Sonos Announces Delayed Entry-Level Sub for Holiday Season

“We delayed the general availability” of the Sub Mini from fiscal Q4, which ends this month, “to the holiday quarter,” said CEO Patrick Spence at an investor conference Monday. Then-Chief Financial Officer Brittany Bagley said on the company’s August earnings call that the new product delay was driven by “caution from some of our retail channel partners,” plus foreign exchange rate headwinds and continued supply constraints.

The Ray has been reviewed well and received positively by customers since its release, Spence said, but the launch coincided with a period when “the consumer started to back away from purchasing things.” The company decided to give Sub Mini “a little bit more time to try and launch it in the big window for audio products, which is the holiday quarter,” he said.

Q2 numbers -- a 1.8% year-on-year slip -- were an anomaly for Sonos, which typically reports double-digit sales growth. The company issued an 8-K filing Monday ahead of the Goldman Sachs technology conference to reaffirm fiscal 2022 guidance it gave in August, projecting a 15% revenue drop to $306 million in fiscal Q4, which ends this month. The company expects full-year growth of 1%-2%.

Commenting on demand trends and the macroeconomic environment, Spence said Monday that June sales figures “were a surprise” based on April and May sales, which tracked with expectations. Sales have “stabilized,” and the holiday season “will be really interesting” as the first in three years “where we’ll actually have supply.” But “we don’t know where the consumer will be,” Spence said, citing a need for “adaptability.” The company expects to be more promotional this year as a result of improved inventory.

Spence downplayed the role stay-at-home pandemic trends played in sales over the past two years, saying Sonos benefited somewhat, “but it’s not the same” as a company like Peloton, whose sales crashed after spiking on temporary pandemic-led behavioral shifts when "everybody was stuck at home.” People are listening to music and watching smart TVs more than they did pre-COVID-19, “even as things normalize,” he said.

Consumers “are still going to listen to music,” Spence said. “More people are working at home, more people are watching streaming content even as travel picks up, and that’s where we play.” Some $96 billion is spent a year on audio products in the U.S., he said, “and that’s going to continue to happen. I don’t know if the [total available market] for home fitness or some of these other things have ever been in that position.”

Sonos is identifying additional markets where it can expand, Spence said, referencing additional geographies and “budget-conscious’ consumers. At the same time, “We’re not going to go for the empty calories,” he said, referencing other CE companies that “think they need to do entry-level products” and end up “chasing low-end demand at the expense of profit.” He would rather that Sonos take 20%-25% share of audio sales “and capture 90%-100% of the profits in the industry.”

On Sonos’ position in the affluent-home market, which the company estimates at 13 million out of 145 million homes, Spence said Sonos will benefit from a trend toward customers wanting to simplify their tech lives. “One of the big things we’ve noticed is people kind of simplifying to some degree,” he said. “There’s been these whole-home solutions that have been out there for a while that some affluent homeowners would implement -- like a Crestron or a Control4,” he said: “We’re seeing that less and less." In those cases, homeowners are choosing Sonos as the music service, "then they’ll choose something else for HVAC, something else for lighting … even in the most expensive homes.”

Sonos positions the 9 x 12-inch Sub Mini for audio and video applications; it has a round form factor that’s designed to fit a home’s decor “without taking up too much space,” said the company. The Mini is targeted to mainstream customers with a heightened interest in premium sound as more content is produced in higher end audio formats such as Dolby Atmos, Jeff Derderian, Sonos vice president-product program leadership, told us on a pre-briefing this month.

The subwoofer can also be paired with Sonos speakers to deliver music over a wider frequency range, including the Symfonisk speakers sold through Ikea, Derderian said. He cited growing interest in immersive audio for music, giving Dolby Atmos Music as an example, and said bass response is a key part of the experience. Gaming, too, benefits from extended low-frequency response for sound effects and the soundtrack's music portion, he said.