Earnings Results: Sonos tops expectations as new products, promotions drive strong holiday sales

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An earlier version of this report misstated Sonos’ year-ago Ebitda figure. The correct amount is $87 million.


Sonos said it’s getting more effective with its promotions.

Sonos Inc. had a stronger-than-expected holiday quarter fueled by new products like a portable speaker and a partnership with IKEA.

The company topped expectations on revenue, gross profit and earnings with its fiscal first-quarter report Wednesday, citing strong effectiveness of holiday promotions. Shares were up 7% in after-hours trading.

Revenue for Sonos’ SONO, -3.36%  holiday quarter climbed to $562 million from $496 million, topping the FactSet consensus, which called for $546 million. The company said that it sold 2.9 million products in the quarter, up 22% from a year earlier with the growth driven by new product launches including the Sonos One SL and the Sonos Move portable speaker.

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“IKEA products really helped in terms of driving a record number of new homes that we were able to get into,” Chief Executive Patrick Spence told MarketWatch, while the Move portable speaker “is really a new category” but did well against similarly priced products. He said that third-party data indicated that dollars spent on audio equipment overall fell in the holiday quarter but that since Sonos’ sales grew, the company is taking share in the market.

Planned promotions “outperformed expectations” in the quarter, which the company believes “resulted in a pull forward of revenue from the second quarter,” according to the Sonos earnings letter. The company reiterated its fiscal 2020 forecast for $1.365 billion to $1.4 billion in revenue.

Spence said that Sonos got more effective in targeting its promotions. “People felt like they saw more from Sonos, but it was the right people,” he said, in that the campaigns were effective in terms of rates of redemption.

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The company reported net income of $70.8 million, or 60 cents a share, up from $61.7 million, or 55 cents a share, in the year-earlier quarter. Analysts surveyed by FactSet had been anticipating 48 cents a share in GAAP earnings.

Sonos posted adjusted earnings before interest, taxes, depreciation, and amortization (Ebitda) of $93 million, up from $87 million a year earlier, whereas analysts were modeling $79 million. The company didn’t provide an adjusted earnings-per-share metric. The company also reiterated its fiscal 2020 outlook for $72 million to $82 million in adjusted Ebitda.

Sonos said it was “on track” with its supply-chain diversification move, as it has started to do some manufacturing in Malaysia with an expectation that it will be fully operational there by the end of the year. The company’s earnings outlook for the year includes a previously disclosed $30 million one-time negative tariff impact, though about $20 million of that cost was recognized in the first quarter.

“Given that the first quarter is our largest quarter, and we have already started transitioning to Malaysia, the reduction in the tariff is expected to have little impact on our fiscal 2020 tariff expense,” the company said in its shareholder letter.

Spence told MarketWatch that he is “feeling good about the more diversified manufacturing footprint.” He expects the coronavirus to have “minimal impact” on Sonos’ business but the company is monitoring the situation.

Sonos drew criticism earlier this year for its communications around a decision to end software updates for some older speaker models, a move that would also mean that customers with both older and newer models wouldn’t get updates to their newer models either if those were connected to the same system. The company later admitted it didn’t communicate the policy effectively and would work on a way to “split” systems so that newer models could still get updates even if they were in the same home as legacy products.

“We have to get more thoughtful about these communications given how passionate the customer base is,” Spence told MarketWatch.

The stock has climbed 5.1% over the past three months, as the S&P 500 SPX, +1.13%  has risen 8.7%.