Logitech International Q1 2026 Earnings Call Transcript

Key Takeaways

  • Positive Sentiment: Net sales grew 5% year-over-year in Q1 with mid-single digit demand growth across all key categories, underpinning resilient top-line performance.
  • Positive Sentiment: Operating expenses were cut 2% year-over-year and OpEx as a percent of sales fell 200 basis points, fueling an 80 basis point increase in non-GAAP operating income.
  • Neutral Sentiment: Non-GAAP gross margin remained strong at 42.1% despite a 100 basis point tariff headwind, supported by product cost reductions, manufacturing diversification and pricing actions.
  • Positive Sentiment: The company launched nine new products, including the G522 wireless gaming headset and the Logitech Muse digital pencil for Apple Vision Pro, highlighting its innovation focus.
  • Positive Sentiment: Video collaboration revenue grew 13% year-over-year and B2B demand outpaced consumer growth, reflecting strength in higher-value enterprise solutions.
AI Generated. May Contain Errors.
Earnings Conference Call
Logitech International Q1 2026
00:00 / 00:00

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Nathan Melihercik
Nathan Melihercik
Global Head - IR, M&A and Corporate Strategy at Logitech International

Good afternoon and good evening. Welcome to Logitech's video call to discuss our financial results for the first quarter of our fiscal year 2026. Joining us today are Hanukkah Faber, our CEO and Matteo Anversa, our CFO. During this call, we will make forward looking statements, including with respect to future operating under the Safe Harbor of the Private Securities Litigation Reform Act of 1995. We're making these statements based on our views only as of today.

Nathan Melihercik
Nathan Melihercik
Global Head - IR, M&A and Corporate Strategy at Logitech International

Our actual results could differ materially, and we undertake no obligation to update or revise any of these statements. 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. These materials as well as the shareholder letter and a webcast of this call are all available at the Investor Relations page of our website. We encourage you to review these materials carefully. Unless noted otherwise, references to net sales growth are in constant currency and comparisons between periods are year over year.

Nathan Melihercik
Nathan Melihercik
Global Head - IR, M&A and Corporate Strategy at Logitech International

This call is being recorded and will be available for a replay on our website. I will now turn the call over to Hanukkah. Hanukkah?

Hanneke Faber
Hanneke Faber
CEO at Logitech International

Thanks, Nate, and welcome, everyone. The 2026 was an encouraging start to the year for Logitech. Amidst plenty of uncertainty, our team delivered good top line growth and improved profitability, demonstrating Logitech's resilience in a challenging environment. During the quarter, we continue to focus on our long term strategies and overlaid three principles. First, we played offense.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

We continued to invest in research which represented 6% of sales this quarter. That investment underscores our long term commitment to superior products and innovation. We also continue to focus on driving growth. Net sales grew 5%, and we grew net sales in all key categories. Demand also grew mid single digits, closely marrying net sales and ensuring a healthy channel inventory position.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

Second, we exercised disciplined cost controls. We reduced operating expenses by 2% year over year, including an 8% reduction in general and administrative expenses. As a result, the quarter's OpEx as a percent of sales was down 200 basis points versus last year. And despite tariffs, we delivered a solid gross margin of 42.1% in the quarter, driven by our ability to mitigate the tariff impact through product cost reductions, manufacturing diversification as well as pricing. As we move forward, rigorous cost discipline is going to remain a cornerstone of our plans.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

Third, agility. We are moving fast. As we previously shared, we expect to reduce the share of US products originating from China from 40% in April to just 10% by the end of this calendar year, and we are well on track to do so. These three guiding principles, playing offense, cost discipline, and agility, drove our success in q one. But just as importantly, so did our long term strategic priorities.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

Superior products and innovation are always at the heart of our strategy. This quarter, we launched nine new products. We introduced the g five twenty two wireless gaming headset, a sleek, comfortable gaming headset designed for full immersion in the game. We launched a Flipfolio for iPad, a really stylish magnetic keyboard case for on the go users. We introduced a slim wired combo for business with customizable AI launch keys.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

And we announced the Logitech Muse for the Apple Vision Pro, a groundbreaking digital pencil designed to support collaboration in virtual reality. In recognition of all of our team's innovative design and engineering work, Logitech was named one of Fortune's most innovative European companies for 2025 in the quarter. Doubling down on B2B is another important strategic pillar. Logitech for Business demand outpaced our consumer business demand this quarter, led by double digit net sales growth in video conferencing. LogCheck for Business progress reflects the strength of our portfolio of simpler, smarter, more sustainable enterprise solutions and the opportunities in services and new verticals.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

