Logitech International - Earnings Call - Q1 2026

Executive Summary

• Q1 FY26 delivered mid-single-digit growth with sales of $1.15B (+5% YoY), non-GAAP EPS of $1.26 (+12% YoY), and non-GAAP operating income of $202M (+11% YoY). Both revenue and EPS significantly beat Wall Street consensus, driven by resilient demand, B2B strength (VC +13% YoY), and disciplined OpEx control. Consensus: revenue $1.13B*, EPS $0.79*.
• Gross margin compressed modestly (non-GAAP 42.1%, -120bps YoY) due to tariffs (~-100bps), higher promotions, and lapping prior-year inventory reserve releases; partially offset by +50bps price benefit. Non-GAAP operating margin expanded 80bps YoY to 17.6% on leverage and lower G&A.
• Guidance for Q2 FY26: sales $1.145–$1.190B (+3–7% YoY; +1–5% cc), gross margin 41–42%, and non-GAAP OI $180–$200M. Tariffs expected to be a 200–300bps headwind, largely offset by ~200bps pricing tailwind.
• Stock reaction catalysts: visible beat vs consensus; evidence of pricing power and tariff mitigation; continued VC momentum and APAC strength (+15% YoY), with watchpoints on North America (-4% YoY) and consumer response to U.S. price increases.

What Went Well and What Went Wrong

What Went Well

• Strong beat vs consensus: revenue $1.148B vs $1.128B*; non-GAAP EPS $1.26 vs $0.79*. Management highlighted resilient demand and execution across regions and channels.
• B2B and VC outperformance: Video Collaboration +13% YoY; enterprise demand outpaced consumer; VC margins are accretive to company average.
• Operating discipline: Non-GAAP OpEx fell 2% YoY to 24.5% of sales (from 26.5%); CFO emphasized G&A cuts and product cost reductions, expanding non-GAAP OI margin by 80bps.

Management quotes:

• “Superior innovation drove growth in all key categories. We grew robustly both in our B2B and consumer channels... with notably strong performance in Asia Pacific.” — CEO Hanneke Faber.
• “We delivered mid-single-digit sales growth year over year, with an expansion in non-GAAP operating margin of 80 basis points.” — CFO Matteo Anversa.

What Went Wrong

• Gross margin pressure: Non-GAAP GM 42.1% (-120bps YoY) on tariffs (~-100bps net of +50bps price) and higher promotions; lapping prior-year reserve release added ~-50bps pressure.
• North America softness: -4% YoY, impacted by temporary pause during U.S. price negotiations, causing select SKU out-of-stocks; consumer elasticity yet to be observed.
• Gaming affected by price negotiation “noise” and higher competition in U.S.; while demand +6% sell-through, category faced more share sensitivity short-term post price increases.

Transcript

Operator (participant)

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 Hanneke Faber, our CEO, and Matteo Anversa, our CFO. During this call, we will make forward-looking statements, including with respect to future operating results 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. 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. This call is being recorded and will be available for a replay on our website. I will now turn the call over to Hanneke. Hanneke?

Hanneke Faber (CEO)

Thanks, Nate, and welcome everyone. The first quarter of fiscal year 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 continued to focus on our long-term strategies and overlaid three principles. First, we played offense. We continued to invest in research and development, which represented 6% of sales this quarter. That investment underscores our long-term commitment to superior products and innovation. We also continued 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. 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. 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. Third, agility. We are moving fast. As we previously shared, we expect to reduce the share of U.S. 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 Q1. Just as importantly, so did our long-term strategic priorities. Superior products and innovation are always at the heart of our strategy.

This quarter, we launched nine new products. We introduced the G522 wireless gaming headset, a sleek, comfortable gaming headset designed for full immersion in the game. We launched a Flip Folio 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. 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. Logitech for Business progress reflects the strength of our portfolio of simpler, smarter, more sustainable enterprise solutions and the opportunities in services and new verticals.

