Snap One Lowers Guidance as Integrators Become 'More Cautious'
Though custom integrators remain busy, their customers are “becoming more cautious,” Snap One CEO John Heyman said on the company’s Wednesday Q3 earnings call. Residential integrators' “discerning end buyers” tend to be more insulated from economic downturns and inflationary cost pressure, he said, but “we are starting to observe some changes in their buying behavior, such as project descoping, project delays and product trade downs to manage the overall cost of an installation,” he said.
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Snap One scaled back FY 2022 revenue guidance to “adjust to economic conditions,” Heyman said. The company expects to end Q4 with full-year revenue of $1.1 billion-$1.115 billion, a 9%-11% increase. Previous guidance was $1.16 billion-$1.18 billion. Earnings before interest, taxes, depreciation and amortization guidance is minus 1.6%-2% growth to a range of $109 million-$113 million. Heyman expects recent market headwinds “to persist."
The company began to observe a “moderated pace of daily sales,” in second half Q3, Heyman said. Management expected a “normal acceleration” in orders at the end of the quarter when dealers try to meet purchase requirements for rebate and rewards programs “but did not see that,” Heyman said. The company had a 9% price increase at the beginning of Q3 that caused “some buying ahead of inventory,” but it expected a “strong finish in September just like we have in every quarter," Heyman said: Q3 was the “first quarter we haven’t seen that” in Heyman’s eight years with the company.
At CEDIA, Snap One had discussions with service providers for the custom channel and integrators, Heyman said. “As we started to inquire, it was pretty clear that there was inventory being unwound,” he said. Supply chain constraints are loosening with some, but not all, vendors, and a small-business owner who's “sitting on a bunch of inventory” reading news about the economy is “going to start to think about liquidating that faster, especially if you think the supply chain is catching up to your business,” he said.
October trends continued to be “a bit softer than previously forecast," Heyman said. Integrators who took on extra inventory in response to their supply chain challenges are working through “elevated levels of inventory,” he said.
On the August earnings call, Heyman said growing Snap One’s local branch footprint is key to gaining market share. In Q2, the company opened a branch in Orlando, bringing the number of U.S. branches to 32, plus two in Canada. In the second half it expected to open “mid-single-digit” stores (see 2208150004), said Chief Financial Officer Mike Carlet.
Commenting Wednesday on the pace of store openings in the current economy, Heyman said, “I think about it prudently.” Snap One plans to open “a bunch of local branches” in Q4 that should have been opened earlier this year but were held up due to permitting and supply chain issues. Revenue took a hit on stores not opening as scheduled, he said. “We’ll get these sites opened in the fourth quarter, we have some technology work internally that we’re working on, we’ll keep an eye on revenues, and then we target opening more sites in the second half of next year.”
Heyman said costs have moderated in the supply chain and any price hikes would likely be “targeted” vs. broadbased. If costs increase, “we will respond from a pricing perspective,” he said. Q3 revenue grew 7.9% to $281.2 million, and net loss narrowed 95% to $1 million, the company said. Shares closed2.7% lower Thursday at $9.51.