Voxx Shares Plunge as Supply Chain Woes Temper Q2 Revenue Goals
The audio market has experienced parts shortages in the past, but “I don’t think we’ve seen situations like this before,” said Voxx CEO Pat Lavelle, commenting on a Tuesday earnings call on the widespread COVID-19 impact. “I’ve been doing this for 40-plus years: I don’t believe I’ve seen anything as problematic as this," he said.
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Voxx warned on Q2 FY 2022 revenue growth, after reporting a 90% revenue increase for fiscal Q1 ended May 31, which compared against Q1 2020 when the economy was largely shut down due to COVID-19. The company expects higher supply chain costs and shipping delays to affect Q2 results, which will be lower than expected, Lavelle said. The company's “positive outlook” for the second half is unchanged, Lavelle said. The stock plunged 16.2% Tuesday to close at $12.18.
Supply chain effects have been broad, Lavelle said, citing chip production, raw materials, container and shipment delays and port problems. The company has nearly doubled lead times for buying and procuring materials “to be sure that we have product when we need it.” When reports of chip shortages began, Voxx extended long-lead items out over a year in some cases, he said, to minimize the impact of shortages. “The problems continue,” Lavelle said. “We’re prepared to bring in products any way that we need to,” including building up a supply of products in warehouses and having credit lines open to support additional inventory purchases, he said.
Price increases on raw materials, chips, containers and freight are hurting costs, Lavelle said, and Voxx is offsetting rising costs with its own surcharges in CE and automotive products. “We feel we’re quite competitive with the rest of the market because everybody is facing the same thing,” said the executive. “The holiday season is always a crunch,” and this year’s “is going to be challenging,” Lavelle said: “That’s the reason we’ve gone out and laid in orders.” The goal is “getting that product into the country however which way we have to bring it in to secure sales.”
CE sales grew 73% to $94.1 million in Q1, including $71.6 million in premium audio sales, Voxx reported Monday. Audio separates led growth, said Chief Financial Officer Michael Stoehr; he also cited growth in premium home theater, subwoofers, mobility and wireless audio categories; wireless computer and Bluetooth speakers; and higher volume of products sold through custom installers. Voxx added $6.4 million revenue through 11 Trading, the subsidiary Voxx formed in fiscal Q2 last year, said Stoehr.
With stores reopened, Voxx is operating at more “normalized” levels, along with expanded distribution and improved product assortment, Lavelle said, while acknowledging that some of the stay-at-home COVID-19-related purchases from last year “will not be anniversaried.” Q1 margins were hit by higher freight and overseas warehousing costs, promotions to clear holiday inventory and certain Onkyo products “sold at distributor-like margins," he said.
Commenting on the announced agreement to buy the Onkyo home audio business, Lavelle reaffirmed the expected end-August close date. Assuming all goes as planned, the joint Voxx-Sharp venture will own the Onkyo and Integra brands and all IP, engineering and manufacturing, he said. The deal will bring Voxx “more normalized margins that typically drive the premium audio space rather than the distribution-level margins we were working on this past year."
It will take Sharp time to ramp up production in Malaysia, Lavelle said, as it secures necessary parts and inventory amid shortages. Voxx believes the joint venture can realize $50 million this fiscal year vs. Onkyo's $14 million in FY ’21, he said. He noted Onkyo did “well over $200 million just a few years ago” and more in prior years. “There is no doubt we have the distribution and infrastructure to rebuild worldwide sales.” He also cited the licensing agreement to manufacture and distribute Pioneer and Pioneer Elite branded AV products worldwide, except in China.
In an update on Voxx' collaboration with Amazon to bring Amazon Fire TV to the automotive market, Lavelle said the automotive version of Fire TV will launch in Stellantis’ Grand Wagoneer this month and later in Jeep vehicles. The venture came about due to Voxx’ “leadership position” in rear-seat entertainment in the OEM and aftermarket segments, Lavelle said. Amazon approached Voxx, he said, saying Voxx is the only company Amazon is working with in North America to develop the entertainment product. Voxx is hoping the Stellantis implementation leads to opportunities with additional OEMs.