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. 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 2/3 of sales generated outside the U.S. 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.

And most importantly, our experienced team continues to execute at the highest level. So in Q2, we're going to 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 (CFO)

All right, thank you, Hanneke, 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 challenging market conditions, operating with agility while making solid progress towards our overall goals. As you have seen from the financials that we published earlier today, we began fiscal year 2026 with strong execution and focus. 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. 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. Personal workspace grew 6% year-over-year, fueled by double-digit growth in webcams and tablet accessories. This marks the fifth consecutive quarter of growth in tablet accessories. On our 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%. 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. 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&A as a result of the measures that we implemented to mitigate the impact of tariffs. Cash flow was also strong. We generated $125 million in cash from operations and ended the quarter with a cash balance of $1.5 billion. We returned $122 million to shareholders through share repurchases, which is consistent with our capital allocation priorities. Overall, this quarter brought continued macroeconomic operational challenges. Notably, an approximately 100 basis points negative impact from the U.S. tariffs. 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. 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&A, around controllable expenses. 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 41% and 42%, and non-GAAP operating income between $180 million and $200 million. We are expecting the negative impact of tariffs in the second quarter to be between 200 and 300 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.

In summary, we delivered solid results in the first quarter. I want to thank all our teams around the globe for the dedication and flexibility. With that, let's open the call for questions.

Operator (participant)

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 (Equity Research - Head of EMEA Tech Hardware and Semiconductor Research)

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. Clearly, this had had a positive impact. You might have given the number for the current quarter, but if you could just remind us what the pricing benefit in the quarter was versus volumes. What's your view? Hello? Yeah, sorry. What's your view? Yeah, sorry about this. What's your view on the consumer reaction? Were you positively surprised by the volumes in response to the price action, the price hikes that you've done in the quarter? Is that encouraging you to raise prices further in order to compensate for the tariff impact?

Hanneke Faber (CEO)

Yeah, yeah, thanks, Didier. Good to see you. The positive impact of price in the first quarter was 50 basis points because, of course, we only announced a price increase mid-April, 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. You did not really see the new prices on shelf across the U.S. trade until the end of the quarter. That is hard to tell. What we do know, and this is expected, is that the negotiations with our customers took us four to eight weeks to get this fully implemented. During that time, we did see an impact on in-stock levels and on-shelf availability, which, again, is expected during a price negotiation.

It temporarily affected the net sales, which you see in our America's net sales number. However, that implementation is now essentially complete. In-stock levels have recovered, and this positions us really well for back to school and for the holidays.

Didier Scemama (Equity Research - Head of EMEA Tech Hardware and Semiconductor Research)

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

Hanneke Faber (CEO)

Yeah, so obviously very 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 wouldn't repeat. The EU was a little low on inventory at the end of Q4, so they had to bring in a little more in the first quarter. At the end, the weeks on hand are still in the very healthy, normal operating range. 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 (Equity Research - Head of EMEA Tech Hardware and Semiconductor Research)

All right, thank you so much.

Operator (participant)

Okay, our next question comes from Tim Long with Barclays. Tim?

Tim Long (Managing Director)

Thank you. Yeah, two, if I could. It sounded like first one, B2B was pretty strong in the quarter. Just walk us through kind of, it sounds like video collaboration, but any other moving parts there, and just remind us on the kind of economic, financial impact of growing the B2B in the mix. Then second, 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 gaming vertical? Thank you.

Hanneke Faber (CEO)

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. 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. All of that despite the 10% price increase, which applied across B2B and B2C. That's really good to see. We continue to strengthen our capabilities in B2B. We now have a global partner program in 135 countries. That's one place where we needed to improve. We're also continuing to grow in those new verticals that we've talked about, and education had another quarter of double-digit growth. All of that is good to see. Matteo, you want to just comment on that?

