Jeans and GPS – A Tale of Two Q’s

• Posted by Danny
• on May 2nd, 2012

Garmin and True Religion both beat expectations in their respective Q1′s.

 

Since last week I’ve been busy as hell moving to a new location for my day job. It’s been hectic and crazy (just like this quarter’s earnings). You never realize just how much crap you’ve accumulated over the years until you move. Thus, I haven’t been able to blog as much as I’d hoped about the recent Q’s of some of our holdings.

Two of our faves reported within the last 24 hours or so, Garmin ($GRMN) and True Religion ($TRLG). Garmin continued its string of EPS beats (3 in a row now I think), while True Religion bounced back after last quarter’s torching.

First True Religion:

The most surprising thing to me was the dividend announcement (20 cents per qtr). This may be a sign of cash flow maturity and/or an olive branch to long term investors. They also said they’re going to buy back up to $30 mil in stock over an undisclosed period of time.

For Q1 the denim diva reported EPS of 41c per share, 3 cents ahead of our Estimize. Revenues came in above consensus as well. Here’s the YoY lowdown:

• Net sales +14%
• Net income +16%
• U.S. Consumer Direct revs +23%
• U.S. Wholesale revs +2.8%
• International revs +3.6%
• Comps +13%

Positives across the board….good sign. Especially that Wholesale segment increase in sales. That’s the first time since Q4 2008 that they’ve done that. SG&A expenses were up as well though, increasing 13% YoY, but that’s cool because it was due in large part to opening 13 new stores in the U.S. and 10 abroad.

 

 

After being ranked in the WSB20 for more than 2 years, TRLG finally got the boot this month, slipping out to a still very respectable 23rd. We’ve owned them for more than two years now, buying and selling shares a couple times along the way, but have maintained a core position of about $19.50 per share. Our last purchase was in August 2010 at $18.37.

This was a good report. It was do or die time and they have obviously lived to see another quarter…and hopefully many more.

 

Now on to Garmin:

What can we say? These guys have managed to defy the odds and quell the naysayers over the last few years as they’ve reinvented themselves in some ways. Yes, the automobile GPS remains their bread and butter, but not nearly as much as it used to. Gadget sales for fitness and outdoor have really taken off, and they continue to crank out state-of-the-art aviation and marine equipment.

To kick off the year they earned 45c per share, 6 cents shy of our Estimize. A little disappointing as we were hoping they’d top last year’s 49c EPS. Nevertheless, they beat the Street and perhaps stole market share in Europe from rival TomTom, who turned in a dismal report last week.

Here’s the YoY numbers:

• Total revenue +10%
• Auto +6%
• Outdoor +16%
• Fitness +9%
• Aviation +5%
• Net income -9%

And to top it off, gross margins bumped up to 51% from 47% a year ago, courtesy of stronger auto PND pricing.

Another interesting thing I read from Reuters‘ summary is that Garmin “bundles its PNDs with its high-margin mapping services — a strategy that is not expected to boost profit till the end of 2012 due to its deferred revenue model. The impact from the deferred revenue will be a tailwind in 2012 and allow the company to beat profit expectations for 2012, Wedbush Securities analyst Scott Sutherland said.”

Cool stuff.

Geographic sales are always an important barometer of GRMN’s revenue stream. Here’s what they looked like YoY:

• N. America +6%
• Europe +16%
• Asia +8%

Looking ahead, the CEO sounded a bit cautious about auto PND sales, but optimistic towards their strategy of diversification and research:

“This is a great way to start the year; yet, we remain cautious regarding the PND industry as much of our strength was related to global market share gains. The revenue growth of our core business segments of outdoor, fitness, aviation and marine was 14%, highlighting the continued diversification in our business model. We continue to grow our research and development investment in these segments, as well as auto OEM, in order to capitalize on the numerous long-term growth initiatives in each of them.”

 

 

Garmin came in at #15 for May in the BeanScreen. A bit of a slide from recent months, but this latest report may well strengthen their overall fundies going into the summer. Stay tuned.

 

 

sources:  True Religion shares rise on strong 1Q earnings – AP

True Religion In Vogue After Starting Dividend, Share Buyback – Forbes

True Religion Apparel Announces First Quarter 2012 Financial Results And Initiates Cash Dividend – BusinessWire

TrueReligion

Garmin Reports First Quarter 2012 Results with Revenue and Pro Forma EPS Growth – BusinessWire

Garmin profit beats on fitness products sales – Reuters

Garmin Finds Route Higher; Shrs Rally On Strong Q1 – Forbes

Garmin

disclosure:  we currently own shares in TRLG and GRMN

 

 

 

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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