Zepp: Zepp Health Corp (ZEPP) Q4 2024 Earnings Call Highlights: Strong Sales Growth Amid Challenges

In This Article: Release Date: March 26, 2025 For the complete transcript of the earnings call, please refer to the full earnings call transcript . Positive Points Zepp Health Corp ( NYSE:ZEPP ) reported a 40% quarter-over-quarter sales increase in Q4 2024, aligning with their guidance. The company's gross margin for 2024 improved significantly to 39% from 26.2% in 2023. The successful launch of the T-Rex 3 smartwatch, featuring advanced AI technology, has driven substantial growth and positive market feedback. Zepp Health Corp ( NYSE:ZEPP ) has diversified its product lineup with new launches like the Masfe Active 2, which has received positive reviews. The company has strategically managed its supply chain to mitigate the impact of US tariffs, with 20-25% of manufacturing now outside China. Negative Points Overall revenue declined year-over-year due to a decrease in Xiaomi product sales and limited new product launches. The company reported an adjusted operating loss of $7.4 million in Q4 2024, primarily due to lower sales volume. Net loss for Q4 2024 was $36.9 million, impacted by investment impairments and deferred tax asset valuation allowances. Zepp Health Corp ( NYSE:ZEPP ) faces challenges from macroeconomic issues affecting the global consumer market. The stock remains illiquid, and the company acknowledges being undervalued in the market. Q & A Highlights Warning! GuruFocus has detected 5 Warning Signs with ZEPP. Q : Regarding the new tariffs on Chinese smartwatch imports to the US, you mentioned there'll be minimal impact due to supply chain management. Could you please expand on this point? A : We have been working on a dual sourcing strategy for 2 to 3 years. The US tariff targets goods manufactured in China and shipped to the US. We mitigate this by using our manufacturing base in Southeast Asia, avoiding the tariff impact on Chinese goods. (CFO) Q : Can you disclose what percent of your overall manufacturing comes from outside China? A : Currently, 20 to 25% of our overall portfolio is manufactured outside China, specifically for products sold in the United States. (CFO) Q : Could you give more color on the impairment loss from investments and the increase in taxes? A : The impairment losses stem from investments in upstream and downstream technology companies that didn't perform as expected due to macroeconomic headwinds. The deferred tax asset increase is a technical accounting adjustment due to reported losses, which are non-cash and one-off in nature. (CFO) Q : Are you seeing a shift in demand towards lower-priced players in the smartwatch market? A : Contrary to that, while the market overall declined, segments like outdoor and sports smartwatches are growing. Our T-Rex 3 launch gained significant market share, especially in developed countries. The decline is more due to a lack of new features in Apple Watches and a collapse in the ultra-cheap smartwatch market in India. (CFO) Q : How is Zepp Health tracking against its vision of building a global health ecosystem, given most revenue still comes from wearables? A : Besides smartwatches, we are diversifying our product portfolio with items like earbuds and hearing aids. We are also exploring services like sleep monitoring to create a subscription business. In the long term, we aim to partner with insurance and enterprises to develop a comprehensive ecosystem. (COO) Q : What is the perspective on the relationship with Xiaomi, given their market share growth and your product disengagement? A : Our relationship with Xiaomi remains strong. Our strategic shift is to transform from an OEM/ODM model to a branded smartwatch company. We aim to sustain profitability through self-branded product sales before considering expanding revenue with Xiaomi or other large customers. (CFO) Q : What is being done about the stock's illiquidity? A : We believe the company is undervalued. We've refinanced short-term debts to long-term, ensuring no immediate maturities. We continue our stock buyback program and are prepared to upsize it. As we prove our transformation strategy, we expect improved liquidity and share price recovery. (CFO) Q : Could you provide more information about the new product roadmap for 2025 and its impact on growth? A : We have different smartwatch lines targeting various price segments. In 2025, we plan to launch new products every quarter, which will drive revenue growth. Our T-Rex 3 and other products have already gained significant traction, and we expect this trend to continue. (CFO) For the complete transcript of the earnings call, please refer to the full earnings call transcript . This article first appeared on GuruFocus .