Matteo Anversa (CFO)

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

Hanneke Faber (CEO)

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. You saw our APAC numbers. We do not break out China, but APAC was at +15%. China was significantly ahead of that. That is great to see. A big milestone for us is the fact that in May, we finally started getting share in gaming in China, which is awesome. We are number one, but we have been losing share for a while. That is good. One swallow does not make summer, but you got to start somewhere. Across the world, we saw good growth in our premium segments on gaming.

Pro and SIM are a real priority for us. We extended our partnership with McLaren, and we launched a really exciting new headset, the G522. Lots of great things in gaming, and that is just a long-term, really big bet for us.

Tim Long (Managing Director)

Okay, thank you.

Matteo Anversa (CFO)

Thank you.

Operator (participant)

Our next question comes from Lucas with Berenberg. Lucas? Okay, skipping ahead, our next question will come from Martin with BNP. Martin, please go ahead.

Martin Jungfleisch (Equity Research Analyst)

Yeah. Hey, hi guys. Good evening. Just. Maybe can you talk about just the demand pattern in Q1? I mean, was this anything different compared to typical Q1s to the tariffs? I mean, have you seen demand increase a lot post-tariff announcements and then fade off towards the end of Q1 in the U.S.? That's the first question. The second one is really more on just market share and competition. You wanted to play offense, obviously, in this current environment. Can you talk about how you generally see yourself positioned, I mean, compared to peers with regards to your current production setup and pricing? Could you potentially gain market share and raise prices further on the back of your potentially better production footprint? Thank you.

Hanneke Faber (CEO)

Want to take demand?

Matteo Anversa (CFO)

Okay, Martin, so on your first question, 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, we're up nicely. B2B actually outpaced a bit the consumer, but overall, very, very strong. It was also broad in terms of products. 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. Really, really good and broad-based demand. Also geographically, back to Hanneke's point, it was very strong in AP, in Europe, and relatively flourishing in North America. To your question, in terms of Poland, I go back to what Hanneke mentioned earlier. We have not seen that on the consumer side.

We have seen a little bit at the beginning of the quarter on the B2B side with the customer trying to pull in some of the products like we did with our own suppliers in advance of tariffs. When you look at overall the quarter, the impact of this pull-in was overall immaterial. The demand was overall pretty good and broad-based.

Hanneke Faber (CEO)

Yeah, yeah. In terms of shares, we saw share gains in a number of categories at a global level. I was particularly encouraged by the fact that across all our key categories in the U.S., past three months, we saw share growth. PWS gaming and video conferencing. The impact of price on share really is too early to tell. 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 end of May. We have to read that carefully. I do expect a temporary softening of shares after a price increase. 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)

Great. Thanks a lot.

Matteo Anversa (CFO)

Thanks, Martin.

Operator (participant)

Okay, our next question comes from Michael with Vontobel. Michael?

Michael Foeth (Senior Equity Research Analyst)

Yeah, hi. Can you hear me?

Matteo Anversa (CFO)

Yeah, we can hear you.

Martin Jungfleisch (Equity Research Analyst)

Hi. 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 net working capital and cash flow. 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 you're expecting for the current quarter on tablet accessories in your guidance?

Hanneke Faber (CEO)

Yeah, yeah, thanks. Why don't I take the tablets and then we can come back to inventory. Tablets are an important part of our business. Quite strategic. 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. That is a growing segment. Second, as you just pointed out, Michael, they serve the important education vertical. When we can serve K to 12, young children with our products, we create a lifelong relationship with that consumer. It is a long-term strategic kind of first product that people get in their hands from Logitech. 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 significantly improved the margins of the tablets. It is a much more attractive business for us now than it was 15 months ago. All of that is good. We expect another good quarter because, as you said, it is back to school. 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 (CFO)

Michael, for on your question on inventory, if you go back, the last earnings call, 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 and leverage the strength of our balance sheet to try to pull in some of the inventory ahead of tariffs being into effect. That was Sree and the team and the operation done a marvelous job. They were very successful in doing it in the first quarter. 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. That is one of the reasons. The team has done a fantastic job.