Finally, we drove very strong execution around the world. In Q1, APAC results particularly stood out. We're seeing meaningful progress from our China for China investments. Our China team achieved a significant milestone in May when they returned to growing share in the very fast growing Chinese gaming market. As we look ahead to the second quarter and beyond, we expect continued uncertainty when it comes to tariff policy, to inflation and customer sentiment.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

But Logitech has proven time and time again that we are uniquely built to thrive in times like these. Our business is globally balanced with about two thirds of sales generated outside The US. Our diversified manufacturing footprint spans six countries and gives us flexibility and resilience. Our strong brand provides loyalty and pricing power. Our pristine balance sheet offers financial flexibility.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

And most importantly, our experienced team continues to execute at the highest level. So in q two, we're gonna continue to play offense to drive growth and market share gains. We will maintain rigorous cost discipline, and we will act with agility to respond to evolving market conditions. The fundamentals of our business are strong, and our strategy positions us very well to navigate uncertainty and deliver attractive results. Matteo, with that, I'll turn it over to you.

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

Alright. Thank you, Anneke, and thank you all for joining us on the call today. I want to, first of all, extend my gratitude to our teams around the globe for the strong execution during the quarter. Our teams demonstrated they can operate under a challenging market conditions, operating with agility while making solid progress towards our overall goals. And as you have seen from the financials that we published earlier today, we began fiscal year twenty twenty six with strong execution and focus.

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

Net sales were up 5% year over year in constant currency, supported by continued robust demand across both the consumer and B2B. Despite significant external headwinds, we increased our profitability and generated strong operating cash flow. And as expected, this fiscal year started with sell in in line with sell through, and we delivered another strong year over year growth across all our key product categories. Now a couple of highlights to mention. Video collaboration delivered 13% year over year growth driven by strong North American demand.

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

Personal workspace grew 6% year over year, fueled by double digit growth in webcams and tablet accessories. And this marks the fifth consecutive quarter of growth in tablet accessories. And on a regional level, Asia Pacific grew 15% year over year led by sustained double digit growth in China. EMEA grew 9% driven by strong demand across all product categories, while North America declined 4%, primarily the result of a pause in some product shipments during price negotiations, which are now largely complete. Non GAAP gross margin rate for the quarter was 42.1%, and this reflects a 120 basis points decline from the first quarter of last year due to the negative impacts from tariffs, higher promotional spend and a release in inventory reserves recorded in the prior year period.

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

These were partially offset by price increases in The U. S. And the continued momentum from cost reductions. Operating expenses declined 2% year over year and were 24.5% of net sales, down from 26.5% in the first quarter of last year. This decrease was driven by operating leverage and a reduction in G and A as a result of the measures that we implemented to mitigate the impact of tariffs.

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

Cash flow was also strong. We generated 125,000,000 in cash from operations and ended the quarter with a cash balance of $1,500,000,000 We returned $122,000,000 to shareholders through share repurchases, which is consistent with our capital allocation priorities. So overall, this quarter brought continued macroeconomic operational challenges, notably an approximately 100 basis points negative impact from The US tariffs. And in response, we diligently followed the strategy that we outlined in the last earnings call, which allowed us to increase profitability for the company by 80 basis points in non GAAP operating income. Now more specifically, first, we implemented price increases in North America.

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

The execution of this price increase is now largely complete, and we expect the full benefit to be recorded in the second quarter. Second, we executed cost saving actions, mostly in G and A around controllable expenses. And third, we continue to leverage the strength of our balance sheet and accelerated the acquisition of inventory in advance of tariffs going into effect. Now looking ahead to the second quarter, we are expecting net sales to grow 1% to 5% year over year in constant currency, gross margin rate to be between 4142% and non GAAP operating income between 180,000,000 and $200,000,000 We are expecting the negative impact of tariffs in the second quarter to be between two hundred and three hundred basis points, which will be partially offset by 200 basis points of positive price as a result of the price increase that we executed in the first quarter. So in summary, we delivered solid results in the first quarter.

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

I want to thank all our teams around the globe for dedication and flexibility. So with that, let's open the call for questions.

Operator

Thank you, Matteo. We will now begin the question and answer session. Please be sure to unmute and turn your video on before asking your question. With that, our first question comes from Didier with Bank of America. Didier?

Didier Scemama
Didier Scemama
Equity Research & Head - EMEA Tech Hardware/Semiconductor Research at Bank of America

Yes. Thank you for taking my question. I just wondered if you could share your thoughts on sort of the consumer reaction to your price actions. So clearly, this had had a positive impact. You might have given the number for the current quarter.

