Logitech Int'l SA (LOGI, Financial), a Swiss computer peripherals manufacturer, is experiencing mild selling pressure after Chairperson Wendy Becker announced she will not seek reelection next year. The board is currently searching for a successor as part of a planned leadership transition. This announcement adds uncertainty to a company already facing several challenges, leading to continued profit-taking. The stock has pulled back by around 8% since reaching one-year highs last month.
LOGI's over 30% run from April lows to 52-week highs was driven by positive themes, including stabilizing demand. Notably, customers such as Best Buy (BBY, Financial) and Walmart (WMT, Financial) requested additional inventory to meet the early stages of a PC refresh.
However, LOGI remains cautious due to sticky inflation, an uneven global recovery, and geopolitical factors. These economic issues have led LOGI to project FY25 sales of $4.3-4.4 billion, indicating flat growth year-over-year at the low end. Investors should approach LOGI with caution following its recent impressive rally.
- LOGI's diverse product portfolio includes seven segments, with Gaming comprising 29% of FY24 (Mar) revenue. The company competes in a fragmented industry with numerous brands, particularly from China, offering attractive prices.
- Competition affects top-line growth and margins as LOGI increases volume discounts or markdowns. The company targets long-term gross margins of 39-44% but projects around 41% in FY25, a 250 bp contraction year-over-year. CEO Hanneke Faber attributed this to elevated promotional spending to remain competitive.
- LOGI's sales growth relies on healthy demand, especially in gaming, which has shown softness, particularly in China. Mobile gaming also poses a challenge, as LOGI's portfolio includes keyboards, pointing devices, and headsets. The company admitted it has not yet figured out its go-to-market strategy for mobile gaming.
The planned Chairperson transition adds uncertainty for investors. Despite Logitech's strong brand recognition, it likely has little economic moat due to the plethora of competing products. With low barriers to entry in its markets and ongoing macroeconomic challenges, LOGI may face continued selling pressure in the near term.
