Q4 2025 Logitech International SA Earnings Call
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Hanukkah Favor: Joining us today are hanukkah favor, our CEO in the Teo and versa our CFO.
Speaker Change: During this call we will make forward looking statements, including with respect to future operating results under the Safe Harbor. The private Securities Litigation Reform Act of 1995, we're making these statements based on our views only as of today, our actual results could differ materially and we take undertake no obligation to update or revise any of these states.
Hanukkah Favor: <unk>.
Hanukkah Favor: We will also discuss non-GAAP financial results and you can find a reconciliation between GAAP and non-GAAP results and information about our use of non-GAAP measures and factors that could impact our financial results and forward looking statements in our press release and in our filings with the SEC.
Hanukkah Favor: These materials as well as the shareholder letter and a webcast of this call are all available at our Investor Relations page of our website. We encourage you to review these materials carefully.
Hanukkah Favor: Unless noted otherwise references to net sales growth are in constant currency and comparisons between periods are year over year. This call is being recorded and will be available for a replay on our website.
With that I will now turn the call over to Hanukkah I got.
Speaker Change: Thanks, Dave and welcome everyone to the call.
Speaker Change: Fiscal year 2025 was the year outstanding results for Logitech.
Speaker Change: We delivered strong profitable growth driven by progress against our strategic priorities.
Speaker Change: Specifically for the year, we delivered 7% constant currency net sales growth.
Speaker Change: That growth was broad based across geographies product categories and customers.
Speaker Change: We expanded market share in key product categories and remain the number one or number two player in 11 of the 13 categories that we compete in.
We also expanded non-GAAP gross margins by 170 basis points and non-GAAP operating margins by 70 basis points.
Speaker Change: Growing our operating income to $775 million.
Speaker Change: And we continue to generate a very healthy amount of cash.
Speaker Change: We generated about $840 million of cash from operations in fiscal 'twenty five more than one times operating income.
Speaker Change: And we returned approximately $800 million to shareholders in the form of dividends and share repurchases.
Now our success in fiscal 'twenty five can be attributed to four strategic drivers.
Speaker Change: First superior products and innovation.
Speaker Change: Innovation is at the heart of logistics strategy and integral to our DNA.
Speaker Change: In fiscal 'twenty, five we launched 39 new products.
Speaker Change: Globally Best Sellers included the combo touch keyboard case for the new iPad.
Speaker Change: <unk> Super light wireless gaming mouse, and a 50 gaming headset family.
Speaker Change: In China, the new Alto keys, mechanical customizable keyboard became the country's best selling personal workspaces mechanical keyboard.
Speaker Change: These launches and the many design awards that we received where innovation illustrate our ability to deliver design led software enabled hardware innovation that delights users around the world.
Speaker Change: Second we doubled down on B to B logic.
Speaker Change: Logitech for business played an important role in Logitech success this year.
Speaker Change: We saw healthy end customer demand growth of about 7% in dollars.
Speaker Change: Investments in smarter products and go to market capabilities fueled growth across video collaboration headsets and personal workspace product sold to enterprise customers.
Speaker Change: We're also seeing great expansion in our education vertical with double digit year over year demand growth.
Speaker Change: And we're seeing double digit growth in services revenue.
Speaker Change: Third excellent execution across our geographies.
Speaker Change: Rapidly reapplying best practices and proven strategies from market to market to strengthen our global performance across the board.
Speaker Change: And finally operational excellence, our foundational strengths as an operations powerhouse delivered record product cost reductions driving the second highest annual non-GAAP gross margins in the last decade.
Speaker Change: Our fourth quarter reflected all of these same strategic factors as well as disciplined execution by our teams.
Speaker Change: I want to extend my appreciation to all of our employees for delivering an excellent fiscal year 2025.
Speaker Change: Now as we enter fiscal 'twenty six we are faced with a wide range of potential outcomes. When it comes to tariffs consumer and customer confidence and geopolitics.
Speaker Change: While acknowledging that uncertainty we are confident heading into our fiscal year.
Speaker Change: Logitech was built to compete in good times and through uncertainty.
Speaker Change: That's because of a number of unique strengths that we built over the years.
Speaker Change: We have a balanced global customer base.
Speaker Change: We generate about two thirds of our global sales outside the United States, which positions us well to manage market specific risks.
Speaker Change: We invested in a broad diversified manufacturing footprint across six countries.
Speaker Change: Today, only about 40% of our products sold in the United States originate from China.
