Audiovox Corporation Reports Fiscal 2009 First Quarter Results

HAUPPAUGE, N.Y., July 10 -- Audiovox Corporation today announced results for its fiscal 2009 first quarter for the period ended May 31, 2008.

Net sales for the period ended May 31, 2008 were $144.6 million, an increase of 12.7% compared to $128.3 million reported in the comparable prior year period. This increase is primarily attributed to higher sales generated from acquisitions as well as positive contributions from select product lines and channels, both of which were partially offset by weaker sales as a result of worsening economic conditions in the U.S.

The Company reported an operating loss of $7.9 million in the fiscal 2009 first quarter compared to an operating loss of $1.6 million in the fiscal 2008 first quarter. Included in this loss is a write down of approximately $2.9 million related to portable navigation products. Due to the highly competitive market, lower average selling prices and the continued focus on higher margin product lines, the Company has exited the portable navigation business, resulting in this charge. The Company continues to monitor its inventory position closely and at this time, does not see any other product category that is currently at risk.

Net loss from continuing operations during the fiscal 2009 first quarter was approximately $5.2 million compared to net income of $0.1 million in the fiscal 2008 first quarter. Net loss for the period ended May 31, 2008 was $5.2 million or a loss of $0.23 per diluted share compared to net income of $2.2 million or $0.10 per diluted share for the period ended May 31, 2007, which included net income from discontinued operations of $2.1 million, net of tax due to a derivative legal settlement.

Patrick Lavelle, President and CEO stated, "We entered the fiscal year knowing the overall economic environment would have a negative impact on our performance and this was accounted for in our internal projections. With the surge in crude oil and gas prices, the domestic economy worsened, particularly as it related to consumer confidence and purchasing. These factors have cut into our profit potential as our expenses were higher and we were not able to fully leverage our overhead with lower than expected sales volumes. We are hopeful that the situation will stabilize and are taking the necessary steps to bring this Company back to profitability."

Electronics sales, which include both mobile and consumer electronics were $113.7 million for the period ended May 31, 2008, an increase of $18.7 million or 19.7% as compared to $95.0 million reported in the comparable fiscal 2008 period. This increase was primarily due to the incremental sales generated from acquisitions, increased sales in the Company's core consumer and security product lines and higher sales in the Company's international operations in Germany and Venezuela. These increases were partially offset by lower than expected electronic sales in mobile audio and video as a result of the weakening U.S. economy, lower consumer demand for electronics products and a decline in new car sales.

Accessories sales for the fiscal 2009 first quarter were $30.9 million compared to $33.3 million in the comparable fiscal 2008 period, a decline of approximately 7.2%. This decline is directly attributable to lower sales of consumer electronics, as a decline in consumer spending has had a direct correlation on sales of the Company's accessory products. Partially offsetting this decline were sales generated from the Technuity acquisition which closed in November 2007 and were not included in fiscal 2008 results.

As a percentage of net sales, Electronics represented 78.7% in the fiscal 2009 first quarter compared to 74.1% in the comparable fiscal 2008 period and Accessories represented 21.3% compared to 25.9% in the same respective periods.

Gross margins declined by 250 basis points to 15.6% in the fiscal 2009 first quarter, as compared to 18.1% in the prior fiscal year period. Gross margins were unfavorably impacted by the Company's decision to exit the portable navigation business, which resulted in a charge of $2.9 million during the three months ended May 31, 2008. In addition, gross margins were adversely impacted by higher inbound and outbound freight and warehouse and assembly costs as a result of increases in energy and material costs and field warehousing expenses.

The impact to gross margins for the discontinuance of the portable navigation product line was 2.0% in the fiscal 2009 first quarter.

The Company reported operating expenses of $30.4 million for the three months ended May 31, 2008, an increase of 22.6% compared to $24.8 million reported in the comparable period last year. As a percentage of net sales, operating expenses increased to 21.0% in the fiscal 2009 first quarter compared to 19.3% in the same period in fiscal 2008. The increase in total operating expenses is due to the incremental costs related to the five acquisitions the Company made in calendar year 2007, which contributed total operating expenses of $10.9 million for the three month period in fiscal 2009. Operating expenses for the Company's core business was $19.5 million for the three months ended May 31, 2008, an increase of 1.3% over the prior year. Operating expenses for the three months ended May 31, 2007 included a $1.0 million benefit related to a call/put option previously granted to certain employees and excluding this benefit, core operating expenses declined by 3.7% in the fiscal 2009 first quarter compared to the same period last year.

Lavelle concluded, "Irrespective of the global economic conditions, we still believe our sales will grow this year and that our gross margins will return to traditional levels. We have plans in place to reduce our overhead further and we remain focused on the bottom-line. Furthermore, our cash position and balance sheet are healthy and I remain confident that we will work our way through this recession, given our brands, growing distribution channels and opportunities to expand internationally."

Conference Call Information

The Company will be hosting its conference call on Friday, July 11, 2008 at 10:00 a.m. EDT. Interested parties can participate by visiting www.audiovox.com, and clicking on the webcast in the Investor Relations section or via teleconference (toll-free number: 866-831-6247; international number: 617-213-8856; pass code: 21172509). For those who will be unable to participate, a replay has been arranged and will be available approximately one hour after the call has been completed and will last for one week thereafter (replay number: 888-286-8010; international replay number: 617-801-6888; pass code: 45691993).