Didier Scemama
Didier Scemama
Equity Research & Head - EMEA Tech Hardware/Semiconductor Research at Bank of America

If you could just remind us what the pricing benefit in the quarter was versus volumes. And what's your view hello? Yeah. Sorry. What's your view yeah.

Didier Scemama
Didier Scemama
Equity Research & Head - EMEA Tech Hardware/Semiconductor Research at Bank of America

Sorry about this. So what's your view on the consumer reaction? Were you positively surprised by the the volumes in in response to the price action, the price hikes that you've done that you've done in the quarter? And is that encouraging you to raise prices further in order to compensate for the tariff impact?

Hanneke Faber
Hanneke Faber
CEO at Logitech International

Yeah. Yeah. Thanks, DJ. Good to see you. So the positive impact of price in the first quarter was 50 basis points because, of course, we only announced a price increase mid April.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

And then as usual, it takes about four to eight weeks to get it fully implemented across the trade. It's really too early to say much about the impact on the consumer because, again, we only completed the implementation towards the very end of the quarter. So you didn't really see the new prices on shelf across The US trade until the end of the quarter. So that's hard to tell. What we do know, and and this is expected, is that the negotiations with our customers took us four to eight weeks to get this fully implemented.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

And during that time, we did see an impact on in stock levels and on shelf availability, which again is expected during a price negotiation. And it temporarily affected the net sales, which you see in our in our Americas net sales number. However, that implementation is now essentially complete. In stock levels have recovered, this positions us really well for back to school and for the holidays.

Didier Scemama
Didier Scemama
Equity Research & Head - EMEA Tech Hardware/Semiconductor Research at Bank of America

Superb. And a quick follow-up would be on on the video collaboration business, which is, you know, showing further strength. Is that just can you elaborate a little bit on that and how confident that this trend is sustainable into in the later part of this year?

Hanneke Faber
Hanneke Faber
CEO at Logitech International

Yeah. So obviously, pleased with 13% growth in VC. Overall, that business is strong. It's very strong demand in North America, actually. There may have been a little bit of pull in in North America in advance of the tariffs, so that that wouldn't repeat.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

And the EU was a little low on inventory at the '4, so they had to bring in a little more inside the first quarter. But at the end, the weeks on hand are still at a very healthy normal operating range. So it might have been slightly inflated, but still a double digit growth number is a really good number for VC showing the underlying strength of that business.

Didier Scemama
Didier Scemama
Equity Research & Head - EMEA Tech Hardware/Semiconductor Research at Bank of America

Right. Thank you so much.

Operator

Okay. Our next question comes from Tim Long with Barclays. Tim?

Tim long
Tim long
Managing Director at Barclays

Thank you. Yeah. 22 if I could. It sounded like first one, b b two b was pretty strong in the quarter. Just walk us through kinda it sounds like video collaboration, but any other moving parts there and just remind us on the kinda economic financial impact of of growing the b two b in the mix.

Tim long
Tim long
Managing Director at Barclays

And then second, on the on the gaming side, really strong quarter. Sounds like some new product there. Can you talk about kind of sustainability of the strength that you're seeing in the in the gaming vertical? Thank you.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

Yeah. So I'll let Matteo comment on Logitech for Business and the economic impact, but it definitely was another strong quarter for Logitech for Business. Again, demand in that space outpacing consumer demand. And that's really true across our full Logitech for Business portfolio, which, as you know, consists of PWS as well as video conferencing and headsets. And all of that despite the 10% price increase, So which which applied across b to b and b to c.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

So that's really good to see. You know, we continue to to strengthen our capabilities in b to b. We've now we now have a global partner program in a 135 countries. That's one place where, we we needed to improve, and we're also continuing to grow in those new verticals that we've talked about, and education had another quarter of double digit growth. So all of that is good to see. Mate, you want to just comment on

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

the Yeah. Tim, the the, generally, video conferencing is actually positive for us in terms of mix. It's the margin of video conference accretive to the average of the company. So it's it's good product.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

Yeah. And then on gaming, yeah, also very excited about the strength of both the gaming market and our gaming business. We saw very solid share growth in gaming in North America in the quarter, and China was really outstanding. The market continues to grow very, very fast in China. We also had strong growth.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

You saw our APAC numbers. We don't break out China, but APAC was plus 15. China was significantly ahead of that, so that's great to see. And a big milestone for us is the fact that in May, we finally started gaining share in gaming in China, which is awesome. We're number one, but we've been losing share for a while.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

So that's good. One swallow does not make summer, but, you know, you gotta start somewhere. And then across the world, we saw good growth in our premium segments on gaming. So pro and sim are real priority for us. We extended our partnership with McLaren, and we launched a a really exciting new headset, the g five twenty two.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

So lots of great things in gaming, and that's just a long term really big bet for us.

