Monday, April 14, 2008

Where is Garmin taking us now???

Getting my GPS device stolen caused me to look a little deeper into the Garmin (GRMN) business model. Looking at the Garmin inventory days of supply metric, it is directing me to slower sales growth going forward.

In the past 5 years, GRMN's stock price (Exhibit 1) has provided a nice return for long-term investors from the late 2003 period. More recently, GRMN's stock price has been on a decline being driven by significant competitive issues, difficulty maintain prices, and erosion of gross margins (Reference Exhibit 2)
Exhibit 1.

Exhibit 2.

What I find interesting in my analysis is the relationship between sales growth vs. prior year and the inventory on hand to support future anticipated sales growth. As you look at these metrics on the chart (Exhibit 3), you will see the following:
- Solid growth story with strong quarterly sales growth vs. prior year amounts, with the last reported quarter as the highest growth of 99.1% vs. py (blue line)
- Reduction in Inventory on Hand (aka Days of Supply) to the lowest levels in GRMN's history to 66.3 days (red line)
Exhibit 3.

These metrics with what the company has publicly stated in the annual report of:

"We operate with a customer-oriented approach and seek to maintain sufficient inventory to meet customer demand. Because we desire to respond quickly to our customers and minimize order fulfillment time, our inventory levels are generally substantial enough to meet most demand"

supports my conclusion that this navigation device company will lead us to slower sales growth in the future quarters.

Disclosure: Author does not own any shares of Garmin (GRMN)

Yahoo Finance
Company website


Anonymous said...

Thats a rather simplistic view of things. They already acknowledged that they were going to see slower growth. Evidence that they only predicted something like 16% growth for the year. Also evidence that the market as a whole is keeping inventories lean to help dampen the negative effects of a possible recession. Also of note it appears high inventory on hand hurt TomTom this quarter, so keeping inventories lean, in a historic sense, might actually help Garmin comparatively.

I don't think you've stumbled across anything that wasn't already known. Now if you could predict values for the slower growth that might actually be useful.

Note: I am long, and I feel that while we will see slower growth going forward I think the amount Garmin has been knocked down is significantly overdone. I am expecting them to meet guidance and not change their full year outlook. I am hopeful for a large upside given this, although my hope could be my undoing, but who knows.

Bryan said...

great post, looks like good management on the part of garmin.

Anonymous said...

Sorry to hear your device was stolen.


Great post on garmin.