A drop of 7.8 percentage points in the gross margin to 50.4 percent in Garmin's fitness segment resulted in operating income being reduced by nearly a half to $18.1 million in the first quarter, although revenues surged by 9 percent to $180.2 million. The company blamed the contraction on lower selling prices and a less favorable product mix.
During the quarter, Garmin completed the acquisition of Tacx. It said it is an “exciting” opportunity to expand into the year-round indoor cycling and training market. Headquartered in Wassenaar, the Netherlands, with a distribution center in Vogt, Germany, Tacx is best known for its line of indoor smart trainers, including the Neo 2 and the Neo Bike, which measures speed, power and cadence. Garmin also released several new running-focused wearables in the three months of the quarter, incorporating more smartwatch features.
Overall, the company posted record revenues. They jumped by 8 percent to $766 million, led by its aviation, marine, outdoor and fitness segments – collectively growing by 12 percent from the year-ago quarter.
The outdoor segment's revenues climbed by 7 percent to $154.0 million. Its operating income declined by 4 percent to $41.9 million, however, as the gross margin declined by 1.4 percentage points to 63.3 percent. The quarter saw the launch of the MARQ collection of lifestyle-inspired watches and a new golf smartwatch, the Approach S40.
Garmin's marine and aviation segments also performed well, with sales rising by 18 percent to $134.0 million and by 17 percent to $170.8 million, respectively. As before, revenues were down by 10 percent to $127.0 million in the automotive segment, primarily due to the ongoing contraction of the PND (Personal Navigation Device) market.
By region, the company's overall revenues increased by 10 percent to $379.5 million in the Americas, by 6 percent to $126.5 million in Asia-Pacific, and by 6 percent to $260.0 million in Europe, the Middle East and Africa (EMEA).
Overall, Garmin's gross margin for the quarter declined by 1 percentage points to 60.0 percent, while the operating margin inched down by 0.2 percentage points to 19.8 percent. Net earnings rose by 8.3 percent to $140.2 million.
Moving to 2019, the company anticipates a further increase in revenues to about $3.5 billion, with the gross margin is expected to reach 59.5 percent, based primarily on higher expectations for its fitness, aviation, outdoor and marine segments, again offset by the weakness of its auto segment.
