Swiss-based computer equipment maker Logitech (Nasdaq: LOGI ) delivered another blowout quarter last week, in which revenues grew 19% year over year and per-share profits surged 36% to $0.26. In response, the stock surged equally strongly, rising 13% over the five days since Logitech reported. (Actually, part of that rise is probably due to the fact that Logitech raised its sales, profits, and gross margin guidance from their previous levels. The firm is now promising 17% sales growth, operating profits up 20% to 25%, and gross margins of 33% or more.)
Superb results all around, but -- and I hate to say this when so many of Logitech's numbers look oh so good -- I still have some reservations here. Not meaning to be the stock-party pooper, but:
- Accounts receivable continued to climb faster than sales, at 34% .
- . as did marketing costs, at 23% .
- . and general and administrative costs, up 60%.
On the plus side, though, Logitech clearly did a lot right this quarter. The one component of its selling, general, and administrative expenses that increased least, for example -- research and development -- still outpaced sales growth. When a firm invests so much in R&D, and when the research pays off in the kinds of sales success Logitech is showing, there's no arguing it's not a positive.
Logitech also gets points for lifting its gross margin to 34.5% in Q3. In fact, that's 310 basis points' worth of improvement over the year-ago quarter. And here, you also have to give CEO Guerrino De Luca bonus points for maintaining his credibility in this regard: He promised to deliver improved gross margins, and deliver he did.
Finally, Logitech answered one of my longest-standing criticisms of the company, that inventories had been outpacing sales just as A/R had (and still is). In Q3, inventories didn't just grow more slowly than sales -- they actually declined 3% year over year. So even if Logitech isn't being particularly strict about collecting payment for them, its products appear to be flying off the shelves. In particular, so far this fiscal year, the firm has seen 20% sales growth in cordless products, 21% in audio, and an incredible 49% in video.
Putting it all together
So here I sit, staring at Logitech's numbers, at a loss. Sales are brisk, R&D investment aggressive, gross margins high, and inventories low -- but accounts receivable are soaring, now up to nearly two-and-a-half months' worth of sales. My best guess as to what is happening is that Logitech is making a play to steal market share from rival equipment makers such as Microsoft (Nasdaq: MSFT ) and Plantronics (NYSE: PLT ) -- but instead of competing on price (or price alone), the company is offering its customers generous payment terms on its invoices.
Disagree? Hey, Fools aren't omniscient -- we're individual investors, just like you, coming together to share and improve our knowledge of the market. If you've got an opinion on what Logitech is up to, drop by our Logitech discussion board and sound off.
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