iRobot (NASDAQ:IRBT) recently rode its leadership position in robotic cleaning devices to its first $1 billion sales year. The consumer tech specialist has its sights set much higher as the market matures out of its niche status over the next several years.
But there will be bumps along the way even under the most optimistic growth scenario. iRobot executives back in April signaled a difficult fiscal second-quarter ahead, for example, with sales and profitability held back by tariffs and by the shift in demand toward its newest Roomba releases.
On Tuesday, investors will learn whether there are other trends hurting iRobot's business, or if the company is on track to reach its aggressive 2019 targets.
Let's take a closer look.
1. Is competition edging Roomba out?
Three months ago, iRobot revealed a few distressing operating trends at the start of fiscal 2019, including slowing sales growth and increasing inventory levels. Yet management said at the time that the issues weren't driven by competition for its core Roomba vacuum franchise. CEO Colin Angle and his team instead blamed temporary factors such as tariffs for adding noise to the company's short-term sales cadence.
Investors will find out on Tuesday whether that optimistic reading was correct. iRobot is aiming for double-digit sales growth both in the U.S. and in its major international markets, thanks mainly to its latest innovative releases for the Roomba franchise. And while Amazon.com Prime Day was not part of the second-quarter results, look for executives to discuss how well its devices sold during that promotion, which has become a major source of growth lately and a good indicator of consumer demand for the second half of the year.
2. Are the cost spikes manageable?
iRobot is dealing with two major cost issues right now: higher tariffs and efforts to diversify its manufacturing base outside of China. On top of that, margins are under pressure as the sales mix shifts further toward brand-new products, which are less efficient to produce.
All of these challenges should combine to power iRobot's second straight quarter of falling gross profit margin, but pricing trends could show whether a stabilization is on the way in the back half of 2019. Average selling prices rose to $321 from $309 in Q1, and a similar bump next week would help show that the company is finding ways to pass along most of its higher costs to consumers.
3. What about the holiday season?
Its consumer focus helps ensure that most of iRobot's sales come in the second half of the year, particularly around the holiday shopping season. Last year's 24% revenue spike in Q4 propelled the company over $1 billion for the year as households snapped up its latest lineup of smarter, more autonomous Roomba devices.
With the benefit of three more months of sales data to review, including early demand for its latest product launches, Angle and his team will have a clearer look into how well late 2019 might go for the business.
As it stands, iRobot's outlook calls for sales to rise by about 18% to $1.3 billion as operating earnings, depressed by tariffs, expand by a slower 10%. Each of these targets could receive a significant update on Tuesday, depending on the latest demand trends.