It has been about a month since the last earnings report for Sonos (SONO). Shares have lost about 9.7% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Sonos due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Sonos Q3 Earnings Fall Y/Y, 2023 Guidance Updated
Sonos reported third-quarter fiscal 2023 non-GAAP earnings per share (EPS) of 16 cents compared with 19 cents in the prior-year quarter. On a GAAP basis, the company reported a loss of 18 cents against the breakeven reported in the year-ago quarter. The Zacks Consensus Estimate was pegged at breakeven.
Quarterly revenues increased 0.4% (up 0.3% on a constant-currency basis) year over year to $373.4 million due to strong consumer demand. However, the top line beat the Zacks Consensus Estimate by 9.6%
Revenues from Sonos speakers were $289.7 million, down 7.8% from the prior-year quarter’s levels.
Sonos system products’ revenues were $64.2 million, up 67.4% year over year. Revenues from Partner products and other totaled $19.3 million, up 0.9% year over year.
Region-wise, revenues from the Americas totaled $251.6 million, up 8.3% year over year. Europe, the Middle East and Africa generated revenues of $105.3 million, down 6.5%. Revenues from the Asia Pacific were down 38.4% to $16.4 million.
Gross profit was $171.7 million, down 2.3% from the prior-year quarter’s levels. Gross margin contracted 130 bps year over year to 46%, mainly due to the lack of promotional activity in the prior-year quarter, partly offset by favorable product mix shift and fewer spot component purchases.
Total operating expenses amounted to $193 million, up from $168.9 million in the prior-year quarter, reflecting higher research and development and general and administrative expenses.
Operating loss was $21.2 million against the operating income of $6.9 million in the year-ago quarter. Adjusted EBITDA totaled $34.3 million compared with $42.1 million in the prior-year quarter. Lower gross margins and higher headcount mainly resulted in the downside.
Cash Flow & Liquidity
For the fiscal third quarter, Sonos generated $8.9 million of cash from operations. Free cash outflow was $7.8 million.
As of Jul 1, 2023, cash and cash equivalents were $268.3 million compared with $294.9 million as of Mar 31. SONO has no debt.
Sonos repurchased shares worth $15 million. The company has $54.9 million worth of shares remaining under its $100 million authorization.
For fiscal 2023, Sonos now expects revenues to be down 5-6% year over year and in the range of $1.64-$1.66 billion (earlier view: down 4-7% year over year and in the range of $1.625-$1.675 billion). On a constant-currency basis, revenues are anticipated to decline 3-4% (earlier view: decrease in the range of 2-5%).
The gross margin is now projected to be between 44% and 44.2%. Adjusted EBITDA is estimated to be between $148 million and $158 million, with the margin in the range of 9-9.5%
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision.
The consensus estimate has shifted -41.43% due to these changes.
Currently, Sonos has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Sonos has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
Performance of an Industry Player
Sonos is part of the Zacks Audio Video Production industry. Over the past month, Dolby Laboratories (DLB), a stock from the same industry, has gained 9.1%. The company reported its results for the quarter ended June 2023 more than a month ago.
Dolby Laboratories reported revenues of $298.37 million in the last reported quarter, representing a year-over-year change of +3%. EPS of $0.55 for the same period compares with $0.68 a year ago.
Dolby Laboratories is expected to post earnings of $0.52 per share for the current quarter, representing a year-over-year change of -3.7%. Over the last 30 days, the Zacks Consensus Estimate has changed -5.9%.
Dolby Laboratories has a Zacks Rank #4 (Sell) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of D.
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