Heading into iRobot's (NASDAQ:IRBT) quarterly earnings release in late July, investors had two major worries about its business. The first concern was that the robotic cleaning-device maker's ambitious sales growth targets would be threatened by a flood of lower-cost competition entering the market. That worry fed into the second, that iRobot would need to significantly cut prices to protect its dominant market share.
Its second-quarter report eased both of those concerns, with strong sales growth and rising profitability leading the management team to boost their 2018 forecast on both the top and bottom lines
Following the report, CEO Colin Angle and his team held a conference call with Wall Street analysts to put those numbers in perspective, and explain why they feel confident in robust growth rates carrying through the critical holiday shopping period ahead. Here are a few highlights from that presentation.
1. Healthy sales growth
Quarterly revenue of $226 million, an increase of 24% from Q2 last year, was driven primarily by growth of our Roomba 900 and 600 robots. -- CFO Alison Dean
Sales growth rates edged past management's expectations, as a 34% jump in international markets combined with 15% higher sales in the U.S. segment to deliver a 24% overall boost. A significant portion of those sales were made to retailers stocking up ahead of the upcoming holiday shopping period, executives said. The company was thrilled with demand for its core Roomba devices, particularly during the Mother's Day and Father's Day holidays. Its Braava mopping device performed well, too, but executives believe that newer franchise will become stronger with support from an aggressive marketing campaign that's set to run in the U.S. around the Christmas holiday season.
2. Beating the competition
While our performance on Amazon Prime Day in the U.S. isn't material to our Q2 results, it has become an important gauge for second-half expectations. We expect [the] competitive landscape to be similar to last year's landscape and have a high level of confidence in meeting our expectations for the full-year U.S. revenue growth. -- Angle
iRobot dominated the Amazon sales charts during its Prime Day bonanza, which should provide a nice lift for third-quarter results. Yet while executives were happy to have doubled its sales volume over the prior year, they were even more excited to achieve these results without sacrificing profit margin through an influx of lower-quality competition.
Instead, iRobot's gross profit margin improved in the second quarter, rising to 52% of sales from 49% a year ago. That success surprised management, so they now believe full-year margin will come in at the high end of their target range of between 50% and 51%.
3. Product launches are on the way
I know you are all excited about our second-half product launches, as are we. Although I can't give you any specifics, what I can tell you is that we are planning multiple launch activities. The first will be happening in a few weeks. It will be a soft launch for limited stores initially, where we will introduce our next offering of high-end innovation at a lower price point. -- Angle
iRobot is currently producing, and building up inventory for, at least two new devices that it expects to release over the next few months. Together, these innovations are likely to account for as much as 25% of the company's sales this year.
Management didn't have any more details to share about the products on the call, but their launches are factored into expectations of between $1.06 billion and $1.08 billion of revenue in 2018. Shareholders will get a look at the first device, which features an attractive pairing of innovative cleaning features and a lower price, sometime in the current quarter, with additional launch events in the coming months. "Stay tuned," Angle told Wall Street analysts.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Demitrios Kalogeropoulos owns shares of AMZN. The Motley Fool owns shares of and recommends AMZN and iRobot. The Motley Fool has a disclosure policy.