Confirming a leak overnight from The Information, moments ago Fitbit announced that in order to manage expenses, it would lay off some 110 employees ot about 6% of its workforce. At the same time the company also slashed its guidance, and warned that it now expect a full year loss per share of 51-56 cents, far lower than the previous guidance of a profit of 14-18 cents, as a result of a big drop in revenue growth which it now expects to rise just 17%, far below the previous forecasted growth of 25% to 26%.
The stock has plunged on the news, and was trading some 18% lower in the pre-market.
Select highlights from the jsut released preliminary Q4 earnings report:
Based upon preliminary financial information, Fitbit expects to report 6.5 million devices sold and revenue for the fourth quarter of 2016 to be in the range of $572 million to $580 million, compared to the company’s previously announced guidance range of $725 million to $750 million. For the full-year 2016, Fitbit expects annual revenue growth to be approximately 17% from the previous forecasted growth of 25% to 26%. Non-GAAP diluted net loss per share for the fourth quarter is expected to be in the range of ($0.51) to ($0.56) compared to the previously announced guidance range of non-GAAP diluted net income per share of $0.14 to $0.18. The non-GAAP effective tax rate is expected to be materially higher than prior guidance. For the full-year 2016, Fitbit expects to earn approximately $32 million in non-GAAP free cash flow and have approximately $700 million in cash, cash equivalents, and marketable securities on its balance sheet. Fourth quarter results are subject to change based on the completion of the company’s customary year-end audit review process.
Fitbit is taking direct action to reduce the expense basis of the company while maintaining necessary investments to drive future growth and maintain its global leadership position in the wearables market.
- Targeting a reduction in the 2016 exit operating expense run rate of approximately $200 million, to approximately $850 million for 2017, which includes realigning sales and marketing spend and improved optimization of research and development investments.
- Conducting a reorganization of its business, including a reduction in force, that will impact approximately 110 employees, constituting approximately 6% of the company’s global workforce, creating a more focused and efficient operating model. The cost of these reorganization efforts is expected to be approximately $4 million to be recorded in the first quarter of 2017.
Blame excess inventory, i.e., time for a business model pivot as walking up stair is no longer cool perhaps?
The company expects non-GAAP fourth quarter gross margin to be materially below its previously issued 46% guidance due to excess inventory and other related charges as follows:
- One-time write downs of tooling equipment and component inventory of approximately $68 million.
- Increased rebates and channel pricing promotions of approximately $37 million which is recorded as a reduction in revenue.
- Increased return reserves of approximately $41 million due to greater channel inventory.
- Increased warranty reserves for legacy products of approximately $17 million.
For the full year 2017, Fitbit is providing some targeted financial metrics as the company transitions its business to the next stage of growth. The company expects a challenging year over year comparison in the first half of 2017 given that new product introductions represented 52% of revenue in the first half of 2016. In addition, the company enters 2017 with a higher operating expense run rate than the first half of 2016, and channel inventory levels that are higher than previously anticipated. The company expects stabilization in financial performance in the second half of 2017.
Good luck. CEO James Park had the following words of encouragement to battered shareholders:
“Fourth quarter results are expected to be below our prior guidance range; however, we are confident this performance is not reflective of the value of our brand, market-leading platform, and company’s long-term potential. While we have experienced softer-than-expected holiday demand for trackers in our most mature markets, especially during Black Friday, we have continued to grow rapidly in select markets like EMEA, where revenue grew 58% during the fourth quarter. To address this reduction in growth and what we believe is a temporary slowdown and transition period, we are taking clear steps to reduce operating costs. Looking forward, we believe Fitbit is in a unique position to stimulate new areas of demand by leveraging the data we collect to deliver a more personalized experience while developing upgraded versions of existing products and launching additional products to expand into new categories,” said James Park, Fitbit co-founder and CEO. “As the overall wearable category leader, we exited the year with an engaged community of over 23.2 million active users, making us uniquely positioned to be the partner of choice for the healthcare ecosystem, which is a key component of our long-term strategy.”
And just like that, the “wearables revolution” will no longer be televized.
via http://ift.tt/2kKjtrw Tyler Durden