many factors at play that dramatically add to the apparent gap. Q4 was a good quarter, but not as good as the initial numbers made it look. SKUL had massive sales to stores, but the stores did not sell through the product as well as expected, thus Q4 sales to stores were really high, but sales to end customers were not as high. As a result, orders from stores in Q1 are lower as they sell off excess inventory. In the previous year the situation was nearly the opposite, so Q1 2012 saw unusually large sales providing very difficult comps.
Other issues affecting Q1 are about a 3 cent loss to get rid of the previous CEO. SKUL had been dumping about 10% of inventory to off price sales channels. This brings down margins and hurts relationships with full price vendors. Those sales are being slowed dramatically. That hurts short term sales, but longer term sales should be fine and margins should improve as a result. HMV, a major customer, went bankrupt. They had 230 stores. That, of course hurts. HMV will reopen, perhaps this summer, with about 130 stores. That will help the second half of 2013. SKUL spent some money in Q1 to gear up for a fairly big sales and marketing push for Crushers. This is not a typical expense, but it is a big new product launch. So, there are lots of issues that make Q1 ugly, but most of these are being resolved.
2013 will look better and better as time goes by. New CEO. HMV reopens. As of yet unannounced new products. Walmart!!!!!
The CFO bought 15,000 shares a month ago at $5.25. He knows the financials. He knows the true story behind why Q1 looks the way it does. He knows all that is being worked on with the products, promotions, packaging, secret initiatives, and new retail vendor(s), but only one vendor will make a huge difference.
It is possible that Walmart gets pushed to 2014, but I sure hope that the Walmart deal is all wrapped up and loaded with product well before the holiday shopping season.
International growth has great potential.
Product packaging is going through two updates. Each one is substantially better the the previous. The company refers to versions of packaging as 2.0, 2.1, and 2.2. In my checks I now see a fair mix of 2.0 and 2.1 with slightly more 2.1 now. I am looking forward to 2.2 hitting the shelves in mass, but the older packaging has to sell through first.
By later in 2013 SKUL should be firing on all cyliders. New CEO is ambitious. Rick Alden is firing up the team. Product development is stuffing the pipeline. The Aldus mess is over. SKUL will be beautiful long term.
I wouldn't bet on adding Walmart as a customer anytime soon. The company's origin was with small action sports retailers. Those stores don't want to be undercut by WalMart, and Skullcandy won't distribute through Walmart if it puts their relationships with smaller stores at risk. Not to mention that Walmart negotiates #$%$ low margins from vendors. Skullcandy doesn't need Walmart to be huge. Would be nice if they got Apple back for some products like Navigators and Crushers though.