Skullcandy (NASDAQ:SKUL) reported its third-quarter results after market close on Nov. 5. The company's results were negatively affected by currency, but the company still managed strong growth during the quarter. Guidance was cut for the full year, however, with currency knocking off a couple of percentage points of revenue growth. Here are the details of Skullcandy's third-quarter results.

Skullcandy results: The raw numbers

 

Q3 2015

Q3 2014

Growth (YOY)

Sales

$67.2 million

$58.1 million

16%

Net Income

$2.30 million

$2.11 million

9%

EPS

$0.08

$0.07

8%

Source: Skullcandy Q3 earnings report. 

What happened with Skullcandy this quarter?
Skullcandy's results were negatively affected by currency issues in its International markets.

  • U.S. sales grew by 22% year over year, while International sales grew by 14% on a constant-currency basis. Adjusted for currency, Skullcandy's total sales grew by 19% year over year.
  • U.S. sales accounted for 70% of revenue, with International sales accounting for 30%.
  • Gross margin declined by 430 basis points year over year, to 41%, or by 272 basis points adjusted for currency.
  • Operating income slumped to $3.1 million, down from $3.6 million during the third quarter of 2014. Adjusted for currency, operating income increased by 29% year over year.
  • EPS rose 29% year over year adjusted for currency.

Skullcandy also provided guidance for the fourth quarter.

  • Revenue is expected to increase by 5%-7% year over year, or by 9% on a constant-currency basis.
  • Net income between $0.38 and $0.40 per share, up 49% year over year, or up 65% on a constant-currency basis.

For the full year:

  • Revenue is expected to increase by 10%-11%, or by 13% on a constant-currency basis.
  • Net income between $0.37 and $0.39 per share, up 42% compared to 2014, or up 82% on a constant-currency basis.

What management had to say
Skullcandy CEO Hoby Darling highlighted what worked during the quarter. "Our product innovation, demand creation and distribution strategies are resonating with Skullcandy and Astro consumers around the world." Darling said. He continued:

Our deep relationship with our consumer, coupled with our ability to be nimble and quick to market allows us to serve our consumer innovative and creative products that align with current trends. Our new Skullcandy wireless ear buds and headphones are a great example and an awesome addition to our existing product lineup that already includes several of the best-selling styles at retail. Strong sell-through of our new wireless products and increased year over year sales of our traditional wired products contributed to Skullcandy being the number one chosen headphones in the US for the fourth consecutive quarter.

Looking forward
Skullcandy's profitability is still well below levels seen a few years ago. In 2011, the company managed an operating margin of 18.1% on sales not too far below current levels. In 2014, operating margin had fallen to just 4.8%, and through the first nine months of this year, Skullcandy is in the red on a net-income basis.

The market reacted poorly to Skullcandy's results in after-hours trading, sending shares down by a double-digit percentage. The company's guidance was cut compared to guidance given at the end of the second quarter: Revenue growth of 13%-15% was expected for the full year at that time, compared to 10%-11% now. Currency is having a major negative effect, though, so the guidance cut may simply be the result of further currency-related issues.

Timothy Green has no position in any stocks mentioned. The Motley Fool recommends Skullcandy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.