Driven by its outdoor segment and its Fenix line of watches featuring Garmin Elevate wrist heart-rate technology, Garmin's sales for the 13-week fourth quarter ended Dec. 30 went up by 3 percent to $888 million from the year-ago quarter, which had 14 weeks. For the full financial year, the company's revenues moved up by 2.2 percent to $3,090 million.
Demand in the German-speaking region has been strong for the Fenix 5 smartwatch series, catching the company slightly off guard, according to officials who presented it at the recent Ispo Munich show. Retailing for €600 and upwards, it is a multi-sport GPS watch that can be integrated into an office or boardroom environment.
In releasing its financial results, the company's management said that the variety of sizes and styles offered in the Fenix 5 family has successfully broadened its customer base, with the majority of customers registering Fenix 5S devices being women, which was a previously underrepresented demographic.
Sales in Garmin's so-called outdoor segment jumped by 15.9 percent to $203.3 million in the quarter, led by wearable devices combined with growth of inReach satellite communication subscriptions. The gross margin soared by one percentage point to 63 percent and the operating profit grew by 26 percent. For the full year, revenues in the segment rose by 28 percent to $698.9 million for the same reasons.
Garmin continues to believe that its Connect IQ application platform is an important differentiator for its smart wearables, offering more than 3,500 apps, widgets and watch faces. It has generated over 45 million downloads since inception, approximately half of which occurred in the past year. The company will hold a second annual developers' conference in April to further support Connect IQ.
The company also recently introduced two entries in its so-called outdoor segment with the launch of Descent, its first wearable for the diving market, and the Impact bat sensor, its first product for the baseball market. The latter's sensors deliver instant feedback, while coaches and players can see further details using the Impact mobile app associated with the device.
Contrasting with the strong performance of the outdoor segment, the fitness division, which includes Garmin's cycling products, recorded sluggish sales in the latest quarter, after three quarters of the decline. They inched up 0.8 percent to $276.2 million, driven by GPS enabled products and advanced wearables, partially offset by declines in the basic activity tracker market. The gross margin remained stable at 53 percent, while the operating profit rose by 24.1 percent.
The fitness segment launched several new wearables last year including a contactless payment solution called Garmin Pay that can be integrated into its Vivoactive watch series. The system was introduced in the U.S. and Switzerland last December. Garmin is currently in discussion with banks in Germany to release the technology in that country later in 2018. It has signed an agreement for its introduction in Spain in combination with Visa and Caixabank.
Also last year, Garmin expanded the range of fitness smartwatches with a Vívoactive 3 model; Vívomove HR, an analog watch with wrist heart rate and smart notifications; and Vívosport, a slim activity tracker with built-in GPS and smart notifications. The Fitness segment recently launched the Forerunner 645 Music, which brings both music and Garmin Pay to a wearable, with advanced features such as running dynamics and connectivity.
For the full year, revenues in Garmin's fitness segment were off by 7 percent to $762.2 million, driven by the rapidly maturing market for basic activity trackers, partially offset by growth in advanced variables and children's line of activity trackers.
Garmin's sales gained 24.1 percent to $83.7 million in Garmin's marine segment for the fourth quarter, but were down by 13.7 percent to $195.5 million in the automotive segment, primarily due to the ongoing contraction of the PND (Personal Navigation Device) market. In contrast, the aviation segment rose by 10.7 percent to $19.4 million.
Overall, Garmin's gross margin for the quarter advanced by 1.5 percentage points to 56.2 percent, while the operating margin improved by 1.6 percentage points to 20.2 percent. Net income rose by 1.6 percent to $135.6 million. For the full year, the gross margin gained 2.2 percent to 57.8 percent and the operating margin improved by one percentage point to 21.7 percent, while net income jumped by 36.0 percent to $695.0 million.
Garmin now anticipates revenues of about $3,200 million for 2018, driven primarily by higher expectations for its outdoor, aviation and marine segments, partially offset by lower expectations for the automotive segment. Revenues in the outdoor segment are projected to increase by about 13 percent. The management anticipates that the growth will be primarily driven by the Fenix series and supported by growth in other product categories within that segment. Garmin is targeting revenues in the fitness segment to be flat in 2018, with growth in cycling and children's trackers offset by further declines in basic activity trackers.