Tim long
Tim long
Managing Director at Barclays

Okay. Thank you.

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

Thank you.

Operator

Our next question comes from Lucas with Berenberg. Lucas? Okay. Skipping ahead. Our next question will come from Martin with BMP. Martin, please go ahead.

Martin Jungfleisch
Equity Research Analyst at Exane BNP Paribas

Yes. Hey, hi guys. Good evening.

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

Good evening.

Martin Jungfleisch
Equity Research Analyst at Exane BNP Paribas

Maybe can you talk about just the demand pattern in Q1? I mean, this anything different compared to typical Q1 to the tariffs? I mean, have you seen demand increase a lot post the tariff announcements and then paid off towards the end of Q1 in The U. S? That's the first question.

Martin Jungfleisch
Equity Research Analyst at Exane BNP Paribas

And then the second one is really more on just market share and competition. You wanted to play offense, obviously, in this current environment. So can you talk about how you generally see yourself positioned, I mean, to peers with regards to your current production setup and pricing? So could you potentially gain in market share and raise prices further on the back of your potentially better production footprint? Thank you.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

Why don't you take demand? Okay,

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

So on your first question, so we're very pleased with the demand in the first quarter. It was high single digit for the company. And overall, it was pretty broad based when you look at both the B2B and the consumer were up nicely. B2B actually outpaced a bit the consumer, but overall, very, very strong. And it was also broad in terms of products.

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

Obviously, you had a couple of big improvements year over year with tablet accessories, which grew double digit and all the other product lines were in the high single digit. So really, really good and broad based demand. And also geographically, back to Anika's point, was very strong in AP, in Europe and relatively flattish in North America. To your question in terms of Poland, I go back to what Anika mentioned earlier. We have not seen that on the consumer side.

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

We have seen a little bit at the beginning of the quarter on the b to b side with the customer trying to pull in some of the products like we did with our own suppliers in advance of tariffs. But when you look at overall the quarter, the impact of this pull in was overall immaterial. So the memory was overall pretty good and broad based.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

Yeah. Yeah. And in terms of shares, we saw share gains in a number of categories at a global level. And I was particularly encouraged by the fact that across all our key categories in The US past three months, we saw share growth, so PWS gaming and video conferencing. The impact of price on share really is too early to tell.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

The last share reading we have is through May. And in The U. S, our new prices were not fully reflected on shelf by the May. So we have to read that carefully. I do expect a temporary softening of shares after a price increase.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

That's what you tend to see, but it's a temporary effect, and we'll take it from there.

Martin Jungfleisch
Equity Research Analyst at Exane BNP Paribas

Great. Thanks a lot.

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

Thanks, Martin.

Operator

Okay. Our next question comes from Michael with Fontenbel. Michael?

Michael Foeth
Senior Equity Research Analyst at Vontobel

Yes. Hi. Can you hear me?

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

Can hear you.

Michael Foeth
Senior Equity Research Analyst at Vontobel

Well done on the results. I have two questions. The first one is on your inventory sort of strategy and how you're going to proceed in the current quarter in terms of acquiring inventory and what effect it will have on network capital and cash flow? And the second question would be on the tablet accessory business going into, obviously, now the back to school quarter and how you lined up and what what you're expecting for for the current quarter on on tablet accessories in in your guidance?

Hanneke Faber
Hanneke Faber
CEO at Logitech International

Yeah. Yeah. Thanks. Why don't I take the tablets, and then we can come back to inventory. So tablets are an important part of our business, quite strategic.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

And that 15% growth that you saw in the first quarter, we're pleased about for two reasons. Tablets are designed for a fast growing segment of consumers, people that work on the go, which is all of us in this virtual room. So that's a growing segment. And second, as as you just pointed out, Michael, they serve the important education vertical. And when we can serve k to 12 young children with our products, we create a lifelong relationship with that consumer.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

So it's a long term strategic kind of first product that people get in their hands from Logitech. So very important. I think the other thing that we're pleased with is since the launch of the Combo Touch now a little over a year ago, that was a great design led innovation that importantly also improved the margins of the tablets. So it's a much more attractive business for us now than it was fifteen months ago. So all of that is good.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

We expect another, you know, good quarter because, as you said, it's back to school. So we expect another good quarter for tablets in Q2 as people around the world, students around the world go back to school in Asia, in The U. S. And in Europe.

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

Michael, for on your question on inventory, so we if you go back the last earnings call, we when we laid out the strategy that we were planning to execute on to mitigate the impact of tariffs. We said that we have a great balance sheet, and we wanted to be opportunistic and use leverage the strength of our balance sheet to try to pull in some of the inventory ahead of tariffs being into effect. And that was Sri and the team and the operation done a marvelous job. They were very successful in doing it in the first quarter. And actually, when you look at the gross margin that we printed earlier today, we came in on the higher end of the range that we provided three months ago.

