Even as Garmin (NASDAQ:GRMN) remains the company of choice for US consumers buying GPS devices, the recession and its impact on discretionary spending have hit the manufacturer hard, as was evident in the company’s Q1 results. Revenues and earnings not only fell significantly, but also missed analysts’ estimates by quite a margin.
Q1 revenues of $436.7 million fell 34% over the year and missed the Street’s expected $532 million target. EPS fell a whopping 67% to $0.24 and missed the Street’s expected $0.42 per share.
By segment, revenues fell 43% in the automotive/mobile segment, 32% in the marine segment and 31% in the aviation segment. Only the outdoor/fitness segment saw growth as revenues increased 13% over the year.
By region, North American sales fell 36% while European sales were down 32% over the year. Asian revenues fell 33% over the year.
The company attributed the steep decline to “macroeconomic factors”, i.e., the slowdown in consumer discretionary spending has been aggravated by ongoing channel inventory reductions by Garmin’s retail partners in the personal navigation device industry.
Last year Garmin announced its plan to enter the cellular market by launching the Garmin-ASUS nüvifone G60 by the end of the first half of this fiscal. However, in view of the company’s current performance, they have delayed the plan to the second half of the year. The nüvifone is being developed with Taiwan-based Asustek Computer Inc., and will feature location-based services, such as turn-by-turn driving directions, traffic warnings or search engines for nearby restaurants and stores.
Meanwhile, Garmin is focused on a long-term growth strategy of product innovations to further extend their market leadership in navigation and communication. The company recently introduced a new family of nüvi products with an updated, slimmer form factor and new navigation features, one of which enables users to explore maps which can either be purchased or downloaded.
In addition to upgrading its products, the company is also looking at strengthening its relationships with OEMs. Recently it expanded its tie-up with BMW Motorrad and has developed a motorcycle-friendly GPS navigator which combines Garmin’s navigation technology with BMW-specific features such as a customized mount and a preloaded BMW dealer database. The company announced similar tie-ups with Chrysler in the automotive segment, EdgeWater Powerboats and Ferryline Boats in the marine segment and Piper in the aviation segment.
While Garmin may be making the right moves, as long as the economy is still struggling, it might be too optimistic to hope for the stock’s quick recovery. The stock reached all-time lows of $14.40 in November of last year and has since risen to be trade at $23.09 with a market capitalization of $4.62 billion. The company still has a long way to go to regain its lost peak value.