In just the past year, iRobot's (NASDAQ:IRBT) stock has been down by as much as 40% and higher by over 20%. That intense volatility underscores just how unsure investors are about the business prospects for the robotic cleaning device specialist. On the bright side, its dominant market position could power a decade or more of market-beating sales and profit growth as its niche moves into the mainstream. Yet, rising competition and spiking costs threaten that optimistic outlook.
Investors won't get all the answers to these long-term questions when the company reports its fourth-quarter earnings results on Wednesday, Feb. 6. But they will learn how well iRobot's newest product lineup did over the critical holiday shopping season, and whether CEO Colin Angle and his executive team see another year of record results ahead.
Growth and profits
The growth picture has been brightening for months and pointing to a banner holiday outing with respect to sales. In late October, iRobot revealed that a 45% spike in the core U.S. market powered surprisingly strong global sales. Revenue rose 29% overall to trounce the 19% jump that investors were expecting.
Meanwhile, management saw the happy trends carrying into the key holiday season, given the positive early response to its two latest additions to the Roomba franchise. They responded by lifting their full-year outlook to call for sales of about $1.08 billion, including about $380 million in the fourth quarter.
Profitability has been an important trend for investors to follow since it helps show just how well iRobot's devices are faring against the flood of competition into the market, including from much cheaper rivals. So far, the news has been good on that score, with average selling prices improving to $289 through the first three quarters of the year from $260 a year earlier. Gross profit margin is up to 52% of sales in that period from 50%.
Investors had been bracing for margins to shrink, but iRobot isn't out of the woods yet. The holiday season always adds pressure for price cuts, after all, and that's a key reason the company predicted a step lower for gross profit margin this quarter. Executives also estimated that tariffs would cleave about $5 million, or just over 5% of the full year's operating earnings, out of fourth-quarter profits. Altogether, most investors who follow the stock are expecting earnings to land at $0.50 per share -- up from $0.16 per share last year.
iRobot's official outlook for the new year could show that tariff costs will hit the bottom line in a much bigger way in 2019. But that shouldn't concern long-term investors given that all of the industry's participants will feel the same pinch. What's more important is whether iRobot can extend its technical leadership position into the new year through popular advancements in its cleaning products that keep rivals racing to catch up. The year will bring other key tests of its brand and selling platform, too, as it seeks to establish its Braava mopping devices right alongside the Roomba vacuuming line as must-have premium cleaning products.
Wins in these areas would position iRobot well to make a serious run toward its ambitious long-term goals after having wrapped up its first $1 billion sales year in 2018.