Sonos ‘third quarter results are music to investors’ ears


    Shares in Sonos (NASDAQ: SONO) opened 13% higher Thursday morning after the company announced fiscal third quarter results on Wednesday evening.

    Like many technology and consumer goods companies, Sonos has struggled with delivery bottlenecks in recent quarters due to global semiconductor shortages. The good news for Sonos is that their customers remain very loyal and ready to wait for their products.

    As of 12 noon EDT, Sonos stock rose 5%.

    Sonos customers are patient

    Third quarter revenue rose 52% to $ 378.7 million, slightly beating consensus estimate of $ 315.2 million in revenue. CEO Patrick Spence discussed three secular trends that have propped up business over the past few months:

    • Golden Age of Audio: Consumers now have access to unprecedented amounts of audio content, including music, audiobooks and podcasts.
    • Hollywood at Home: More video content is going straight home as streaming services embrace direct-to-consumer models and encourage people to upgrade their home theater setups.
    • The big regrouping: People have broken off the commute and are moving to remote work, moving from the urban areas to the suburbs and buying audio equipment for larger living spaces.

    To capitalize on these trends, Sonos is focused on strengthening its brand, expanding its product range by entering new categories, and achieving long-term sustainable and profitable growth for investors.

    The gross margin rose 300 basis points to 47% thanks to several factors. Sonos pulled back promotional discounts during the quarter, the company received some rate refunds, and operational leverage kicked in with higher sales volumes.

    The supply chain environment remains challenging as Sonos is faced with bottlenecks in many of the components needed to manufacture its products. But instead of buying audio products from a competing brand, consumers simply wait.

    “Fortunately, our customers have shown both patience and loyalty,” remarked Spence on the conference call with analysts. “Your willingness to wait for our products while we continue to build the offering underscores the strength of our system-based approach and our brand.”

    All of this resulted in adjusted earnings per share of $ 0.27, while Wall Street analysts expected Sonos to lose $ 0.06 per share.

    Increase leadership – again

    For the third quarter in a row, Sonos raised its outlook for fiscal year 2021. Revenue for the fiscal year is now projected between $ 1.695 billion and $ 1.71 billion, compared to the company’s previous guidance of $ 1.625 billion to $ 1.675 billion. The consensus estimate currently calls for $ 1.67 billion.

    Adjusted EBITDA for the year is expected to be $ 270 million to $ 280 million and gross margin should increase to 46.5% to 46.9%. The outlook assumes that tariff expenses will be minimal in the fourth quarter of the financial year. Sonos is now working on the backlog it’s sitting on that CFO Brittany Bagley didn’t want to quantify.

    “Demand remains strong,” added Bagley. “We don’t see anything that suggests a slowdown in demand.”

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


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