We want to continue to operate under the same identical framework because, as you have seen in the first quarter results, notwithstanding the fact that we pulled in inventory, the inventory balance is a little higher than last year. We still closed with $125 million of operating cash flow, cash balance of $1.5 billion. The cash conversion days, thanks to very strong collections that we continue to see also in the first quarter, closed around $40 million, which is the framework that we outlined even on Investor Day. Our strategy will be unchanged. If we can, we will pull in as much 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)

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 (CFO)

Yeah, we have been pretty consistent. If you look back to the last three, four quarters, we always bought back between $120 million and, call it, $130 million of shares. We had one uptick back in, I think it was the third quarter of the last fiscal year where there was a dislocation in the stock price, and we opportunistically bought back more. Overall, I go back to what we said at Investor Day, right? We clearly laid out the capital allocation priority of the company, and we said that we are targeting a $2 billion buyback in three years, and we will follow the strategy that we aligned in March.

Michael Foeth (Senior Equity Research Analyst)

Perfect. Thank you.

Matteo Anversa (CFO)

You're welcome. Thank you.

Operator (participant)

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

Asiya Merchant (Technology Equity Research)

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? 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. How should we think about that next quarter as well? If you can unpack the guidance relative to the tariff impacts that you guys are seeing. I think in the past, you had expected a much worse tariff impact, which obviously does not seem to be working through right now. How should we think about the guidance relative to that? Thank you.

Matteo Anversa (CFO)

Sure, Asiya. 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. Overall, we are very pleased with the performance on the gross margin on the higher end, pretty much in line with what we said on the higher end 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 points positive price that Hanneke mentioned earlier.

Net-net, the tariff impact in the quarter was -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 when we talked back three months ago, we were expecting 100 basis points negative, so in the zone. Year-over-year, we also had about 50 basis points of pressure due to inventory reserves that were released in the prior year in the first quarter, which did not occur in the first quarter of this year. That is how you unpack the 120 basis points of deterioration in the year-over-year comparison and gross margin for the first quarter. Now, when we move to the second quarter of last year, the gross margin rate was 44%.

Here is where it is important to remember that 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. We even said at that time this was not going to repeat. Really, the number you have to compare yourself is about 43%, right? Moving from there, we are expecting tariffs to impact about 200 to 300 basis points negative. This will be offset by the 200 basis points of positive impact from price to the actions that Hanneke mentioned earlier. Then we have about roughly 100 basis points of year-over-year pressure on the gross margin coming from slightly higher promotion net of effects. That is your walk to the 41 to 42%. Overall, the performance on the gross margin rate should be pretty much similar to what we have seen happening in the first quarter.

The impact of tariff, net of everything, so tariff, net of the diversification, and net of price is between 0 to 100 basis points negative.

Asiya Merchant (Technology Equity Research)

Okay, great. And just if I may, as you look ahead, is that kind of what we should think about? I mean, typically, you do have some promotional expenses, et cetera. The back half of your fiscal year tends to be slightly margin diluted versus your first half. How should we think about the gross margin trajectory for the rest of the year? Thank you.

Matteo Anversa (CFO)

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

Asiya Merchant (Technology Equity Research)

All right. Thank you very much.

Matteo Anversa (CFO)

Thank you.

Operator (participant)

Our next question comes from Samik with JPMorgan. Samik?

Samik Chatterjee (Managing Director and Equity Research Analyst)

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. 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 2Q, you also get the benefit of pricing on that front as you move from 1Q. Just trying to understand the sort of puts and takes on the revenue side, particularly given that you have benefit of pricing. Maybe as sort of addition to that, you have the Americas pause that you're highlighting in 1Q that impacted you. How do you expect that to play out in 2Q? Do you expect inventory replenishment in 2Q in the region?