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

And that's one of the reasons, the team has done a fantastic job. So we want to continue to operate under the same identical framework because as you've seen in the first quarter results, notwithstanding the fact that we pulled in inventory, so the inventory balance is a little higher than last year. And we still closed with $125,000,000 of operating cash flow, cash balance of $1,000,000,000 And the cash conversion days, thanks to very strong collections that we continue to see also in the first quarter closed around 40,000,000 which is the framework that we outlined even at Investor Day. So our strategy will be unchanged. If we can, we will pull in as much as inventory as possible to protect the company, our customer and just leverage the strong balance sheet that we have.

Michael Foeth
Senior Equity Research Analyst at Vontobel

Thank you. Any chance you will accelerate your buyback given the balance sheet position was not very intensive in the first quarter, I think?

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

Yeah. We have been pretty consistent. If you look back to the last three, four quarters, we always bought back between 120,000,000 and, call it, dollars 130,000,000 of shares. We had one uptick back in, I think, was the third quarter of the last fiscal year where we there was a dislocation in the stock price and we opportunistically bought back more. But overall, I go back to what we said at the Investor Day, right?

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

We clearly laid out the capital allocation priority of the company. And we said that we are targeting a $2,000,000,000 buyback in three years, and we will follow that the strategy that we aligned in March.

Michael Foeth
Senior Equity Research Analyst at Vontobel

Perfect. Thank you.

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

You're welcome. Thank you.

Operator

Our next question comes from Assia Merchant with Citi. Assia?

Asiya Merchant
Technology Equity Research at Citigroup Global Markets Inc.

Hey. Great. Hopefully, you guys can hear me. Thank you for taking my question. Just can I ask a little bit on the guidance for gross margins?

Asiya Merchant
Technology Equity Research at Citigroup Global Markets Inc.

If you can just peel that a little bit. I think I heard there was some benefit of inventory reserves that impacted gross margins this quarter. And how should we think about that next quarter as well? And just if you can unpack the guidance relative to the tariff impacts that you guys are seeing. And I think in the past, you had expected a much worse tariff impact, which obviously doesn't seem to be working through right now.

Asiya Merchant
Technology Equity Research at Citigroup Global Markets Inc.

So how should we think about the guidance relative to that? Thank you.

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

Sure, Raj. Yes. So let me maybe the best way to answer the question is start with the first quarter that we just closed and give you a couple of numerical data points. So overall, we are very pleased with the performance and the gross margin on the higher end, pretty much in line with what we said on the higher end of the of the outlook that we provided three months ago, thanks to the work on cost reduction and some of the comments that I made earlier to Michael's question on the inventory. When you unpack the 120 basis points year over year decline, you have the tariff impact was about 100 negative basis points offset by 50 basis point positive price that Heineken mentioned earlier.

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

So net net, the tariff impact in the quarter was negative 50, which was slightly better than what we had anticipated at the beginning of the quarter, but overall, call it roughly in line. I think that when we talked back three months ago, we were expecting 100 basis points negative, so in the zone. And then year over year, we also had about 50 basis points of pressure due to inventory reserve that were released in the prior year in the first quarter, which did not occur in the first quarter of this year. So that's how you unpack the 120 basis points of deterioration in the year over year comparison in gross margin for the first quarter. Now when I move when we move to the second, second quarter of last year, the gross margin rate was 44%.

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

And here is where it's important to remember, then last quarter last year in the second quarter, we had a sizable release of inventory reserve, which benefited the gross margin by about 100 basis points. And we even said at that time this was not going to repeat. So really the number you have to compare yourself is about 43%, right? And so moving from there, we are expecting tariffs to impact about 200 to 300 basis points negative. But this will be offset by the 200 basis points of positive impact from price to the actions that Anneke mentioned earlier.

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

And then we have about roughly 100 basis points of year over year pressure on the gross margin coming from a slightly higher promotion net of FX. So that's your walk to the 41% to 42%. So overall, the performance on the gross margin rate should be pretty much similar to what we have seen happening in the first quarter. And the impact of tariff, net of everything, tariff, net of the diversification and net of price is between zero to 100 basis points negative.

Asiya Merchant
Technology Equity Research at Citigroup Global Markets Inc.

Okay. Great. And just if I may, like as you look ahead, is that kind of what we should think about? I mean, typically, you do have some promotional expenses, etcetera. So your back half of your fiscal year tends to be slightly margin dilutive versus your first half.

