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Why Is Sonos (SONO) Down 0.9% Since Last Earnings Report?

A month has gone by since the last earnings report for Sonos (SONO). Shares have lost about 0.9% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Sonos Q2 Earnings Fall Y/Y

Sonos reported second-quarter fiscal 2023 non-GAAP earnings of 4 cents per share compared with 26 cents in the prior-year quarter. On a GAAP basis, the company reported a loss of 24 cents against the earnings of 6 cents reported in the year-ago quarter. The Zacks Consensus Estimate was pegged at a loss of 14 cents.

Quarterly revenues decreased 23.9% (down 22.4% on a constant-currency basis or cc) year over year to $304.2 million due to weak consumer demand. Tougher year-over-year comparison owing to backlog fulfillment and timing of channel fill in the prior-year quarter added to the woes. Unfavorable foreign exchange movements affected sales by $6 million. However, the top line beat the Zacks Consensus Estimate by 3.5%.

Revenues Details

Revenues from Sonos speakers were $241.2 million, down 24.1% from the prior-year quarter’s levels.

Sonos system products’ revenues were $44.1 million, down 28% year over year. Revenues from Partner products and other totaled $18.9 million, down 9.2% year over year.

Region-wise, revenues from the Americas totaled $196.5 million, down 17.5% year over year. Europe, the Middle East and Africa generated revenues of $89.1 million, down 30.7%. Revenues from the Asia Pacific were down 43.9% to $18.6 million.

Other Details

Gross profit was $131.6 million, down 26.5% from the prior-year quarter’s levels. Gross margin contracted 150 bps year over year to 43.3%, mainly due to unfavorable product mix shift and forex volatility partly offset by fewer spot component purchases.

Total operating expenses amounted to $188.8 million, up from $169 million in the prior-year quarter, reflecting higher research and development, and general and administrative expenses.

Operating loss was $57.2 million against the operating income of $10 million in the year-ago quarter. Adjusted EBITDA loss totaled $10.6 million against the adjusted EBITDA income of $46.9 million in the prior-year quarter. Lower revenues mainly resulted in the downside.

Cash Flow & Liquidity

For the fiscal second quarter, Sonos used $113 million of cash from operations. Free cash outflow was $121.7 million.

As of Mar 31, cash and cash equivalents were $294.9 million compared with $431.5 million as of Dec 31, 2022. SONO has no debt.

Sonos repurchased shares worth $15 million. The company has $69.9 million worth of shares remaining under its $100 million authorization.

Guidance for Fiscal 2023

For fiscal 2023, Sonos now expects revenues to be down 4-7% year over year and in the range of $1.625-$1.675 billion (earlier view: down 3% to up 3% year over year and in the range of $1.7-$1.8 billion). On a constant-currency basis, revenues are anticipated to decline 2-5% (earlier view: increase in the range of 1-7%).

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The gross margin is now projected to be between 44.3% and 44.8%. Adjusted EBITDA is estimated between $138 million and $168 million, with the margin ranging from 8.5-10%.

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 -95.65% due to these changes.

VGM Scores

At this time, Sonos has a poor Growth Score of F, a grade with the same score on the momentum front. 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

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 #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Sonos belongs to the Zacks Audio Video Production industry. Another stock from the same industry, Sony (SONY), has gained 4.5% over the past month. More than a month has passed since the company reported results for the quarter ended March 2023.

Sony reported revenues of $23.17 billion in the last reported quarter, representing a year-over-year change of +18.9%. EPS of $0.78 for the same period compares with $0.77 a year ago.

Sony is expected to post earnings of $0.99 per share for the current quarter, representing a year-over-year change of -26.7%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.5%.

Sony has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.

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