Fitness-related devices generated a sales increase of 23 percent to $143.2 million for Garmin in the third quarter, nearly making up for declines in other product categories, from outdoor to automotive and aviation, while marine sales were flat.
The group's sales slipped by 4 percent to $679.7 million for the quarter. They were set back by unfavorable exchange rates, with the strong dollar impacting them by about 7 percent. Garmin shipped about 3.9 million units in the quarter, an increase of 4 percent.
The group's gross profit margin shrank by 3.1 percentage points to 53.3 percent and its operating profit margin was down by 6.3 percentage points to 18.5 percent. Net income amounted to $119.3 million, compared with a loss of $146.8 million, which was chiefly due to foreign currency losses and an income tax provision in the same quarter last year.
The rise in the fitness segment was attributed to the strong uptake of fitness, multisport and cycling products. Garmin is investing further in the segment with the planned launch of several products in the fourth quarter. The Forerunner 235 is Garmin's first product to integrate Garmin Elevate wrist-based heart monitoring technology. The Vívosmart has the Garmin Elevate technology as well as an always-on display, smart notification and activity intensity levels. To support these products and others, Garmin recently launched an update to Garmin Connect Mobile.
The gross margin of Garmin's fitness division fell to 54 percent, chiefly due to unfavorable currency exchange rates and sharp pricing, as Garmin competes with companies such as Fitbit and Jawbone. The marketing investments around the product launches weighed on the operating margin, which was down to 19 percent.
Sales declined by 5 percent in the quarter for the outdoor segment, due to geographic exposure to currencies that weakened against the dollar. The gross margin and the operating margin were both down, due to unfavorable changes in exchange rates and mix, along with investments in research and development. Although some categories in the outdoor segment were under pressure, Garmin still sees rooms for growth in existing and adjacent categories in 2016.
Garmin's sales for the first three quarters of the year were down by 1 percent to $2,038.9 million. While sales advanced by 18 percent to $432.9 million in the fitness category, they declined by 3 percent in outdoor.
The group already warned a few days before the release of its quarterly results that it had to downgrade its sales forecast for the full year. While it previously anticipated sales of $2.9 billion, the forecast has been adjusted to $2.8 billion.
The fitness division is expected to deliver a sales increase of 15 percent, down from an earlier forecast of 25 percent, while outdoor sales should be off by about 4 percent. The gross margin is predicted to land at about 53.5 percent and the operating margin at 18.5 percent. Pro forma diluted earnings per share are forecast to reach about $2.25 for the full year, against a previous guidance of $2.65.