What happened
Shares of premium audio company Sonos (SONO +2.62%) got smacked down on Thursday after the company reported financial results for its latest quarter and lowered its full-year guidance. As of noon ET, Sonos stock was down 24%.
So what
After the market closed yesterday, Sonos reported financial results for its fiscal second quarter of 2023, which ended on April 1. Revenue of $304 million was down a sharp 24% year over year. Surprisingly, this was above expectations from Wall Street although it was in line with management's outlook.
NASDAQ: SONO
Key Data Points
However, profitability was a different story for Sonos. To start, its gross margin declined to 43.3% compared to a gross margin of 44.8% in the prior-year period. Management cited higher sales of lower-margin products and an increase of inventory reserves.
This didn't help overall profitability for Sonos. But on top of this, management noticed sales were increasingly more challenged than expected and consequently began pivoting in regard to operating expenses. The pivots have one-time associated costs, ultimately dragging the company to a net loss of $30.7 million compared to net income of $8.6 million last year.
Now what
Looking at product registrations can be more encouraging for Sonos shareholders. In Q2, product registrations were only down 2% year over year and are only down about 2% so far in its fiscal third quarter. Therefore, there doesn't appear to be a mass exodus of consumers from the Sonos brand.
However, spending for discretionary products is challenged right now because of the economy and Sonos' premium products aren't immune. Management said third-quarter revenue is trending down about 9% so far, more than expected and motivating management to reduce full-year revenue guidance.
Sonos' management lowered its full-year guidance by about 6% to between $1.625 billion and $1.675 billion -- a substantial reduction considering the fiscal year is already half over. This implies a 4% to 7% year-over-year drop in revenue for fiscal 2023. For perspective, revenue in fiscal 2022 was down 8%.
Sonos still believes it can profitably grow to $2.5 billion in annual revenue. But right now this business is challenged and it's unclear when things will improve.