Hanneke Faber (CEO)

Yeah, that's a great question, Samik. You've seen that we've guided for the quarter with a fairly broad top line range, 1%-5%. The high end of that assumes that the market remains resilient and that the impact of the U.S. price increase on the consumer is modest. That would be the high end. 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. That's kind of how we think about the bookends of that range.

Samik Chatterjee (Managing Director and Equity Research Analyst)

Anything in terms of how you're thinking the Americas pause sort of plays out in terms of F2Q? 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? Thank you.

Matteo Anversa (CFO)

For the first part of your question, when you break down the regions to Hanneke's point, we are expecting AP, you saw how the performance in the first quarter was great, and we think that will continue 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 Hanneke mentioned earlier. Overall, we are expecting Europe to continue to perform very well. The range really comes down to North America, and that is exactly what Hanneke just described. In terms of expectation for tariffs, that is a tough question, Samik. We said for the second quarter, right, with the current tariff environment, we are expecting the impact of tariff to be between zero to negative 100 basis points, this all-inclusive.

Tariff cost, net of manufacturing diversification, and net of the price increase. With the current tariff environment, if that were not to change, that would be a good proxy also for the remainder of the year. We will have to see what happens with legislation and so on and so forth. That is all we can say right now.

Hanneke Faber (CEO)

Absolutely. I mean, some people think everything is now settled, but it remains a moving feast. The expected tariff impact on our U.S. volumes of the countries we make in, China plus five, is not entirely clear. The tariff policy is not entirely clear. The product classification, which leads to exemptions, is not entirely clear. Of course, what also impacts the tariff rates that we see in the P&L is our own manufacturing footprint and when things change, our own mix, and our own strategic inventory decisions. There are a lot of variables, which is why we do not break all of those out because we would drive you nuts and we just give you what it all adds up to.

Samik Chatterjee (Managing Director and Equity Research Analyst)

Thank you. Thanks for taking my question.

Operator (participant)

Our next question comes from Arnanda with Loop Capital.

Yeah, hey, guys. Good afternoon. Really appreciate you guys taking the questions. I guess two if I could. Hanneke, and maybe this has become more of a housekeeping question, but I do like asking it. Last year, the remarks you had made about opportunity to harmonize portfolios across various of the geographies. Can you sort of talk to where you guys are in that? Is there anything left to do, and what the impact has been? Is there a future impact that could come from that? I have a quick follow-up as well.

Hanneke Faber (CEO)

Yeah. I think we're in a very good place when it comes to harmonized portfolios around the world, really. Obviously, that helps in terms of cost reductions quarter by quarter. Simpler is always better, but we're in a pretty good place. 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. What I also expect we'll start seeing is that some of that China, For China innovation actually becomes global innovation again going forward. That will be a really good dynamic.

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

Yeah, you got that exactly right. We're through the first phase where the inventory got a little skinny. We're through that because customers have accepted the price increase. They're ordering. We're back to good inventories. We actually did see that earlier in the second quarter. We had a good Amazon Prime. That would tell me that things are back in order in terms of inventory. Again, the effect of the actually higher consumer price, that is yet to be seen. Again, usually in the short term, that could have an effect on sales and share.

Thank you. Thanks a lot.

Operator (participant)

Okay, our next question comes from Joern with UBS. Joern?

Joern Iffert (Head of Equity Research Switzerland)

Thank you. Hello, everybody. Thanks for taking my questions. Two to three, please. If I may start with the first one. Just to double-check, your ASP negotiations in North America, was this resulting in empty shelves and this was impacting the flatter sales through? Or not really?

