Sonos Stock Rises on Strong Earnings Beat

Speaker maker Sonos (NASDAQ: SONO) reported fiscal second-quarter earnings on Wednesday, delivering a strong beat compared to expectations and boosting its guidance for fiscal 2021. The stock popped as much as 20% in extended trading on Wednesday, and as of 12 p.m. EST Thursday was up 7%.

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

Sonos blockbuster results

Revenue in the fiscal second quarter jumped 90% to $332.9 million, utterly destroying the consensus estimate of $248.5 million. That resulted in adjusted earnings per share of $0.31, much better than the $0.14 per share analysts were expecting Sonos to lose. Sonos also swung to an adjusted EBITDA profit of $48.5 million, while gross margin expanded by 810 basis points to 49.8%. 

Several factors contributed to the improved profitability. Higher sales volume is helping drive operating leverage and margin expansion, Sonos has pulled back promotional activity, and tariff expenses have steadily declined.

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

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

Raising outlook for fiscal 2021

Sonos also boosted its guidance for the current fiscal year. Revenue is now expected to be in the range of $1.625 billion to $1.675 billion, up from a previous expectation of $1.525 billion to $1.575 billion in sales. That should result in adjusted EBITDA of $225 million to $250 million, compared to the prior guidance of $195 million to $225 million.

Impressively, Sonos raised its expectations despite the ongoing chip shortage that the semiconductor industry is experiencing, which is impacting a broad variety of sectors. The company is doing a good job in mitigating those constraints, including making additional investments in its supply chain and logistics operations.

Spence told Reuters the company started to increase chip orders last year as demand continued to be robust. In fact, demand is so strong that Sonos is out of stock of several products, despite its efforts to improve its supply position during the quarter, CFO Brittany Bagley commented on the conference call with analysts.

So far, consumer interest in the Roam speaker, which costs just $169, is surpassing Sonos’s internal expectations. During the pre-order period, sales were 150% higher than the company’s forecasts for its direct-to-consumer (DTC) channel, and reviews have been mostly positive.

Management remains optimistic about three trends that will keep driving future growth. The industry now creates an unprecedented amount of audio content, including music, audiobooks, and podcasts. People are also streaming more video at home, boosting demand for home theater audio products. At the same time, consumers are becoming more remote, which Sonos addresses with portable speakers.

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

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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 part of The Motley Fool network. Millennial Money has a disclosure policy.

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