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iRobot Cranks Up Its Outlook and Predicts a Return to Profitability

By Demitri Kalogeropoulos - Jun 16, 2020 at 2:28PM

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The consumer tech specialist sees a much brighter future ahead.

A renewed interest in home maintenance is lifting iRobot's (IRBT -0.27%) growth prospects. The robotic cleaning device specialist issued an operating update on Monday that included mostly good news for investors, as sales growth trends have improved in a few of its biggest global markets.

The enthusiastic consumer response to its latest vacuum lineup has iRobot predicting a return to sales growth and profitability in the fiscal second quarter, in fact.

Let's take a closer look at the latest operating metrics.

A robotic vacuum in a living room with a fireplace, a couch, and a matching chair

Image source: Getty Images.

Stronger demand

CEO Colin Angle and his team have noticed a sustained growth uptick since the company last spoke with investors in late April. Back then, iRobot revealed a brutal 19% sales slump that executives blamed mainly on supply chain disruptions brought on by the COVID-19 pandemic.

Those issues have been fixed, but the bigger factor in this week's upgrade is surging interest in its vacuum and mopping robots. The newest additions to the Roomba and Braava franchises are sparking a return to sales growth in the core U.S. market. "Maintaining a clean home has become a higher priority for many consumers," Angle said in a press release, "as COVID-19 has forced people to spend more time in their homes."

The demand boost hasn't been uniform across the globe, with Japan joining the U.S. in lifting results while the European market remains weak. Still, iRobot now sees sales landing between $260 million and $270 million in the fiscal second quarter, constituting a significant increase from the prior target that envisioned less than $193 million. "Our anticipated second-quarter ... performance will be substantially better than we originally expected," Angle explained.

Better earnings trends

iRobot's finances are benefiting from two positive trends as well. The shift toward premium products is helping lift gross profit margin, for one. And the company's aggressive cost-cutting program, which started before the COVID-19 pandemic but accelerated during the crisis, is also having a big impact.

These initiatives are joining with the higher-than-expected sales outlook to boost iRobot's profit power.

Specifically, the company now sees a quick return to operating profitability in the fiscal second quarter. Its prior forecast had warned of a "sizable" operating loss.

Still a transition year

The robust demand iRobot is seeing through May has management feeling confident that the second half of 2020 will mark a big improvement over the first half. Yet the tech specialist is still warning investors to expect a slight sales decline for the full year.

Shareholders won't have to wait long for more details about that outlook, as iRobot's full second-quarter results will be published in late July. That report will include key metrics like gross profit margin and average selling prices for its Roomba and Braava cleaners, along with the latest demand trends at key retailing partners such as Amazon.

A key question for Angle to comment on in that report will be whether he sees the new focus on home cleaning supplies as just a temporary consequence of social distancing, or more of a fundamental shift in consumers' priorities for maintaining tidy homes.

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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