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Cobra Reports Q1 Net Loss, Lower Sales

5/01/2009 09:22:00 AM Eastern

Chicago — Cobra Electronics reported a net loss and lower sales in the first quarter due to the recession and lower sales in Europe.

Cobra reported a net loss of $1.6 million as compared with net income of $81,000 in the prior year’s first quarter. Sales were $19.1 million, down from the prior year’s sales of $28.9 million.

The decline in sales was particularly pronounced in Europe as the combined sales of Cobra Electronics Europe and Performance Products Limited (PPL) declined by 55.4 percent, including significant declines due to exchange rates as the euro declined by nearly 15 percent and the pound sterling declined by 27 percent from prior year levels.

Cobra's U.S. business experienced a 22.7 percent decline in adjusted sales, after excluding mobile navigation net sales of $841,000 from last year's results and net returns of $98,000 from the current quarter. Also contributing to the loss in the first quarter was a $279,000 decline in the cash surrender value of life insurance that is in place to recapture the costs of deferred compensation programs for certain current and former officers of the company.

"We are disappointed by sales results in the first quarter, which reflect a deepening global recessionary environment," said Jim Bazet, Cobra's chairman/CEO. "In particular, sales in Europe have been affected by a significant decline in consumer confidence and overall decline in retail sales; the International Monetary Fund recently forecasted that the EU's economy will contract more significantly in 2009 than that of the U.S. and our first quarter results clearly reflect this sentiment. Although sales in the U.S. were not as severely impacted by the overall economy, the decline in freight traffic and the resulting decline in travel center business took their toll on Citizens Band radio sales."

The year-over-year decline in net sales of $9.8 million was attributable to both the Cobra and PPL segments. Sales for the Cobra segment, excluding $1.1 million of mobile navigation sales in the prior year, declined by $6.2 million, or 26.5 percent, while sales of the PPL segment declined by $2.4 million, or 57.1 percent.

The most significant decline in Cobra segment sales was for domestic Citizens Band radios, which fell by more than 40 percent, as declining freight movements resulted in reductions in traffic at travel centers and truck stops.

Additionally, Cobra experienced a vendor delay that caused more than $800,000 of Citizens Band radio sales to shift into the second quarter. Also impacting sales in the first quarter was a decline in domestic two-way radio sales of approximately 40 percent, primarily due to last year's decision by Wal-Mart to reduce Cobra's SKU count in this category.

Cobra has been awarded exclusive positioning for two-way radios at Wal-Mart in 2009 and substantially improved positioning at Best Buy. It is anticipated that these sales will become visible in the second quarter as planogram resets are implemented and Cobra is anticipating improved two-way radio sales through the balance of the year.

PPL reported a 57.1 percent decline in sales, with exchange rate losses contributing approximately 16 points of this decline. Satellite navigation sales fell by more than 40 percent (in pounds sterling) as category sales declined and retailers have reduced the shelf space allocated to this category, the company said.

Additionally, the introduction of two new satellite navigation products targeting niche consumer markets was delayed by development and production difficulties which have since been overcome. The sale of PPL's exclusive database of speed camera locations for use in smartphones contributed substantially to sales in the first quarter of last year with very few sales recorded in this year's first quarter.

Bazet reiterated the company's outlook for 2009. "The prospects for the global economy, particularly in Europe, remain uncertain. Although our first quarter results were below our expectations, we continue to forecast profitability in 2009 as new products are introduced and we take advantage of new and enhanced marketing channels. As noted previously, we have taken steps to weather the downturn and continue to identify opportunities to reduce expenses in light of reduced consumer spending.”