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Cobra Q1 Sales Jump 10.3%

4/29/2004 09:42:00 AM Eastern

Chicago — Mobile communications and navigation products maker Cobra Electronics posted a 10.3 percent increase in sales in the first quarter, reaching $22.7 million, up from $20.6 million in the year-ago period.

However, the company recorded a wider loss in the first quarter to $542,000 from a year-earlier $453,000, due primarily to seasonal deviations in its business.

Gross margin dropped to 22.7 percent in the initial three months of 2004, down from 24.9 percent year-on-year, while expenses climbed to $5.9 million, up from $5.8 million in the same three months a year ago. Expenses as a percentage of sales, however, declined to 26.1 percent in the first quarter, compared with 28.3 percent in the prior-year period.

Addressing the effects of seasonal fluctuations, Jim Bazet, president/CEO, said, "Our customer base has shifted increasingly toward large retailers whose business skews to the fourth quarter.

"Nevertheless, we did experience an increase in net sales [in the first quarter] compared to last year, in part due to several opportunities to sell end-of life inventories, but we had to accept lower gross margins on these sales than would have been otherwise desirable."

Also, Cobra said it had one account that incorrectly merchandised a special SKU late in 2003 that Cobra had developed for them. This forced Cobra to sell the balance of the merchandise from this promotion in the first quarter at a very low gross margin, eroding the company’s overall gross margin by more than one percentage point.

In reference to first quarter expenses being higher year-on-year, Bazet said Cobra had managed these tightly, leading to the sales percentage decline. "Although certain sales of end-of-life products were made at lower margins, in most cases Cobra did not have to provide further support to these retailers in the form of promotional funds and advertising, thus maintaining control over variable selling expenses," he said.

Maintaining a strong balance sheet during the first quarter, Cobra said it had no interest-bearing debt at the end of March. Yet, inventory increased to $19.4 million during the period, compared with a year-ago $18 million, due to the arrival of merchandise earlier year-over-year.

Cobra expects to post both higher revenue and earnings in the second quarter, as new product categories contribute to sales and profit. The second quarter forecast calls for a profit, although sales and earnings are likely to be somewhat lower than in the second quarter of 2003, due to seasonal fluctuations.

Cobra anticipates second quarter shipping of its handheld GPS 1000, featuring street-level maps and points of interest throughout North America. Mobile navigation products will ship early in the third quarter.