Garmin Navigates to New Highs Driven By Wearables Trend

May 07, 2024 at 12:52 PM EDT

Upclose photo of a Garmin smartwatch. Garmin navigates to new highs driven by wearables trend. Garmin Ltd. (NYSE: GRMN) launched in 1989 with the sole focus of providing GPS devices for consumers. Years later, the advent of smartphone GPS apps like Google Maps, Apple Maps, and Waze could have spelled death for the company. However, the computer and technology sector giant has thrived by branching out to become one of the largest providers of smartwatches and fitness trackers.

Dedicated GPS

While commuters and consumers are used to using a smartphone navigation app, Garmin users love having a dedicated GPS that doesn’t rely on cellular connectivity. The advantages of having a dedicated GPS include better battery life, more coverage and data privacy. Since it uses satellite tracking and preloaded maps, Garmin GPS devices can be used in the wild where there are no cellular towers. This is why Garmin GPS is often the brand of choice with boaters, pilots, hikers, and fishermen who routinely traverse rural and distant locations.

Flourishing Wearables Business

Garmin has become a favorite among smartwatch users, notably for fitness tracking. Runners, swimmers, cyclists and gym rats love Garmin smartwatches to track calories and measure pulse, resting heart rate, heart rate variability (HRV), stationary time and hourly activity. For women, its purpose-built smartwatches feature menstrual cycle tracking, pregnancy tracking, sleep score, body battery, and stress score tracking. Garmin continues to roll out features and next-gen versions of its smartwatches.

Daily Bull Flag Breakout

GRMN formed a daily bull flag breakout pattern. The preceding flagpole run-up peaked at $149.50 before the parallel upper and lower trendlines generated a reversion down to $138.86. GRMN shares bounced and broke through the $144.54 upper trendline resistance heading into its Q1 2024 earnings release. The report triggered a gap up to $151, which ground up to a $166.44 swing high. The daily relative strength index (RSI) surged to the overbought 82-band. Pullback support levels are at $153.33, $144.84, $134.11 and $123.46.

Solid Q1 2024 Results

Garmin crushed Q1 2024 EPS, reporting $1.42 versus $1.01 consensus analyst, a 41-cent beat. Operating income grew 51% YoY to $298 million. Revenues surged 20.4% YoY to $1.38 billion, crushing the $1.25 billion consensus estimates. Gross margins expanded to 58.1% and operating margins to 21.6%. Garmin was named Supplier of the Year by Independent Build Builder Inc.

Segment Growth

The company hit record first-quarter revenues in four of its segments -- Fitness, Outdoors, Aviation, and Marine -- and also saw an increase in its Auto Origination Equipment Manufacturer (OEM) segment.

The Fitness segment revenues surged 40% YoY to $343 million, driven by the strong demand among athletes for its newly launched Forerunner 165 series. Its Outdoor segment revenues rose 11% YoY to $366 million, resulting in $107 million in operating income. The Aviation segment had a 2% increase in sales driven by growth in OEM products. Its Marine segment revenues rose 17% YoY to $327 million, primarily driven by the acquisition of JL Audio.

Garmin's Auto OEM segment saw a 58% YoY increase to $129 million, driven by increased domain controller shipments to BMW. While the gross margin was 18%, the company recorded a loss of $16 million in the quarter.

Reaffirmed Guidance

Garmin reaffirmed its full-year 2024 guidance of pro forma EPS of $5.40 to $5.44 consensus estimates. Full-year revenues are expected to be around $5.75 billion versus $5.73 billion consensus estimates. The Board recommends a $3.00 dividend paid out in four quarterly payments of 75 cents per share, and the vote will be held at the annual meeting on June 7, 2024.

Upbeat CEO Insights

Garmin CEO Clifton Pemble noted that the positive trends concluding 2023 were strengthened in Q1 2024. Pemble reminded analysts that the first quarter is typically the low point of seasonal sales and, as such, will just reaffirm its prior guidance.

Pemble commented, “ Our products are unique, highly differentiated compared to a lot of products that are on the market. So people look to our products for particular inspiration around activity, but sports wellness, all those things is something that we're known for. So we're definitely seeing people appreciate our products for those things. Registrations have been strong. So we're seeing that follow through at retail, and we still see the majority of our users that are coming in as new users to Garmin as opposed to repeat.”

Garmin analyst forecasts and price targets are on MarketBeat.

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