Skullcandy Predicts First Quarterly Loss, Rick Alden Shares Turnaround Strategies

Rick-alden-jermey-andrus

Former CEO Jeremy Andrus and Founder and Interim CEO Rick Alden at Skullcandy’s 2011 IPO.

Following the announcement of record sales in Q4 and 2012, Skullcandy hosted its quarterly earnings call yesterday, in which CFO Kyle Wescoat projected that the company will post its first quarterly loss since going public in 2011 of approximately $0.25-0.30 per share, including a $0.03 expense for the payout of departing CEO Jeremy Andrus.

The news hit Wall Street like a shockwave sending investors running as shares plunged over 20% in after hours trading following downgrades by Piper Jaffray, Raymond James, Northland Securities, and DA Davidson.

Interim CEO Rick Alden, who came into the role exactly four weeks before the call, cited several main reasons for the Q1 and 2013 outlook, but sees a brighter future ahead following a retrenching period.

“We are unfortunately going to lose money in the first quarter and be down for the overall year compared to 2012…none of us are happy to see a loss, but the challenges we have today are self inflicted and fixable,” said an energized Alden who has set his sites on updating packaging, demand creation, and line extensions as part of a “deep dive, honest assessment where things have gone off track” in the last year.

For 2013, Alden says the immediate focus will be on eliminating low margin sales in the off-price channel and make sure not to rely on this in the future as the focus shifts to full-price retailers.

The second major initiative Alden addressed was updating Skullcandy’s packaging. Last year’s overhaul of the brand’s trademark colorful, offbeat look to the clean, white lines of “Skullcandy 2.0″ resulted in poor sell-through and the need to unload product in off-price channels. Alden sees new packaging as a major opportunity for 2013 and ’14 and plans to address this more during the company’s Q1 call.

Another major initiative is reinvigorating Skullcandy’s marketing and demand creation. Alden said the brand had focused too much on becoming operationally sound over the last year and failed to leverage its brand ambassadors and lost focus on its heritage of telling a unique brand story.

Alden added that Skullcandy has taken its eye off the product and demand creation ball and hasn’t “kept up with trends or led with our own creations.” Going forward, they plan to stay focused on what made the brand unique: marketing, its relationships, its supply chain, and leverage those to create future success. “We need to get back to the bleeding edge, rather than waiting to see what our competitors are doing,” said Alden.

Alden added in the Q&A session that the company is actively looking for the right CEO to fill the role, but that he will continue as a strong, vocal board member, rather than taking a quiet spot in the backseat as he had for the last year.