Fitbit Wants to Improve Its Profitability

Fitbit’s (FIT) unit sales rose 36% YoY (year-over-year) in the first quarter. However, the sales growth was lower at 10%. The average selling price fell to $91 per device. Fitbit is looking to expand its revenues by launching lower-priced products. While device sales might increase, the strategy will likely have a negative impact on the profit margins.

Fitbit will have to cut costs to improve its bottom line. In the first quarter, Fitbit’s operating expenses fell 13% to $151 million. The operating expenses accounted for 55% of the company’s sales—down from 70%. A portion of the decline was the result of a change in the timing of spending. The decline wasn’t due to cost savings.

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Fitbit CFO Ronald Kisling said, “We shifted approximately $15 million of spend later in the year. In addition, we took a $2.5 million restructuring charge in the first quarter related to a reduction in staff. Our non-GAAP results excluded restructuring charge.”

Fitbit’s R&D (research and development) costs fell 15% to $64 million due to lower employee costs, consulting expenses, and a lower prototype. Sales and marketing spending fell 5%. Fitbit shifted its media spending from the first quarter to the second quarter.

The general and administrative costs fell 27%. Fitbit reduced its real estate footprint in San Francisco. The capital expenditure in the first quarter was $6 million or 2.2% of the sales.

In 2019, Fitbit expects its gross margin to fall marginally to 41%. The gross margin might improve in the second half of the year due to higher revenues, operating leverage, and an improved product yield.

Fitbit expects the operating expenses to fall 2%–6% this year to $660 million–$690 million.