Chicago — Cobra Electronics reported a 6.1 percent increase in sales to $35.5 million for its third quarter, ended Sept. 30, pushing the company into the black.
Sales in the quarter were up $2 million from $33.5 million in last year’s third quarter. Cobra’s net income for the quarter was $373,000 vs. last year’s third quarter net income of $1.9 million. The lower performance for this year was due to the sale of first-generation mobile navigation and handheld GPS inventory at or near net realizable values established in prior periods, a reserve taken for the sale of mobile navigation products that have been returned as defective products and higher air freight expenses associated with the company's line of lithium ion battery-powered GMRS radios.
The profitable third quarter was a return to profitability after two quarters of losses, according to Jim Bazet, president/CEO of Cobra.
He noted that Cobra remains “disappointed by gross margins” and explained, “write-down of first generation mobile navigation and handheld GPS inventory to net realizable value resulted in significant sales of products with little or no gross profit. Sales of these products totaled $2.2 million, resulting in an overall margin loss of 1.4 points. However, in light of the continuing price declines in these markets and rapid advances in technology — including our own new NAV ONE 2500 — we concluded that it was important to sell these products quickly rather than risk further declines in net realizable value.”
Cobra also addressed the market for mobile navigation units previously returned as defective, or forecasted to be returned based on current and projected sales, and concluded that it would be prudent to establish an incremental reserve of $496,000 for estimated selling prices of these units, resulting in additional gross margin erosion of 1.4 points.
In providing further perspective on Cobra's performance, Bazet continued, “A closer examination of results for the third quarter provides a basis for optimism going forward. The release of the NAV ONE 2500 in September set the stage for several generations of mobile navigation products built on a flexible and cutting-edge navigation platform, which will permit faster, less-costly development and more timely product launches. We anticipate that Cobra will sell through our entire production capacity of the NAV ONE 2500 and derivative models in the fourth quarter.”
During the conference call with analysts Cobra said that it missed the reset deadline for the fourth quarter at both Best Buy and Circuit City for the NAV ONE 2500 in September, but said the product will be available on the Web sites of both stores. Cobra added it received commitments from retailers including P.C. Richard & Sons, Fry’s and Amazon.com for the full production run of the 2500.
In addition, Cobra said that it is now producing GPS products on its own platform, which is expected to help drive profitability and improve product timing in GPS going forward.
Cobra also experienced a 19 percent increase in sales of radar-detection products in the quarter compared with last year, and a sales increase of more than 80 percent in marine products. Additionally, the company's new line of lithium ion battery-powered two-way radios continued to experience strong sell through at retail and now account for a significant portion of Cobra's domestic two-way radio business, the company said.
Subsequent to the end of the third quarter, Cobra completed the acquisition of Performance Products. In connection with this acquisition, Cobra entered into an amended and restated loan and security agreement with its lenders. As of Oct. 20, the completion date of the transaction, Cobra had interest-bearing debt of $23.4 million.
Bazet said that based on the acquisition of Performance Products and the anticipated strong sales of the NAV ONE 2500 net sales will be higher in the fourth quarter while pretax earnings will be about the same. Cobra also said it will announce a line of new portable GPS products during International CES in January.