Singing Machine Announces Third Quarter 2020 Earnings Report

Fort Lauderdale, FL, Feb. 14, 2020 (GLOBE NEWSWIRE) -- The Singing Machine Company, Inc. (“Singing Machine” or the “Company”) (OTCQX: SMDM) – the North American leader in consumer karaoke products – today announced its financial results for its third quarter ended December 31, 2019.

Third Quarter Snapshot:

• Reported net sales of $15.5 million for the quarter; $40.4 million for the nine-months year-to-date period.
• Gross margins decreased for the quarter to 26.0% compared to 28.9% in the prior year; year-to-date gross margin improved to 26.4% compared to 24.6% last year over the same period.
• Operating expenses increased by approximately $1.1 million, of which approximately $0.6 million was due to more promotions run during the holiday quarter with the balance due to higher freight expenses on product returns.
• Reported net loss for the quarter of approximately $0.76 million.

Singing Machine reports net sales of approximately $15.5 million for the quarter-ended December 31, 2019 period compared to $19.4 million in the comparable quarter of the prior year. The decrease in net sales was primarily due to a decrease in sales to the Company’s UK distributor as well as approximately $1.6 million less sales to one major customer compared to the prior year. The decrease in net sales is also attributable to higher accrual for return reserves.

Gross profit margin decreased by 2.9% to 26.0% due to an increased reserve accrual on anticipated high-margin yield product returns coming back after the holidays that exceeded historical return rates.

For the quarter, total operating expenses increased by approximately $1.1 million due to the promotion and marketing of Carpool Karaoke Microphone as well as overall increased promotional funding at all of its retailers.

As a result, the Company reported a net loss of $0.76 million compared to net income of $1.3 million in the prior year. The pending insurance claim regarding the wet, damaged products is currently impacting the bottom-line by approximately $0.75 million.

Management Commentary:

Gary Atkinson, Singing Machine CEO, commented, “During our holiday quarter, Singing Machine continued to maintain market dominance and lead market share with heavy promotions and impressive visibility at all major retailers. Despite that, however, various factors contributed to missing our financial goals for the quarter. Particularly, holiday sales fell short of expectations as we experienced softer-than-expected sell-thru on various product lines. As a result, we have increased our accrual reserves for anticipated product returns coming back in our 4^th quarter. Another contributing factor is the pending unresolved insurance claim for the wet, damaged merchandise that was reported in the prior quarter.” Atkinson added, “As we move into 2020, we continue to face challenging market conditions with the Coronavirus in China potentially impacting supply chain and product development for the coming fiscal year. We are however fortunate that the threat of tariffs have been removed from our karaoke machines and are now only impacting microphones that we import from China. Despite our setbacks and challenges, we still have a robust product roadmap of new, innovative karaoke offerings and the full support of our retailer partners. We look forward to the task of getting the Company back on-track.”