Asiya Merchant
Technology Equity Research at Citigroup Global Markets Inc.

So how should we think about the gross margin trajectory for the rest of the year? You.

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

As I think the situation is still pretty volatile in terms of macroeconomic impact. We'll have to see to Anika's point, what is going to happen with the consumer, the price elasticity even in second quarter. So I think making any comment beyond the second quarter at this point is a bit premature. So I'm going to leave it like that.

Asiya Merchant
Technology Equity Research at Citigroup Global Markets Inc.

All right. Thank you very much.

Operator

Thank you. Our next question comes from Samik with JPMorgan. Samik?

Samik Chatterjee
Samik Chatterjee
MD & Equity Research Analyst at J.P. Morgan

Yep. Hi. Thanks for taking my questions. For the first one, in the first quarter here, you have about mid single digit growth in revenues. Sell through is pretty similar at mid single digit.

Samik Chatterjee
Samik Chatterjee
MD & Equity Research Analyst at J.P. Morgan

You're guiding to one to five for the second quarter. How much of that is sort of what you're embedding in for what you've been sort of highlighting as share changes on account of pricing? Because I would expect two q, you also get the benefit of pricing on that front, as you move from one q. So just trying to understand the sort of puts and takes on the revenue side, particularly given that you have benefit of pricing. And maybe as sort of addition to that, you have the Americas pause that you're highlighting in one q that impacted you.

Samik Chatterjee
Samik Chatterjee
MD & Equity Research Analyst at J.P. Morgan

So how do you expect that to play out in two q? Do you expect inventory replenishment in two q, of in the in the region?

Hanneke Faber
Hanneke Faber
CEO at Logitech International

Yeah. It's a great question, Samik. So you've seen that we've we've guided for the quarter with a fairly broad top line range, 1% to 5%. The high end of that assumes that the market remains resilient and that the impact of The US price increase on the consumer is modest. So that would be the high end.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

Conversely, the low end, we would see some more deterioration in consumer sentiment and a longer lasting impact of the price increase in The U. S. On the consumer. So that's kind of how we think about the bookends of that range.

Samik Chatterjee
Samik Chatterjee
MD & Equity Research Analyst at J.P. Morgan

And anything in terms of how you're thinking the Americas pause sort of plays out in terms of f 2Q? And then just for my follow-up, if you can just sort of clarify for tariffs as we go into F3Q, are we largely assuming with the price offsets, you're neutral on the gross margin for tariffs?

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

The so for the first part of your question, when you break down the regions to Anika's point, we are expecting the AP. You saw how the performance in the first quarter was great. And we think that we're continuing into the second quarter on the top line. Europe had good performance in the first quarter, high single digit, maybe a slight deceleration due to the inventory dynamic that Hanke mentioned earlier. But overall, we're expecting Europe to continue to perform very well.

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

And then the range really comes down to North America and that's exactly what Hanke just described. In terms of expectation for TerreSol, that's a tough question, Samik. So the, we said for the second quarter, right, at the current, with the current tariff environment, we're expecting the impact of tariff to be between zero to negative 100 basis points. This all inclusive. So tariff cost, net of manufacturing diversification and net of the price increase.

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

With the current tariff environment, if that were not to change, that would be a good proxy also for the remainder of the year. But we'll have to see what happens with legislation and so on and so forth. So that's all we can say right now.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

Absolutely. I mean, some people think everything has now settled, but it remains a moving feast. The expected tariff impact on our US volumes of the countries we make in, China plus five, is not entirely clear. So the tariff policy isn't entirely clear. The product classification, which leads to exemptions, isn't entirely clear.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

And then, of course, what also impacts the tariff rates that we see in the p and l is our own manufacturing footprint and when things change, our own mix, and our own strategic inventory decisions. So there's a lot of variables, which is why we don't break all of those out because we drive you nuts, and we just give you what it all adds up to.

Samik Chatterjee
Samik Chatterjee
MD & Equity Research Analyst at J.P. Morgan

Thank you. Thanks, Philippe. My push.

Operator

Our next question comes from Aranda with Loop Capital.

Ananda Baruah
Equity Analyst at Loop Capital Markets LLC

Yeah. Hey, guys. Good afternoon. Really appreciate you guys taking the questions. I guess, two, if I could.