Speaker Change: With the rest coming from five other countries.
Speaker Change: We have more room for diversification and we're able to rapidly shift production to optimize cost and mitigate tariff impact.
Speaker Change: By the end of this calendar year, we're planning for only about 10% of U S products to be sourced from China.
Speaker Change: Yeah.
Speaker Change: We also invested in a strong globally recognized brand and superior products, which we believe provides brand loyalty and importantly pricing power.
Speaker Change: We have a pristine balance sheet offering financial flexibility.
Speaker Change: And we invest in people.
We have a very experienced operational and commercial team who built expertise through the tariffs of the two previous administrations as well as through COVID-19.
Speaker Change: Their expertise frankly is unmatched in our industry.
Speaker Change: With this advantage start point our approach for the year ahead will be based on three core principles.
Speaker Change: One we're going to play offense.
Speaker Change: We aimed to decisively expand market share at this time.
Speaker Change: We exited fiscal year 'twenty five with great momentum.
Speaker Change: We believe continued investments in R&D marketing and sales will help us drive lasting competitive advantage.
Speaker Change: Two cost discipline will be critical both when it comes to product cost and Opex, especially G&A.
Speaker Change: And three agility.
Speaker Change: We are moving very rapidly to leverage our broad manufacturing footprint and take the necessary commercial actions.
Speaker Change: We know things are fluid and we're acting fast.
Speaker Change: So as we look at the first quarter of fiscal 'twenty six we expect a number of dynamics to shape performance not all of them certain at this point.
Here's what we know.
Speaker Change: We know that the current set of parents and exemptions that represent about a 200 basis point hit to global gross margins in the first quarter.
Speaker Change: That impact is mitigated in Q1 by the fact that we're still selling through inventory that we were able to proactively pull into the U S. Before April.
Matteo: Matteo will provide more detail.
Matteo: We also know that we have announced a set of targeted price increases to customers in the United States, which are being implemented from mid April.
Matteo: We don't necessarily like to raise prices, but the current context requires it.
Matteo: Our increases are intentionally tailored to select products rather than the one size fits all approach.
Matteo: We've taken into account the role of each product strategic price points, and how to best optimize value for our consumers and b to b customers.
Matteo: Some prices have remained unchanged others have seen double digit percentage increases and some fall in between reflecting a thoughtful targeted approach.
If needed we believe we have more room for pricing later in the year.
Matteo: So that's what we know.
Matteo: But there's also much though we cannot yet know.
Matteo: Even in the current quarter, our final outcomes will depend on any changes that may be made to trade policy.
Matteo: Leading to scope of tariffs the countries and the products affected timings and exemptions.
Matteo: The outcomes will also depend on macroeconomics and consumer as well as b to b customer sentiment and behavior.
Matteo: And finally, there maybe geopolitical factors that will shape demand globally.
Matteo: Despite all that uncertainty we are providing our financial outlook for the first quarter of our 2026 fiscal year.
Matteo: Matteo will provide the details in just a minute, but at the midpoint outlook calls for continued topline growth supported by healthy growth in operating income margins.
Matteo: The book ends of our outlook essentially contemplate what we believe are possible outcomes based on the known unknowns I, just outlined trade policy consumer and enterprise sentiment and geopolitical factors.
All of that said what matters beyond the headlines is that the fundamentals of our business are strong and that we operate from an advantaged starting point okay.
Matteo: Cross fiscal 'twenty six we are going to play offense, while exercising strong cost discipline and acting with agility.
Matteo: Logitech was built to compete at times like these and that's what we plan to do in the year ahead.
Speaker Change: <unk> over to you. Thank you Monica.
Speaker Change: And thank you all for joining us on the call today so.
Speaker Change: So the team delivered another good quarter with solid demand and high gross margins of 43, 5%.
The detailed financial results can be found in the press release and shareholder letter, but let me briefly share with you the key financial highlights.
Speaker Change: Now the fourth quarter represented the fifth consecutive quarter of year over year net sales growth.
Speaker Change: For the quarter sell through outpaced the selling by approximately two points is realigned our channel inventory we demand following the holiday season.
Speaker Change: Channel inventory ended within our operating targets, while all of them be inventory ended the quarter up approximately 20 million quarter over quarter as we proactively built our inventories in advance of the tariffs taking effect.
Speaker Change: Now within our product categories keyboards, and combos in pointing devices performed very well.
