(Bloomberg) -- Bang & Olufsen A/S shares gained after the Danish maker of luxury audio speakers reported higher sales in China and improvement in its operating margin, offsetting an overall decline in second-quarter revenue.

• Operating profit rose 8.3 percent to 90 million Danish kroner ($14 million) in the three months through November, the company said Tuesday. The gross margin increased to 47.2 percent from 41.2 percent.

Key Insights

• A double-digit boost to revenue from Greater China and Japan gave some reason for optimism even as overall sales dropped 9 percent amid a series of distribution glitches. In the Americas, sales slumped 30 percent due to problems in a transition to a new logistics system. Revenue in the Europe-Middle-East-Africa region fell 3 percent.
• Chief Executive Officer Henrik Clausen is under pressure to turn around the company after he abandoned the outlook for double-digit sales growth for this fiscal year in December.
• Free cash flow went negative as Bang & Olufsen extended credit to retailers amid weak sales, which may raise repayment risks. The company has struggled to keep up with consumers who have been switching from bulky stereo systems in their living rooms to portable music players and Bluetooth headphones.

Market Reaction

• B&O shares rose as much as 6.2 percent in Copenhagen. They fell 41 percent in 2018, the worst drop in a decade. The hi-fi maker is worth a quarter of the value at its peak in 2006.

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