Ananda Baruah
Equity Analyst at Loop Capital Markets LLC

Anika and maybe this has become more of a housekeeping question, but but I do like asking it. The last year, the remarks you had made about opportunity to to harmonize portfolios across across various of the geographies, can you can you talk can you sorta talk to where you guys are in that? Is there anything left to do? And what the impact has been, and and is there a future impact that could could come from that? And I have a quick follow-up as well.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

Yeah. We I think we're in a very good place when it comes to harmonized portfolios across around the world, really. And, obviously, that helps in terms of cost reductions quarter by quarter. Simpler is always better, but we're in a pretty good place. And if anything, our China for China program, which is working very well, does add a little bit of extra SKUs in our lineup because we're adding China for China innovation.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

But what you I also expect we'll start seeing is that some of that China for China innovation actually becomes global innovation again going forward. So that will be a really good dynamic.

Ananda Baruah
Equity Analyst at Loop Capital Markets LLC

Thanks for that. And then the follow-up is you had mentioned that during price negotiations, inventory gets a little skinny on the shelves, so that can impact sales. And then you also made, later on, a remark about you expect it's not well, it's not atypical to lose some share after prices increase. Are those two two sort of share pressuring dynamics distinct share pressuring dynamics?

Hanneke Faber
Hanneke Faber
CEO at Logitech International

Yeah. You got that exactly right. So we're through the first phase where the inventory got a little skinny. We're through that because customers have accepted the They're ordering.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

We're back to good inventories. And we actually did see that earlier in the second quarter. We had a good Amazon Prime. So that would tell me that things are back in order in terms of inventory. But again, the effect of the actually higher consumer price, that is yet to be seen.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

And again, usually in the short term, that could have an effect on sales and share.

Ananda Baruah
Equity Analyst at Loop Capital Markets LLC

Thank you. Thanks a lot.

Operator

Okay. Our next question comes from Jorn with UBS. Jorn?

Joern Iffert
Joern Iffert
Head - Equity Research Switzerland at UBS Group

Thank you. Hello, everybody. Thanks for taking my questions. Two to three, please. If I may start with the first one.

Joern Iffert
Joern Iffert
Head - Equity Research Switzerland at UBS Group

Just to double check your ASP negotiations in North America, was this resulting in empty shelters and this was impacting the flatter sell through or not really? Yeah.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

I wouldn't say empty shelves, but there were certainly SKUs that went out of stock on the real and virtual shelves. So it wouldn't wasn't like there was no Logitech at all, but there were certain big SKUs that were out.

Joern Iffert
Joern Iffert
Head - Equity Research Switzerland at UBS Group

Did you think this has a meaningful impact on your business in North America in sales through?

Hanneke Faber
Hanneke Faber
CEO at Logitech International

I I'm I'm it had some impact probably in the last month of the quarter. So and, we don't have those shares yet, so it's I can't really tell. Through May, it didn't have an impact. The shares in North America were very strong. And I think in early July, we're we're recovering from that impact.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

Now again, the second impact of the actually higher prices remains to be seen. So but all of this is normal when you increase prices. It just, you don't know overnight what will happen, and you will have some noise in the actual negotiations.

Joern Iffert
Joern Iffert
Head - Equity Research Switzerland at UBS Group

Thanks for this one. And the second question is on gaming. If I remember correctly, last quarter was also growing low single digit or so sell through. It seems that now it's again, in brackets, only growing low single digit. It should be your key structural growth driver.

Joern Iffert
Joern Iffert
Head - Equity Research Switzerland at UBS Group

Is there anything going on in simulation devices or headset, which is cyclical we should be aware of? And how do you think the growth rate in the remainder of the year in gaming?

Hanneke Faber
Hanneke Faber
CEO at Logitech International

Yeah. So again, I think gaming was probably most affected by the noise in the price negotiations. As as you know, it's it's our most competitive category in in The US. So it did suffer a little more than PWS from the out of stocks. So I I think we'll see a good recovery in gaming in the quarters ahead.

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

Demand was up 6% in the quarter for gaming, so it's it was pretty good.

Joern Iffert
Joern Iffert
Head - Equity Research Switzerland at UBS Group

So say it's true of plus 6% in Gaming?

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

That is correct.

Joern Iffert
Joern Iffert
Head - Equity Research Switzerland at UBS Group

Okay. Okay. And the last question, if you allow me, on the tariffs. And you say 200 to 300 basis points cross tariff impact, if my calculations are totally wrong, it's an average tariff of around 15% plusminus you are paying currently. Is this roughly correct?

Joern Iffert
Joern Iffert
Head - Equity Research Switzerland at UBS Group

So when, for example, there's anything happening with China going to 55% and this pauses over, Taiwan, Malaysia have to pay 30%, that this 200 basis points is increasing likely in the back half of the year?