Speaker Change: Is the high end of our product lines, the Amex and Oracle had record quarter sales in the quarter web.
Speaker Change: Webcams delivered mid single digit net sales growth in end user demand remains strong across our gaming portfolio.
Speaker Change: So for the full fiscal year of 2025 total net sales increased by 7% in line with the outlook that we provided on our third quarter earnings call and during the Investor Day in March.
Speaker Change: Our topline growth year over year was broad based across all regions and across our key product lines with the exception of west comps.
Speaker Change: Web Com's finished the year with strong momentum and we remain the market leader in the ski category.
Speaker Change: Our growth continues to be extremely profitable.
Speaker Change: non-GAAP gross margin rate of 43, 5% for the full year of 2025.
Speaker Change: For the fiscal year of 2025, non-GAAP gross margin rate increased by 170 basis points compared to the prior year, thanks to a reduction in our protocols.
Speaker Change: Partially offset by higher promotions and the negative impact of foreign exchange.
Speaker Change: Operating expenses were approximately $1 2 billion for the year corresponding to 26, 5% of net sales now, but this amount includes approximately 23 million of bad debt reserve recorded in sales and marketing expense.
Speaker Change: The inability of our e-commerce payment provider digital Reaper to pay US now of this amount 40 million was recorded in third quarter and the balance was recorded in the fourth quarter.
Speaker Change: So if we exclude the impact of this charge our operating expenses as a percentage of net sales would have been 26%.
Speaker Change: So for fiscal year 'twenty five non-GAAP operating income was 775 million or 17% of net sales up 70 basis points compared to the prior year as a result of the gross margin expansion that I just mentioned.
Speaker Change: Our cash generation continued to be extremely strong we generated approximately 840 million of cash from operation more than one time the operating income.
Speaker Change: Which approximately $800 million was returned to shareholders in the form of dividends and share repurchases.
Speaker Change: Our cash balance at the end of the year was $1 5 billion.
Speaker Change: I would like to congratulate the entire logistic team for an outstanding fiscal year 2025, we returned to high single digit profitable growth generating strong cash flow and in the absence of M&A. We returned to cash that we generated back to our shareholders.
Speaker Change: Now looking ahead to fiscal year 2026.
We are not immune to the tariff uncertainty in the overall volatility in the current macroeconomic environment.
Speaker Change: Our ability to provide a long term outlook is predicated upon a modicum of stability within.
Speaker Change: Within the broader economy.
Speaker Change: And without the stability it is virtually impossible to provide an outlook that looks beyond the next quarter.
Speaker Change: Hence why we withdrew our outlook for the fiscal year ahead.
Speaker Change: So today, we are providing our financial outlook for the first quarter of our fiscal 2026 year.
Speaker Change: Net sales in the quarter I would expect it to be between flat to plus 5% in constant currency compared to prior year.
Speaker Change: Gross margins will be between 41 and 42%.
Speaker Change: And non-GAAP operating income between 155 and $185 million.
Speaker Change: Now in the first quarter the negative impact of the current tariffs on our global gross margin rates would be approximately 200 basis points.
Speaker Change: This impact is mitigated in the first quarter by the fact that we are still selling through the inventory that entered the United States before April.
Speaker Change: Otherwise, we estimate the impact would be approximately 500 basis points at a company level.
Speaker Change: The range of our outlook incorporates different outcomes on the variables that are currently unknown such as the consumer and the enterprise sentiment.
Speaker Change: And the timing of the price realization in the quarter.
Speaker Change: So for sure the environment is challenging but as hanukkah pointed out logistic is built for this.
Speaker Change: So with that I think we can turn it over to Q&A.
Speaker Change: Thank you Matteo as mentioned, we will now move into the Q&A session. Please use the raise hand icon located on the toolbar to indicate that you have a question I wanted to call on your name. Please turn on your video and on mute yourself.
Speaker Change: Our first question will come from Oscar merchant with city, Austria.
Speaker Change: Great. Thank you everyone.
Speaker Change: Just if I can double click a little bit.
Speaker Change: The gross margins, how we should think about that you were talking about some impacts here and with respect to the price pricing. That's gone through is that reflected in your June quarter guide on the top line as well if you can just kind of parse out the impact on the topline from the pricing.
Speaker Change: And then how we should think about gross margins given the tariff impacts that you just highlighted thank you sure. Thank you for your question so.
Speaker Change: The way I would describe the gross margin rate. So we're going from about 43 and a half roughly in the first quarter of last.