Hanneke Faber (CEO)

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

Joern Iffert (Head of Equity Research Switzerland)

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

Hanneke Faber (CEO)

It had some impact probably in the last month of the quarter. Again, we do not have those shares yet, so I cannot really tell. Through May, it did not have an impact. The shares in North America were very strong. I think in early July, we are recovering from that impact. Again, the second impact of the actually higher prices remains to be seen. All of this is normal when you increase prices. You do not know overnight what will happen, and you will have some noise in the actual negotiations.

Joern Iffert (Head of Equity Research Switzerland)

Thanks for this one. The second question is on gaming. If I remember correctly, last quarter, it was also growing low single-digit or so sell-through. It seems that now it is again, in brackets, only growing low single-digit. It should be your key structural growth driver. Is there anything going on in simulation devices or headset which is cyclical we should be aware of? How do you think the growth rates in the remainder of the year in gaming?

Hanneke Faber (CEO)

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

Matteo Anversa (CFO)

Demand was up 6% in the quarter for gaming. It was pretty good.

Joern Iffert (Head of Equity Research Switzerland)

Sales through was 6% in gaming?

Matteo Anversa (CFO)

That is correct.

Hanneke Faber (CEO)

Yeah.

Joern Iffert (Head of Equity Research Switzerland)

Okay. Okay. Thanks. 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%± you are paying currently? Is this roughly correct? For example, when there's anything happening with China going to 55%, when this pause is over, Taiwan, Malaysia, have to pay 30%, that this 200 basis points is increasing likely in the back half of the year?

Matteo Anversa (CFO)

I think the amount for the first quarter was a little lower than that. But as you know, Joern, in the first quarter, we benefited of the inventory that we were able to pull in back to the prior question. They mitigated the impact. I think your math is relatively close. As far as the, we only today, we just talk about the outlook for the second quarter, right? 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 flashing 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.

Then we will have to see what happens for the future. That is why we just, to Hanneke's point earlier, we will stop at the second quarter and we will update you moving forward. The 15% that you calculate, the roughly 15% that you mentioned moving forward, so excluding the first quarter, is actually close to my calculations. You are close.

Joern Iffert (Head of Equity Research Switzerland)

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

Operator (participant)

Okay, our final question comes from Maya Neuman with Morgan Stanley. Maya?

Maya Neuman (Equity Research Associate)

Awesome. Thank you so much. Hanneke, maybe if you can help us better understand the timing to reach your 7%-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. How long do you think until we get to that high single-digit top-line growth target?

Hanneke Faber (CEO)

Yeah, great question. As you know, last fiscal, we were actually at +7. We can already be pretty close. Clearly, a lot of uncertainty, a lot of challenges in the markets in the past quarter after Liberation Day. Again, we're pleased with even now the top line that we're seeing and the demand that we're seeing in the markets. 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. We continue to see good growth there. That's very encouraging. The other two, healthcare and government, we're really just starting and we're starting almost from scratch. Before that has a material impact, it will take a little longer.

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. I don't have a crystal ball, but it's going to happen.

Maya Neuman (Equity Research Associate)

Understood. 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 us understand how much the pricing increases in the U.S. are estimated to contribute to September quarter top-line growth?

Matteo Anversa (CFO)

Maya, we said that we are expecting the impact of price to be 200 basis points at the gross margin level. That is what we are counting on our financials. We will see what happens at the end of the quarter based on some of the uncertainties that Hanneke just talked about.

Hanneke Faber (CEO)

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

Maya Neuman (Equity Research Associate)

Awesome. Thank you so much.

Matteo Anversa (CFO)

Thank you, Maya.

Operator (participant)

At this time, there are no further questions.Thanks, everybody. I think we're ready to wrap.

Hanneke Faber (CEO)

Absolutely. Thank you so much for joining us today and for sticking with us at this late hour in Switzerland. Just to summarize, our teams had a great start to the fiscal. Looking ahead, I'm excited actually about the opportunity that's before us. We are going to continue to play offense. We'll continue to manage costs, and we're going to continue to be super agile. I look forward to speaking with you next quarter. Take care, everyone. Good night.