Skullcandy Releases Its 10K (Annual Report)

I wrote about Skullcandy back on February 24th shortly after they’d released their numbers for the year and last quarter and held their conference call. You can see that article here. Now they’ve released the 10K and, as promised I’ve been through it. There’s not that much new, different or surprising that I want to highlight, but there’s a thing or two.

First, because it’s kind of fun and interesting, I want to point out that it was noted in a couple of places that the stock jumped on release of the annual report. The actual increase from the close the day the report was released (after the market was closed) to the close the next day was 3.25%.

The implication seemed to be that the numbers had made the stock rise. Maybe they did. Damned if I know. But back when the same numbers were released in press release form after the market’s close on February 22nd and the conference call was held, the stock dropped 7.4% the following day on the highest volume it’s had since it went public.
 
The learning here is that the stock market is a strange and mysterious place. The same numbers (though in different forms) released on two different days weeks apart seem to engender reactions of the stock in opposite directions. I’ve been through the 10K and I don’t see any difference that would account for the divergence.
 
Like I said when I wrote the above linked Skullcandy article referring to another issue, correlation does not necessarily equal causality. The apparently obvious factor isn’t necessarily the one having the impact. That’s a really good thing to remember on a lot of occasions.
 
Second, the only thing that really caught my attention in Skullcandy’s 10K was its description of its competitive strengths and its growth strategy. They are on pages two and three of the 10K which you can view it here if you want and see their discussion.
Here’s what they describe as their competitive strengths:
 
1)      Leading, Authentic Lifestyle Brand.
2)      Brand Authenticity Reinforced Through High Impact Sponsorships.
3)      Track Record of Innovative Product Design.
4)      Targeted Distribution Model.
5)      Proven management Team and Deep-Routed Company Culture.
 
It’s not that any of those are wrong or misdirected, but they are more or less the same five things most brands in our industry would list. That’s not a criticism of Skullcandy. The point is that as an industry we’ve gotten to the point that competitive strength tends to come from the ability to execute better than the other company rather than from a fundamental competitive difference.
 
The one thing I’d like hear them talk more about is the Targeted Distribution Model. It seems like they are targeted more or less everywhere. Maybe what they mean is that they are only selling to retailers, humongous or tiny, that buy into and support their brand distinctiveness.
 
Meanwhile, here are their growth strategies:
1)      Further Penetrate Domestic Retail Channel.
2)      Accelerate Our International Growth.
3)      Grow Our Premium Product Offering.
4)      Expand Complementary Product Categories.
5)      Increase Our Online Sales.
 
Again, I’d argue that none of these are distinctive to Skullcandy and are a matter of executing better than their competition. They don’t mention in this list increasing their average selling price, though it was something they focused on in their report. I guess it’s probably subsumed under selling more premium product.
 
Talking about product design and development, they made the following comment:
 
“We are able to bring new products from concept to market in approximately 10 to 24 months depending on the technology integration and complexity of the product. In situations where we are launching new products based on existing designs and do not require tooling, we can accelerate the concept-to-market process to approximately 6 to 12 months.”
 
Feels to me like keeping their competitive strengths and implementing their growth strategies would be easier if they could speed this up a bit. I imagine they are working on it.