Speaker Change: Last year to about 41, 5%.
Speaker Change: I mentioned in the prepared remarks about 200 basis points negative impact comes from the tariffs.
Speaker Change: And this obviously factors being the fact that we are still consuming their inventory they came in before the tariffs took place.
Speaker Change: We have about another 100 basis points of impact coming from the.
Speaker Change: The fact that last year in the first quarter. If you recall, we were still at releasing some previously recorded inventory reserves as the inventory was coming down and we're not expecting this to happen again in the current quarter.
Speaker Change: So this negative impact of about 300 basis points. When you combine the both factors are partially offset by about 100 basis points of positive income coming from price. So if you look at the price.
Speaker Change: And Sonic I mentioned.
Speaker Change: No we don't like it necessarily to raise price, but we have to and this is really focused on the U S. We have a we did a very meticulous approach who looks at a SKU by SKU.
Speaker Change: And some products are.
Speaker Change: The price Didnt change others increased double digit and we have a bunch of products in the middle but when you normalize and factor all of the same.
Speaker Change: That's about 10% of our price increase on our U S product then keep in mind that you know.
Speaker Change: It's great to be a Swiss and global company today, and only about a third of our revenue.
Speaker Change: Coming into the United States. So that's how you impact the numbers.
Speaker Change: Thank you and any early indications on how customers are reacting to these price increases I guess they go in in April.
Speaker Change: No. If you have any early indications on that yeah.
Speaker Change: Yeah, it's too early really to say you know we started implementation for a mid April it always takes a little while for these prices to be reflected on shelves across across the country and online. So I'm really too early to say, but we do believe from previous price increases around the world that our strong brand and our superior.
Speaker Change: Products will protect us to a large extent and sometimes there's a bit of an impact in the short term we will see.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from Eric <unk> from Morgan Stanley Eric.
Eric: Hey, guys I'm.
Eric: Good afternoon, and thank you for taking my questions here two if I may.
Eric: One unrealized ran up pretty.
Eric: Unprecedented period here so.
Eric: Uh huh.
Eric: Completely understand where you're going with your comments on kind of global production, 40%.
Eric: Global production of U S production comes from China today. The goal is skip by 10% by the end of calendar 'twenty five.
Speaker Change: I'm just wondering what that means for your Suzhou facility does that just mean that youre shifting most production of Suzhou two international markets or are you downsizing that facility and really the question comes from historically this has kind of been an area of strength for Logitech, you get IP production, you get flexibility to respond to.
Eric: Demand.
Eric: Just curious kind of what this means for soochow and again, how we should be thinking about.
Eric: Then where your U S products will then come from if it's not China and then and then a quick follow up. Please thanks, Yeah sure. Thanks, Eric Great to see and I'm.
Eric: I'm not worried about soochow, because again, if you do the math, 70% of our sales are not for the United States and already only 40% of what does go to the United States and in China and that will go to 10. So it's actually a relatively small part and of course Suzhou will continue to play a very large role for in term.
Eric: Production for the rest of the world. So Suzhou is nice in full the fact that we just had such a great year with 7% top line growth. Obviously also helped us to fill Suzhou and so no worries there where does that U S. Volume go you know we're in the fortunate position that we have invested in it really diversified manufacturer.
Eric: During footprint, where China, plus five other countries today, so while I won't say easy to ship volume. Our team is doing a fantastic job of shifting volume fast to mitigate tariff impacts.
Eric: Okay I appreciate that thank you. Thank you Monica and then.
Eric: I realize I've asked this question was maybe about how how customers have responded to pricing increases maybe I'll ask a different way is just how is spending linearity tracked kind of quarter to date, whether that's versus past June quarters, surpass aprils or even relative to the month of March and really just trying to get at.
Eric: Pull forward versus push out of demand how are you seeing customers respond to just general tariff and policy volatility with their wallets, whether thats in enterprise and SMB or a consumer just how is the customer responding over this last month.
Chaos relative to either the past year's or last quarter. Thanks. So much guys. Yeah. Yeah. Let me, let me have a stab at that so on the consumer side of our business I'd say it can sit where it remains very resilient for our products. So in the last quarter. So in the March quarter, and you know there was.
Eric: Low single digit market growth in the Americas and in Europe are in our categories in high double digits in APAC and consumer demand for our strike. Those also was strong as you see in our numbers.
Eric: We also grew share across regions. So in in the March quarter things were looking really good and and on the consumer side again in North America in the last four weeks.
