Just A Little Bit ($FIT Earnings)
Fitbit (FIT) is set to report Q2 results tonight after the close with a conference call to follow at 5pm ET. FIT reported Q1 results at 4:05 pm.
Current Capital IQ consensus stands at EPS of $0.11 on Revenue of $577.9 mln.
Shares of FIT have been building a base in this $12-14 area since reporting Q1 results back in early May. The stock is attempting to press above its 50-sma (13.40) ahead of tonight's report.
Shares of FIT were able to rally to the $18 level ahead of Q1 results but weak Q2 guidance led to some profit taking and selling in the name. The Q2 EPS outlook of $0.08-0.11 was well below the $0.27 Capital IQ consensus at the time as higher investments in the company are taking its toll on the bottom line. FIT is expected to provide an update to its Q3 guidance on the call but expectations will be low as plans to launch new products in Q4 will have an impact on channel orders int he quarter. So an update to FY16 might be the more meaningful item to watch. If FIT were to see a negative response to a cautious Q3 outlook we would keep an eye on the FY16 guidance as that may provide more insight into the direction of FIT.
Key Metrics
- Revenue Growth- This has been declining over the past four quarters as economies of scale take its toll. But investors would like to see this steady ahead of the Q4 holiday season. Current Capital IQ consensus is calling for a 44% increase y/y. Revenue growth over the past four quarters has been Q1- 50.1%, 4Q15- 92.2%, 3Q15- 167.7%; 2Q15- 252.5%.
- Margins- Gross Margin is expected to rebound to 48.0% in Q2. Q1 saw it fall 320 bps to 46.6%; EBIT Margin fell to 7.3% from 27.5% as higher operating expenses weighed heavily on the bottom line.
- Inventory- Q1 saw inventory pick up 54% (compared to the 50% revenue increase). With churn to new products expected in Q3 investors will be closely watching how well this was managed.
- Devices Sold- FIT sold 4.8 mln devised in Q1.
Guidance
- Q2
- FIT issued mixed guidance for Q2, seeing EPS in the range of $0.08-0.11 vs. then-$0.27 Capital IQ Consensus Estimate. For revenue FIT forecast Q2 revs of $565-585 mln vs. then-$535.17 mln Capital IQ Consensus Estimate.
- Non-GAAP Gross Margin expected to be 48.0%.
- FY16
- FIT revised its EPS expectations higher which might point to only a temporary increase in operating expense as it ramps up delivery of new products. For FY16 it raised its EPS outlook to $1.12-1.24 (Prior gudiance was $1.08-1.20), excluding non-recurring items, vs. then-$1.13 Capital IQ Consensus Estimate. FIT also raised its FY16 revenue outlook to the range of $2.5-2.6 bln (Prior $2.4-2.5 bln) vs. then-$2.45 bln Capital IQ Consensus Estimate.
- Non-GAAP Gross Margin was reaffirmed to be in the range of 48.5-49.0% (Reaffirm).
Q1 Recap
- FIT reported Q1 (Mar) earnings of $0.10 per share, excluding non-recurring items,$0.07 better than the Capital IQ Consensus of $0.03. Revenues rose 50.1% year/year to $505.4 mln vs the $440.03 mln Capital IQ Consensus.
- U.S. comprised 70% of 116 revenue; EMEA 15%, APAC 11%, and Other Americas 4%
- U.S. revenue grew 33% year-over-year; EMEA 113%, APAC 142%, and Other Americas 74%
- Fitbit Blaze and Alta, selling a million units each in the latter part of the quarterQ