reported a net loss of $9.9 million for the second quarter ended June 30, compared to a net gain of $1.7 million for the same period in 2008, after taking a tax valuation allowance of $9.6 million, as required by law due to three years of losses.
Cobra chairman and CEO Jim Bazet said the $9.6 million valuation allowance will be examined for possible reversal in 2010, as Cobra expects to return to profitability starting in the second half of 2009, continuing through 2010.
Cobra's pre-tax net loss for the quarter was $1.06 million compared to a pre-tax net gain of $2.3 million for the period a year ago.
Net sales declined to $25.9 million, from $34.3 million a year ago due to global recession, lower store traffic and the demise of Circuit City, said the company.
Lower sales at Cobra resulted in its failure to satisfy financial covenants on its loan agreement. Cobra said, however, it has reached an agreement in principle on an amendment to the loan agreement, which is expected to be executed within two weeks. The new terms "are in line with expectations for the Company's business through the October 2011 term of the loan agreement," said Cobra's financial report. Cobra said it maintains full access to its credit facility in the meantime and the new agreement will sufficiently meet the company's needs.
Cobra reported debt of $18.2 million and cash of $1.9 million, for a "net debt" of $16.3 million at the end of the second quarter, as compared to "net debt" of $9.4 million the prior year.
By segment, sales at Cobra were down by 19.2 percent while sales at its European-based Performance Products Limited (PPL) segment declined by 51.6 percent.
Bazet said, "... we have taken, and will continue to take, aggressive actions to mitigate [the recession's] impact by cutting expenses, tightly managing working capital and capitalizing on the opportunities created by the economic climate." The company has reduced its global workforce by 12 percent since the beginning of the year, eliminating 16 positions and retains another 151 employees world wide. Cobra reduced expenses by an annualized rate of $1.8 million.
Bazet said he is forecasting a return to profitability for the second half of 2009 based on forecasts by the CEA and Cobra's customers.
Cobra also noted it is expanding into portable jumpstart devices, and will offer a new portable GPS device for professional truck drivers. It also recently entered the market for LED work lights and Internet radios. Cobra said these products were developed with partners, permitting Cobra to limit start-up expenses and downside risk.
For the quarter, sales of the Cobra segment declined by $5.6 million, as radar detection and Citizens Band (CB) radio sales were hit by a cutback in consumer spending. Sales in these categories fell 37.4 percent and 28.5 percent, respectively compared to the year ago quarter.
Part of the decline in radar detectors was due "to a change in merchandising strategy at one of Cobra's accounts that led to a reduction in store count," in addition to the bankruptcy of Circuit City, which accounted for nearly six percent of radar detection sales in the second quarter of last year, said Cobra, adding, "It is evident, as well, that consumer purchases of radar detectors are skewing toward lower price point models, resulting in a decline in sales and margins in this category." Consumers are also opting for lower priced CB radios, said the company, claiming, however, that its two-way radio sales saw a 12 percent increase, as Cobra recently became the exclusive supplier of two-way radios to Wal-Mart.
Cobra's PPL segment sales declined by $2.8 million, or 51.6 percent, compared to the second quarter of last year, with exchange rate losses contributing approximately 13 points of this decline. Another cause for the shortfall was the sale in 2008 of PPL's speed-camera database to a smartphone distributor, which was not repeated in the current period. Additionally, PPL sales were impacted by lower sales of navigation devices in Europe.
Cobra's gross margins decreased to 24 percent on a consolidated basis from 33.3 percent in the prior year. Selling, general and administrative expenses declined to $7.8 million in the second quarter from $8.8 million in the prior year.