Eric: We're kind of seeing a range of behaviors and Theres certainly you know you see it on the tick tock. This kind of know by movements. So there's some people who are really starting to be frugal.
Eric: There is also you know a significant amount of consumers who are pulling purchases forward.
Eric: And then there is also the segment I would call. It you know yellow you only live once I'm going to spend it all right now, but I'm going to spend it on expensive stuff. So the truth is probably somewhere in the mid at all but again I would say that some of that is that the consumer for our brand and our products remains yeah pretty good around the world.
Eric: On the beta beside them in the last quarter, we did see a bit more caution, especially in Europe.
Eric: Driven by the uncertainty in the market and I think you know most companies are just a little more hesitant to pull the trigger on big purchases made capex investments and that said global demand even on Logitech for business was still comfortably positive mid single digit up so we're optimistic.
Eric: And of course video conferencing in and off itself, it's kind of a natural hedge you know as a company say I Wanna reduce T. N E. I Wanna reduced travel you need great video conferencing to offset that.
Eric: Thanks, So much guys. Good luck.
Eric: Thank you thanks, Eric.
Speaker Change: Our next question comes from semi Chatterji with J P. Morgan.
semi Chatterji: Hi, Thanks for taking my question and Hope you can hear me.
semi Chatterji: Maybe just following up on Erik's question on the demand side.
semi Chatterji: Although we which is.
semi Chatterji: Did have sell in fact better than sell through in the quarter by 100 basis points.
semi Chatterji: From what I remember the expectation was.
semi Chatterji: 25, you had a inventory build in the first half and you would expecting some moderation in that inventory in the second half so does that count.
semi Chatterji: Counter to what you were expecting in the quarter or in relation to sort of price increases did you see the channel actually pull forward some demand into the quarter and what you're expecting as you go through more of the first quarter or.
semi Chatterji: The June quarter really another follow up thank you.
semi Chatterji: So make actually be up.
semi Chatterji: The sell through outpaced the sell in in the even the.
semi Chatterji: In the fourth quarter. So you got to weigh around which is actually what really we were expecting which is pretty normal coming out from the.
semi Chatterji: The holiday quarter.
semi Chatterji: And <unk> point earlier.
semi Chatterji: Earlier, we're very happy with where the channel is the channel ended the year, obviously be our own inventory was a little higher because we took the proactive steps to bring you some products before the tariffs.
semi Chatterji: But you know.
semi Chatterji: Overall.
semi Chatterji: We should not see the same dynamic that we saw in the beginning of fiscal year 'twenty five we have the channel was too low and we had to sell in outpacing sell through for the first few months. Our plan is to have a ceiling mirrors the sell through in the India coming quarters. Thanks to the work that the team has done in making sure that we had a healthy channel and in the <unk>.
semi Chatterji: Fiscal year.
Speaker Change: Yeah, and just to reemphasize that so what we said all along from from a year ago is that in the first half sell in would be greater than sell out and in the second half sell out will be greater than sell and that's exactly what play out what played out and that's why you see it.
Speaker Change: That's for the year as a whole the physical you know net sales and sell out are pretty much in the same space did sell out data is never perfect. So, but it's very close enough for government work.
Speaker Change: Got it. Thank you thanks for that and I apologize I'm going to read it.
Speaker Change: Read it wrong.
Speaker Change: So maybe just moving back to the discussion on the <unk>.
Speaker Change: Quarterly.
Speaker Change: Full year, we are planning to have the benefit from price, but do you have sort of a bot headwind from the data. What's the end goal here by the time you get moving most of that capacity that's addressing the Arista mine.
Speaker Change: Once you get to that point, our feedback where your gross margins are in this sort of 43% range because pricing ramps up although you have said most of that or what we see is what has to do with impact how do you think about the rest of the bill impact at that point.
Speaker Change: Yeah, it's really too early for us to speculate on that and there's just too many moving pieces at this point, which is why we're only giving you an outlook for the first quarter.
Speaker Change: But what I can say, let me give you a little bit more color on some of the variables that could change and why we can't speculate on what the outcome might be.
Speaker Change: No.
Speaker Change: Yeah, let's start from a great thing, which is that two thirds of our sales are outside of the U S. So they are not affected by tariffs that's a good start point.
Speaker Change: But for it in one third that's in the U S that portfolio of products is affected in a number of different ways today.
Speaker Change: The tariffs themselves the exemptions the countries of origin the product classification.
