Garmin recently launched the vivoactive HR left and vivofit3 right products Photos courtesy Garmin

Garmin recently launched the vivoactive HR (left) and vivofit3 (right) products. (Photos courtesy Garmin.)

Garmin Grows Fitness Segment Q1 Revenue to $142 Million

The wearable device manufacturer Garmin experienced fitness segment growth, which it attributed to demand for its proprietary Elevate wrist heart rate technology products.

The fitness segment revenue for Garmin, Schaffhausen, Switzerland, grew to $142 million in first quarter 2016, a nine percent increase compared to 2015, according to financials released on Wednesday.

The wearable device manufacturer attributed its fitness segment growth to demand for its proprietary Elevate wrist heart rate technology products within its activity tracker and running categories, which were offset by lower multisport revenues.

The company has looked to fitness and outdoor activity spaces for growth due to its global positioning systems (GPS) business being hit by smartphone applications, according to a Wall Street Journal report. The company's fitness, outdoor, aviation and marine segments collectively grew 17 percent over first quarter 2015 and contributed 69 percent of the company's $624 million in total first quarter 2016 revenue.

"We started out 2016 strong," Cliff Pemble, president and CEO, Garmin, said in a statement. "With the majority of the year still ahead of us, we recognize that there are many challenges and uncertainties yet to be encountered. We will continue to focus on innovation and execution to deliver compelling products to the markets we serve."

Fitness segment gross margins declined to 51 percent in the first quarter as a result of product mix within the first quarter. An operating margin decline of 12 percent in the segment was attributed to a continued investment in advertising, and research and development to support the company's long-term goals in the segment. Garmin recently launched the vivoactive HR and vivofit3 products, and it is well positioned within its 2016 product roadmap, according to the company.

Garmin's total operating expenses in the first quarter increased 2 percent from 2015 to $236 million. Research and development investment spending increased 2 percent, with growth primarily focused on aviation and active lifestyle products in the fitness and outdoor segments. Overall advertising spend increased 16 percent and was driven primarily by a year-over-year increase in fitness advertising to support wearable products.

"As we’ve mentioned previously, we believe these investments are strategically important in order to maximize the long-term opportunity in the fitness market," Pemble told analysts in a conference call on Wednesday. "While the margin profile of our fitness segment has changed in recent quarters, we believe the performance will stabilize as we complete critical product in market transitions."

After Garmin's fitness growth slowed in second quarter 2015, Pemble said Garmin would be more aggressive with its pricing and increase advertising spending in the fitness segment. Garmin's operating margin fell to 51 percent in the fourth quarter of 2015, which Pemble attributed in February to holiday season promotions, competitive dynamics in product categories and the product mix within the quarter.

Garmin reported fitness segment revenue of $228.7 million in 2015, up 14 percent from 2014, and the company forecasts 10 percent growth in the segment in 2016. Garmin reported $2.8 billion in 2015 revenue across all of its segments in 2015.

Garmin ranked No. 4 among the top five worldwide wearable vendors in 2015 with 3.3 million unit shipments, up from 2 million shipments in 2014, according to the most recent report issued by the International Data Corp (IDC). It ranked behind, in order, Fitbit's 21 million shipments, Xiaomi 's 12 million shipments and Apple's 11.6 million shipments. Samsung ranked No. 5 with 3.1 million shipments, and other wearable manufacturers accounted for 27 million shipments.

"Garmin's long history with wearable fitness translated well for the company to remain among the top five vendors worldwide," the IDC said in a Feb. 23 media release. "Garmin has a well-segmented device portfolio, with devices that specifically address runners, golfers, swimmers, citizen athletes and followers of other activities. Recently, the company announced Varia Vision, an augmented reality display that mounts to a pair of sunglasses for cyclists."

Wearable device shipment will reach a combined total of 100 million shipments in 2016, up from 72.2 million in 2015, according to the IDC. The firm forecasts worldwide shipments to surpass 200 million in 2019.

Garmin stock (NASDAQ:GRMN) closed Thursday trading up 3.76 percent at $43.88 per share.

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