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Bang & Olufsen Shares Gain as Luxury Hi-Fi Maker Sees Bottom

Bang & Olufsen Earnings Miss Estimates on Distribution Glitches

(Bloomberg) -- Bang & Olufsen A/S shares gained the most in a year after the Danish maker of luxury audio speakers forecast a return to sales growth as it eliminates kinks in its logistics network and adds products such as speakers that are compatible with Apple AirPlay software.

While revenue will probably stagnate in the 12 months through May, average growth should exceed 10 percent in the following two years, on average, the company said Tuesday. Bang & Olufsen also reported a 9 percent decline in second-quarter sales. The shares rose as much as 8.6 percent in Copenhagen, rebounding from last year’s 41 percent slump.

Chief Executive Officer Henrik Clausen is under pressure to turn around the company after he abandoned the outlook for sales growth this year in December. The hi-fi maker lost three-quarters of its market value since 2006 as Bang & Olufsen struggled to keep up with consumers switching from bulky stereo systems to portable music players.

“The challenges we had in the second quarter we expect to gradually solve in the second half,” Clausen said in a phone interview. That’s when Bang & Olufsen also plans to introduce a new e-commerce platform that should complement its boutique network with so-called omnichannel services, he said.

Operating profit rose 8.3 percent to 90 million Danish kroner ($14 million) in the three months through November, the company said. The gross margin increased to 47.2 percent from 41.2 percent. Free cash flow went negative as Bang & Olufsen extended credit to retailers amid weak sales, which may raise repayment risks. Clausen said that was to incentivize long-term dealers to order early, as the company saw the logistics issues coming, and it should go back to normal in the second half.

Bang & Olufsen forecast sales to improve by the end of the year, though it warned distribution glitches are still affecting the third quarter. A double-digit boost to second-quarter revenue from Greater China and Japan gave some reason for optimism. However, in the Americas, sales slumped 30 percent due to problems in a transition to a new logistics system. Revenue in Europe, the Middle East and Africa fell 3 percent.

Clausen said the company has addressed the problems it had with a new distributor in Australia and New Zealand, and its new global logistics center in Europe has stabilized. The company’s online push and transformation of its sales network is continuing, he said.

To contact the reporter on this story: Thomas Mulier in Geneva at tmulier@bloomberg.net

To contact the editors responsible for this story: Eric Pfanner at epfanner1@bloomberg.net, John J. Edwards III

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