Speaker Change: The way, we're moving products around so as I look at the business today part of the U S. Volume is exempt zero terrorists part is at 10% part is it 20% and there is a small part that today at 145 plus percent.
Speaker Change: But all that said, it's a moving feast.
Speaker Change: The impact literally is changing on almost a daily basis based on trade policy announcements product classification, and importantly by our own actions as we move product.
Speaker Change: So <unk>.
Speaker Change: Given that it's a moving feast rather than providing you with details on how the sausages or being made we're sharing the expected outcome for the first quarter with you, which is that 200 basis points of tariff impact on the global gross margin.
Speaker Change: And we will go to.
Speaker Change: To update you as the year unfolds, but it is too early to speculate on what might have happened after.
Speaker Change: Maybe let me add.
Speaker Change: It's important also to.
Speaker Change: Put into perspective would reconsider alright, so if some of the actions that we're taking is behind.
Speaker Change: Discussed about price.
Speaker Change: We're also proactively took actions in some of the cost right. So one protocols I think we have a fantastic track record you saw what the team is really and the team have done in 2025, almost 300 basis points of the margin expansion that you saw in total year came from from their work so that work will continue.
Speaker Change: Never stop.
Speaker Change: And then we took some proactive approach on the Opex side, particularly on G&A. So as you'll hear many companies doing that around the world.
Speaker Change: We are doing the same we are curbing all the controllable spend we're cutting travel we delayed most of the hirings.
Speaker Change: And and then obviously, we are pushing and as I mentioned earlier, the manufacturing diversification, which would take us from the 60% to the 10% that we just discussed so that's that's what you can count on us the rest is difficult for us to control.
Speaker Change: Thank you thanks for taking the questions.
Speaker Change: Okay.
Speaker Change: Our next question comes from Austin Baker with loop capital.
Speaker Change: Hi, Thanks for the time from one can hear me I guess.
Speaker Change: Peel the onion back a little bit with just loves to talk about what kind of an uncertain macro environment. What do you guys feel are probably the most in these demand resilient products and then secondly, strategically I know you spoke about going on offense.
Speaker Change: Where would you want to spend the most focus on the most time or categories in that.
Speaker Change: Weeks harsh uncertain macro environment.
Speaker Change: Great question. Thank you. So so indeed you know.
Speaker Change: We go through the year. It has three principal start from playing offense and gaining share. So we come out of this stronger and we really believe we can do that if we couple it with cost discipline as well as agility on manufacturing and in some commercial actions, so where do we see the most.
Speaker Change: Resilience I would say honestly across our portfolio and let me start from gaming Yeah. We learned a lot on gaming in the last few years in China, where the economy has been soft for a while but the gaming market has been growing.
Speaker Change: At more than 20% for a while in China.
Speaker Change: And we put in place a China for China program, almost a year ago and I'm really pleased by the results that we're seeing on that program and so we know that we can win when the economy is soft we know theres, a little bit of a lipstick effect with consumers.
Speaker Change: If you can't if you don't have money to go out to the movies to go out to eat to go on a vacation you are likely to gain more than you wanted to have the right gear to be winning that game. So we certainly saw that dynamic in China. So we're really upbeat on gaming and and I would also say you know gaming had a 10% or double digit growth year for <unk>.
Speaker Change: In fiscal 'twenty five sort of momentum on gaming is also very very strong.
And then on the Worksite people still have to work people are still working for multiple places, which is a real tailwind for our portfolio. If you're working from home from the office and from a hotel you need three months you need three keyboards, and you definitely need video conferencing. When your boss tells me you can't travel anymore. So we feel that the portfolio is really well.
Speaker Change: Set up for this future.
Speaker Change: Makes sense. Thank you for the time.
Austin Baker: Thanks Austin.
Speaker Change: Our next question comes from Michael with funds at all Michael.
Michael: Yes, hi, good evening Hello.
Austin Baker: Right.
Austin Baker: Two questions from my side. The first one is in terms of.
Austin Baker: Shifting.
Austin Baker: Your production footprint for U S products, maybe can you comment on sort of what the hurdles are or how is that phased through the year or maybe which products are more difficult to move than others.
Austin Baker: And my second question would be on the logistics environment that Youre seeing right now are you seeing any.
Austin Baker: Particular spikes in freight rates.
Austin Baker: Any bottlenecks any disruptions in terms of in terms of trade flows right now yeah.
