Cobra Q2 Sales Drop 5.3%, Net Up 23.1%

By Jeff Malester -- TWICE, 7/26/2004

Chicago — Delays in the introduction of its newest GPS product, the GPS 1000 DLX, accounted for a 5.3 percent decline in sales during the second quarter, according to mobile communications and navigation products maker Cobra Electronics, with sales hitting $25.2 million for the three months, down from $26.6 million in the year-ago period.

However, net income enjoyed a solid climb of 23.1 percent in the second quarter, ended June 30, up to $501,000 from the $407,000 reported in the same time frame last year.

Gross margin for the second quarter slid to 27.1 percent from a year-over-year 29.1 percent, but the company “maintained stringent controls” over expenses, with these coming in at $6.1 million for the second three months, down from $7.1 million in the same period a year earlier. As a percentage of sales, expenses declined to 24 percent in the second quarter, compared with 26.5 percent in the same three months in 2003.

Lower gross margin was attributed to aggressive selling of older models of two-way radios and radar detectors at the same time Cobra was introducing new lines of these products. This led to “substantially” lower margins than it would expect under normal selling circumstances, said the company.

As for the quarter’s sales decrease, “Cobra anticipated shipping the GPS 1000 in the second quarter of this year. However, our final quality reviews identified some concerns that would have prevented consumers from fully utilizing the features of this product, and [we] elected to delay introduction until those could be resolved and the product met Cobra’s quality standards,” said Jim Bazet, president/CEO. He said the GPS 1000 DLX is now in production and is scheduled to ship in late July or early August.

Bazet went on to say Cobra’s other handheld GPS products, although benefiting from increased distribution during the second quarter, had lower sales when compared with the prior year’s second three months. He expects the introduction of the GPS 1000, the company’s first handheld mapping product, will benefit the entire line by broadening appeal of the category to both retailers and consumers.

The particular strength in sales of radar detectors and Citizen Band radios due to strengthened distribution, Bazet said, while the two-way radio business was adversely affected by both price and unit decreases. “The two-way radio business remains intensely competitive. Nevertheless, Cobra has sustained and built upon its strong market position in this category,” he noted.

For the six months, Cobra sales edged upward 1.5 percent, reaching $47.9 million, compared with $47.2 million in the same period last year. The company narrowed its net loss for the first half to $41,000 from a loss of $46,000 year-on-year.

Cobra expects sales and earnings to be “somewhat higher” in the third quarter, compared with the same period in 2003 and remains enthusiastic regarding prospects for handheld GPS and its mobile navigation systems. It also anticipates higher revenue and earnings in all of 2004, compared with 2003, as new product categories and channels of distribution contribute “strongly” to sales and earnings somewhat higher than in the third quarter of 2003.