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

I think the amount for the first quarter was a little lower than that. But as you know, in the first quarter, we benefited for of the inventory that we were able to pull in back to the prior question that mitigated the impact. I think your math is relatively close. As far as the we only today, just talk about the outlook for the second quarter, right? So at this point, based on the inventory that we have and we think based on the demand that we see for the quarter and this inventory flushing through the system, whatever is going to happen in the next month, month and a half should be relatively limited the impact for the second quarter and embedded in the range of the 200 to 300 basis points that we provided today.

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

And then we'll have to see what happens for the future. That's why we just to Anika's point earlier, we'll stop at the second quarter and we'll update you moving forward. The 15% that you calculate but the roughly 15% that you mentioned moving forward, so excluding the first quarter is actually close to my calculations. Close to you're close.

Joern Iffert
Joern Iffert
Head - Equity Research Switzerland at UBS Group

All right. Thanks for the color. Thanks very much.

Operator

Okay. Our final question comes from Maya Newman with Morgan Stanley. Maya?

Maya Neuman
Maya Neuman
Equity Research Associate at Morgan Stanley

Awesome. Thank you so much. Hanukkah, maybe if you can help us better understand the timing to reach your seven to 10% top line growth target disclosed in March. I know there were some TAM expansionary initiatives in there that I assume take some time, but at the same time, you're already seeing success in education. So, you know, how long do you think until we get to that high single digit top line growth target?

Hanneke Faber
Hanneke Faber
CEO at Logitech International

Yeah. Great question. So as you know, last fiscal, we were actually at plus seven, so that we can already be pretty close. Clearly, a lot of uncertainty, lot of challenges in the markets in the past quarter after Liberation Day. But again, we're pleased with even now the top line that we're seeing and the demand that we're seeing in the markets.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

In terms of that enlarged TAM, that's going to take time. Education was the first vertical that we addressed. We've been in that for a few years now. So we continue to see good growth there. That's very encouraging.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

The other two, health care and government, were really just starting, and we're starting almost from scratch. So before that has material impact, it will take a little longer. But all that said, I would say even our core categories, again, we showed last fiscal that we can get to high single digit or be pretty close to it. So don't have a silver don't have a crystal ball, but, it's gonna happen.

Maya Neuman
Maya Neuman
Equity Research Associate at Morgan Stanley

Understood. And then maybe kind of going back to an earlier question. You know, if we think about the midpoint of guidance, is there a way you can help understand how much the pricing increases in The U. S. Are estimated to contribute to September top line growth?

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

Maya, we said that we are expecting the impact of price to be 200 basis points at the gross margin level. And that's what we are counting on, on our financials. Then we'll see what happens at the end of the quarter based on some of the uncertainties that Tanaka just talked about.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

Yeah. I could add, in the first quarter, most of that 5% net sales growth, the vast majority was from volume actually. So, you know, again, pricing could be an additional benefit over time, but we gotta see. It always needs a little bit of time to play out in the market.

Maya Neuman
Maya Neuman
Equity Research Associate at Morgan Stanley

Awesome. Thank you so much.

Matteo Anversa
Matteo Anversa
Chief Financial Officer at Logitech International

Thank you, Maya.

Operator

This time, Thanks, there are no further

Nathan Melihercik
Nathan Melihercik
Global Head - IR, M&A and Corporate Strategy at Logitech International

everybody. I think we're ready to wrap.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

Absolutely. Thank you so much for joining us today and for sticking with us at this late hour in Switzerland. You know, just to summarize, our teams had a great start due to fiscal. Looking ahead, I'm excited actually about the opportunity that's before us. So we're gonna continue to play offense.

Hanneke Faber
Hanneke Faber
CEO at Logitech International

We'll continue to manage costs, and we're gonna continue to be super agile. And I look forward to speaking with you next quarter. So take care, everyone. Good night.

Executives
    • Nathan Melihercik
      Nathan Melihercik
      Global Head - IR, M&A and Corporate Strategy
    • Hanneke Faber
      Hanneke Faber
      CEO
    • Matteo Anversa
      Matteo Anversa
      Chief Financial Officer
Analysts
    • Didier Scemama
      Equity Research & Head - EMEA Tech Hardware/Semiconductor Research at Bank of America
    • Tim long
      Managing Director at Barclays
    • Martin Jungfleisch
      Equity Research Analyst at Exane BNP Paribas
    • Michael Foeth
      Senior Equity Research Analyst at Vontobel
    • Asiya Merchant
      Technology Equity Research at Citigroup Global Markets Inc.
    • Samik Chatterjee
      MD & Equity Research Analyst at J.P. Morgan
    • Ananda Baruah
      Equity Analyst at Loop Capital Markets LLC
    • Joern Iffert
      Head - Equity Research Switzerland at UBS Group
    • Maya Neuman
      Equity Research Associate at Morgan Stanley