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iRobot Q1 2020 Earnings: What to Watch

By Demitri Kalogeropoulos - Apr 23, 2020 at 4:45PM

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Investors have some big questions for the consumer tech specialist.

iRobot (IRBT 0.45%) investors are bracing for some surprises that could move the stock over the next few days. The robotic cleaning device specialist is set to report earnings for the fiscal first quarter, which includes the start of COVID-19 containment measures across key markets in Europe, Asia, and North America.

The Roomba maker's last announcement contained encouraging signs of stabilizing sales thanks to aggressive price cutting. However, iRobot could detail a vastly different selling landscape in its upcoming report, set for April 29.

Let's look at the key trends to watch for in that announcement.

A robotic vacuum cleaner working in a living room

Image source: Getty Images.

Sales trends

Back in early February, executives cautioned that 2020 was going to be a "year of transition," with sales growth likely slowing for the second straight year, down to roughly 10%. Yet while that prediction included the impact of higher tariff prices on its manufacturing, it didn't foresee the disruption from COVID-19 that started to scramble consumer spending priorities beginning in mid-March.

iRobot likely faced a big growth challenge as Amazon started to prioritize shipping essentials over the last few weeks. However, demand changes will be the bigger issue as shoppers adjust to stay-at-home time and allocate more of their budgets toward pantry and home maintenance products such as detergents and disinfectants.

There's no telling how badly those issues hurt sales, especially considering that iRobot notched a solid 15% sales increase in its core U.S. market last quarter and 11% overall. Most investors who follow the stock are expecting a dramatic shift in that trend, with sales predicted to fall 20% to $191 million.

Manufacturing challenges

A revenue slump like that will hurt profitability, which was already heading lower. CEO Colin Angle and his team said earlier in the year that they liked the market share results from their recent price cuts and were prepared to continue that strategy. Add the stress from a reduced revenue base to the mix, and it's a safe bet that iRobot's gross profit margin slumped to well below the 40% rate investors saw last quarter.

Wall Street is forecasting net losses in the period of roughly $0.42 per share compared to a $0.78 per share profit a year ago. That metric will have plenty of noise embedded in it tied to the short-term sales and profit challenges from COVID-19, though. That's why it will be more useful to follow trends such as average selling prices. That figure improved to $310 from $294 in fiscal 2019, reflecting iRobot's leadership position in the consumer tech industry.

The launch plan

The company probably won't have a detailed 2020 outlook since demand trends will depend on the timing of the economic rebound ahead. Yet investors should hear from management about how iRobot plans to navigate through several months of a potentially brutal selling environment. Look for comments about cost cuts, financing moves, and perhaps a different cadence to its product releases.

The company usually launches new versions of its core Roomba franchise in the second quarter, well ahead of the holiday shopping season. But that timing might not make sense if consumers are still avoiding the robotic cleaning device category, and its biggest partners at online and physical stores are operating at limited capacity.

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 Amazon. The Motley Fool owns shares of and recommends Amazon and iRobot and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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