Austin Baker: Leaves the logistics question Timna Teo, just now but on the.
Austin Baker: Moving our manufacturing footprint, we have invested four.
Austin Baker: Six or seven years, now and having a much more resilient footprint. So the fact that were I would call. It China plus five today five other countries, where we make multiple multiple products makes it I think it is never easy, but it is more doable for us to move very quickly then for many others.
Austin Baker: Because just set up a new country with its supplier ecosystem with the labor that you need there.
Austin Baker: <unk> is not easy, but we have done it at the same place.
Austin Baker: Which again our team is doing heroic work, but it's easier than if we had to start from scratch and which is why we feel that our while we know that by the end of the year again broke go from 40% products in the U S originating from China to about 10%.
Austin Baker: And that's that's absolutely doable and it's doable across most of the portfolio and and you know we're always looking at individual skus, if there's an opportunity to simplify the portfolio. We also will always do that.
Austin Baker: But I'm not worried about specific parts of the portfolio that cannot be moved.
Michael: Michael on the freight.
Michael: Not seen yet at least so far in the quarter major changes on the on the pricing I would say if I look at the.
Domains.
Michael: Maybe a few a little bit cheaper price on the European the Asia to Europe Lane.
Michael: But the one from Asia to the U S. I have not seen any still a little bit up year over year. When you compare to the first quarter was 26 versus first quarter of 'twenty five.
Michael: <unk> reasonable to expect that.
Michael: Based on what we read on the on the news that they may may come down, but we haven't seen it yet.
Michael: Okay. Thank you good luck.
Michael: Thanks, Michael.
Speaker Change: Our next question comes from Didier <unk> from Bank of America.
Didier <unk>: Yes. Good afternoon. Thanks for taking my question just have a couple first of all thank you. So much for all the insights numbers that you've shared with us on the impact of salaries I. Appreciate it must be incredibly difficult at this time to to navigate this very uncertain environment, we are really extremely grateful.
Didier <unk>: My question would be first on the on the September quarter. So you've taken you've talked about the June quarter gross margin benefiting from inventories that are shipped into the channel. Prior to tariffs is there any lingering positive effect that we can expect in the September quarter, and then on the.
Didier <unk>: Maybe December quarter, what how should we think about the impact of towers.
Didier <unk>: Fine.
Didier <unk>: With regards to the.
Speaker Change: Moving out of China impact EG does your gross margin drop a lot effectively in the September and perhaps in the December quarter before they ramp back up.
Didier <unk>: How should we think about the phasing.
Didier <unk>: So the.
Didier <unk>: Let me start with <unk>.
Didier <unk>: The first question sorry in the September considering I think over all DDA. It is too early to speculate on that.
Speaker Change: But I'll, let matteo answer the inventory will be depleted so the positive impact of the inventory. That's why we are planning the way we did.
Didier <unk>: For the first quarter.
Didier <unk>: And that would be gone after the first quarter. So that's I think it's fair to say the.
Didier <unk>: The second part of your question quite frankly.
Didier <unk>: As I said is up a little pretty mature for us to.
Didier <unk>: To comment.
Didier <unk>: So I.
Didier <unk>: Just wanted to double check one thing I think the answer is yes, just wanted to make sure. The 90 day pause that we saw in the headlines on small screen that Fox smartphone and PC do include PC peripherals hawser on the spot.
Didier <unk>: Yeah. So all the numbers that we've given you for Q1 taken to account tariffs as they stand today, which includes the 90 day pause so where I said you know we have part of the portfolio for the U S that said zero percent, we have a part a 10, a part of 'twenty and a part of that 145 plus at the mall.
Didier <unk>: So the answer is yes.
Didier <unk>: Super Thanks, very much thank.
Didier <unk>: Thank you.
Didier <unk>: Our next question comes from George with Barclays, Mike George.
Didier <unk>: Oh, Hey, guys. Thanks for taking my question two quick ones. Firstly, just maybe you can elaborate on this 500 basis points impact on the gross margin.
Didier <unk>: Without any more exciting food inventory pre tariffs just curious.
Didier <unk>: Or we should assume no price hike.
Didier <unk>: Existing products.
Didier <unk>: Four to calculate is the 500 basis points because to me it seems a little bit higher in terms of the impact just curious if you can give update about car.
Didier <unk>: Assumptions behind it that sure so, Georgia 500 basis points, let me unpack. It for you includes the impact.
Didier <unk>: Impact of the tariffs.
