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Audiovox Outlines Plans To Return To Profitability

9/18/2008 10:52:00 AM Eastern

New York — Audiovox elaborated on its plans to return to profitability following a fiscal first-quarter loss, pointing to a new round of cost reductions, a July price increase and a reduction in SKUs to focus on higher margin products.

In July, the company issued financial results for the fiscal first quarter, ended May 30, in which it reported sales growth of 12.7 percent to $128.3 million, largely because of recent acquisitions, and a growing operating loss of $7.9 million, up from the year-ago loss of $1.6 million. Gross margins dropped 250 basis points to 15.6 percent from the year-ago 18.1 percent, largely because of the decision to leave the personal navigation device (PND) business. That decision accounted for a gross-margin decline of 2 percentage points.

During an investor’s conference here, company executives noted that although sales for the quarter grew, the growth was below forecasts.

“At the start of the year, we knew there would be some softness,” said president/CEO Pat Lavelle. As a result, the company identified $8 million in cost reductions, largely from integrating overhead from recent acquisitions. Because predicted sales did not come through, however, the company has initiated further cost reductions, he said without specifying the amount. “It’s tough to fight what’s happening” in the company’s automotive OEM and retail markets, he noted.

“The economy has slowed [company] growth and prevented us from truly leveraging fixed overhead structure,” the company added in a prepared statement. “That will change with recent moves.”

In addition, the company hiked prices in July to offset higher shipping, commodity and manufacturing costs, Lavelle said without specifying a percentage figure. And the company is “actively managing inventory to offset further risks,” he noted. Senior VP/chief financial officerMichael Stoehr mentioned the company is shooting to reduce inventory turns to 90 days from 130 days.

Despite the changes, Audiovox nonetheless predicted a loss for its first fiscal half, ended Aug. 31, but said the second fiscal half “will be better, despite economic conditions, resulting in higher sales and profits,” a company statement said. The company is poised for growth, Lavelle contended, because it enjoys more OEM automotive accounts and is in more retail outlets than ever in its history.

Although the economy is deteriorating, economic problems “may be an advantage” for the company, Lavelle contended. “Through every recession, we have come out stronger and better.” In addition, the company said the economic situation could yield more acquisition opportunities this year and next.

As a percentage of net sales, electronics accounted for 78.7 percent of first-quarter sales, up from the year-ago 74.1 percent, and accessories accounted for 21.3 percent, down from 25.9 percent.

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