Sonos share rises with strong profit

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    Loudspeaker manufacturer Sonos (NASDAQ: SONO) reported a profit for the second quarter of the fiscal year on Wednesday, which hit a strong blow compared to expectations and raised its guidance for fiscal 2021. The stock fell as much as 20% in expanded trading Wednesday and was 7% up 7% by 12 noon EST Thursday.

    Here’s what investors need to know about Sonos’ blowout quarter.

    Sonos blockbuster results

    Fiscal second quarter revenue rose 90% to $ 332.9 million, breaking the consensus estimate of $ 248.5 million. This resulted in adjusted earnings per share of $ 0.31, much better than analysts expected Sonos to be $ 0.14 per share to lose. Sonos also posted adjusted EBITDA profit of $ 48.5 million while gross margin increased 810 basis points to 49.8%.

    Several factors contributed to improving profitability. A higher sales volume helps increase operational leverage and margin expansion, Sonos has withdrawn promotional activities, and tariff costs have steadily decreased.

    Sonos announced a new ultra-portable smart speaker called Roam towards the end of the quarter, which is now the company’s cheapest product. CEO Patrick Spence noted that Sonos’ modular design, which allows customers to gradually add speakers to sound systems, continues to resonate with consumers.

    “The strength of our model is that customers can start with one product and expand to more over time, and our customers keep proving that they do just that,” Spence said in a statement.

    Increase in the outlook for the 2021 financial year

    Sonos has also raised its forecast for the current fiscal year. Revenue is now projected to be in the range of $ 1.625 to $ 1.675 billion, compared to an earlier expectation of $ 1.525 to $ 1.575 billion in revenue. This should result in an Adjusted EBITDA of $ 225 million to $ 250 million, compared to previous guidance of $ 195 million to $ 225 million.

    Sonos increased its expectations impressively despite the ongoing chip shortages in the semiconductor industry, which affects a large number of sectors. The company is doing a good job mitigating these constraints, including additional investments in the supply chain and logistics.

    Spence told Reuters that the company started increasing chip orders last year as demand remained robust. In fact, demand is so strong that, despite efforts to improve its supply position in the quarter, Sonos no longer has multiple products, CFO Brittany Bagley commented on the conference call with analysts.

    So far, consumer interest in the $ 169 Roam speaker has exceeded Sonos’ internal expectations. During the pre-order period, sales were 150% above the company’s projections for the direct-to-consumer (DTC) channel, and reviews have been largely positive.

    Management remains optimistic about three trends that will continue to drive future growth. The industry is now creating an unprecedented amount of audio content, including music, audiobooks, and podcasts. People are also streaming more videos at home, which is increasing the demand for home theater audio products. At the same time, consumers are becoming increasingly remote, which Sonos is addressing with portable speakers.

    “This is the golden age of audio,” said Spence.

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    Evan Niu, CFA, has no position in any of the stocks mentioned. The Motley Fool owns shares in and recommends Sonos Inc. Millennial Money is part of the Motley Fool Network. Millennial Money has a disclosure policy.

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