Didier <unk>: We stand today and the impact of the manufacturing diversification actions as they stand today.
Didier <unk>: It does not include the price impact.
Didier <unk>: The impact of the price actions right.
Didier <unk>: So that's where we will have to see obviously.
Didier <unk>: How the consumer and the enterprise customer will behave and really our ability to realize the price decreases that we communicated.
Didier <unk>: So 500 is just the impact of the tariffs net of the manufacturing shifts.
Didier <unk>: And again, we have taken pricing now and you've Matteo outlined that.
Matteo: So in the first quarter 200 basis points of negative tariff impact in 100 basis points positive of pricing.
And we will see there may be more room for pricing, but again too early to speculate on what or when that might be.
Matteo: Okay, Great just a quick follow up just.
Matteo: Colorful top items, you can control in terms of <unk>.
Matteo: Operating expense control kind of G&A, you had alluded to maybe tighter control kind of.
Matteo: Elaborate on other levers you guys can pull just curious if we should expect a bit more easily.
Matteo: Tighter controls just on.
Matteo: Operating expense and G&A.
Matteo: Pull through more accretion to EPS.
George: Sure George So I think.
George: It goes beyond Opex is really control around cost so as both of the product.
George: No.
George: Back to some of the things that.
George: We discussed at Investor day, all the activities of value engineering supplier cost reduction so that will continue.
George: And we have a very good track record as you've seen in the numbers that we published today, even in even in the fourth quarter of 'twenty five.
George: Then specifically on the operating expenses, our we're gonna be laser focus we're going to primarily focus our actions on G&A. We will continue obviously to fund the investments in product development and sales and marketing back to the principles that <unk> mentioned at the beginning of vertical.
George: And on G&A, we are really working on a couple of buckets. We are curbing all the controllable expenses such as the.
George: The contractors.
George: <unk> services consulting.
George: Caffeine peony and delaying most of the hires.
George: And that's kind of the actions that are there.
George: Thank you.
George: Okay, great. Thank you.
George: You bet.
George: That was our last question for the raise hands, we do have some submitted questions from yarn with UBS.
George: Having some audio issues. So I'll just read those out loud if that's okay.
George: One of the questions was sell through in EMEA slowed down materially and why is this happening.
George: Yeah happy to talk about Europe, and the first thing I'll say about Europe is that and it had a great fiscal year 'twenty five 9% constant currency sales growth. It's just testament to fabulous execution by our team in Europe, and that's growing well ahead of the European market for the year.
George: Q4 was a little slower.
George: And that's there's a couple of reasons inventory adjustments in Europe, we were probably most.
George: Circuit in terms of making sure we had a great holiday season, which we did have them, but we are a search if I'm, bringing in inventory and in the last quarter, we were responsible at bringing that back down.
George: Unlike in other regions, we're seeing a resilient consumer in Europe, maybe a little bit of caution again same as the global dynamic amongst b to b customers that was exacerbated by the German elections that also fell in the quarter, just a little bit of caution there.
George: But we definitely are confident that that business will return to growth.
George: Okay.
George: Okay. One more question here, what is the price versus volume assumption for Q1 2016.
George: We have.
George: Europe, we have a oh.
George: The 100 basis points on the gross margin coming in thanks to price. So I'll, let you do the math.
George: But that's the assumption that we have in the first quarter.
Speaker Change: Thank you and this would be our final question. How can you organize the supply chain. So quickly that only 10% of U S sales will come from China end of the year.
Speaker Change: Yeah again this company was built to compete at a time like this I cannot say it often enough and we have a global a very broad global sales footprint. So only 30% of our U S volume is U S, but that U S volume, which is obviously really important to us we have been preparing since 2019.
Speaker Change: And to be Super resilient on that so we have China, plus five manufacturing countries in place and ready to go and producing for US today, which is a huge competitive advantage and is allowing us to move much faster than most.
Speaker Change: That was our final question. Thank you.
Speaker Change: Thank you so much thanks, everyone. Thanks for bearing with US at this time and we really appreciate you joining us I just wanted to summarize to say that our teams had an outstanding 2025 fiscal year.
Speaker Change: So thank you to our teams and looking ahead I am excited about the opportunity that's before us.
Speaker Change: We're going to play offense.
Speaker Change: Assertively manage costs and continue to be Super Super agile.
Speaker Change: And we look forward to speaking with you next quarter take care everyone.
Speaker Change: Goodbye.