Logitech (LOGI +0.24%) investors have some big questions heading into the peripherals giant's upcoming earnings report. Management's last quarterly results disappointed Wall Street, mainly because executives reduced their sales and earnings outlook for the fiscal 2023 year.
Logitech might update that annual forecast again when the company announces fiscal Q1 results on Monday, July 25. That report will also show whether its diverse portfolio of gaming and productivity peripherals is allowing it to continue growing despite shrinking demand in niches like webcams.
NASDAQ: LOGI
Key Data Points
Big demand swings
Logitech's early May update wasn't well received on Wall Street. Sure, sales grew 4% year over year on top of a 76% spike a year earlier. But sales were down 17% compared to the previous quarter. Demand for video teleconferencing products like webcams plunged as consumers turned their attention back toward in-person meetings and returned to the office.
Logitech grew in other areas, though, including gaming, keyboards, and pointing devices. CEO Bracken Darrell said the company won market share across the portfolio, too. "We're riding secular growth trends in hybrid work, video collaboration, esports and digital content creation," Darrell said in a press release.
Monday's report will show whether those trends are still lifting Logitech's business in this phase of the pandemic. Most investors are looking for sales to decline slightly to $1.27 billion compared to $1.31 billion a year earlier. Keep in mind that the year-ago period saw a 66% revenue spike as spending tilted heavily toward digital work and entertainment during COVID-19 lockdowns.
Profitability pressures
The stock-price slump in 2022 can be attributed to the combination of slowing growth and rising expenses. Logitech didn't ease those earnings worries last quarter when it revealed higher expenses in areas like sales and marketing. Those cash outlays might lay the groundwork for future sales growth, but they are hurting short-term earnings. Logitech's operating profit was down 52% last quarter.
Watch for further pressures in this area through fiscal 2023. But keep an eye on gross profit margin, which declined to 41% of sales in Q4 as cost pressures increased. If Logitech struggles to raise prices, then the company might fail to keep that metric within management's target range of between 39% and 44% of sales this fiscal year.
Don't fear the growth hangover
Executives will have an opportunity to update their fiscal 2023 outlook on Monday, and investors are bracing for some potentially bad news on this score. Logitech lowered its sales and earnings forecast back in early May, and since that time inflation has accelerated, economic growth has slowed in some markets, and demand for many PC devices has declined.
Heading into Monday's report, Logitech is targeting a second year of slowing sales gains as revenue growth shrinks to between 2% and 4%. Adjusted earnings will land at around $900 million, marking a second straight decline compared to $905 million last year and $1.3 billion in fiscal 2021.
It is possible that these forecasts will be reduced again on Monday. But investors shouldn't worry too much about a downgrade like that, assuming Logitech continues to gain market share in these attractive long-term niches like remote work and digital entertainment.
