Sonos Expects Return to Normal Promo Activity for Holidays
Sonos’ retail channel is “comfortably stocked” for the first time in the past three holiday seasons, said Sonos Chief Financial Officer Eddie Lazarus on the company’s Wednesday Q4 FY 2022 earnings call. The company expects a return to normal promotional activity through the holiday quarter and is “in a position to burn down a significant amount of the finished goods inventory that we have” by the end of fiscal Q1 ending, Jan. 2, Lazarus said.
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For FY ’22, Sonos’ retail and other revenue, including Ikea and other business initiatives, declined 2% year on year, at 56% of sales. Direct-to-consumer (DTC) revenue fell 5% on softer demand in Europe, the Middle East and Africa, a stronger dollar and limited promotional activity for much of the year.
Overall Q4 revenue dropped 12% from the prior-year quarter to $316.3 million, at the high end of guidance after the company lowered full-year guidance in August (see 2208110056) on the slowing macroeconomic environment, caution from retailers and exchange rate headwinds. The company’s net loss widened to $64.1 million vs. $8.7 million for the quarter ended Oct. 1, the company said. FY ’22 revenue grew 2.1% to $1.75 billion, at the high end of revised guidance.
Sonos is investing in systems and tools for the DTC channel “to understand our customers better and make sure that we can target on a more individualized basis,” said CEO Patrick Spence. That includes targeting customers with “the right kind of offer based on the products that they have today.” Average products per Sonos household grew to 2.98 in FY ’22, he said; it added 1.4 million households to 14 million.
Sonos broke out Installer Solutions revenue as a new category disclosure. Lazarus noted the category grew 28%, driven by strong demand for the Amp and Port, which had been in short supply over the past couple of years due to supply chain shortages. Lazarus noted “persistent supply challenges” in Q4 but referenced “an improving supply position.”
Installer Solutions and DTC channels generated 44% of Sonos revenue in FY ’22, up 260 basis points from FY ’21, Lazarus said, noting the channels have higher gross margins than retail. Installer Solutions was 21% of FY '22 revenue. Sonos expects the “positive mix shift” to carry into the next fiscal year and to support higher revenue per product.
Sonos households brought in through the installer channel tend to buy multiple high average-selling-price products, Lazarus said. The company continues to have “robust performance” in Installer Solutions despite slowing housing activity in the U.S., he said: “Home improvement activity remains solid and our dealers have healthy backlogs.” The U.S. is over 80% of Installer Solutions revenue, but EMEA and Asia-Pacific are seeing “meaningful growth.”
Gross profit was down 2% for the year to $796.4 million, below guidance, due to lower than expected Q4 gross margins, Lazarus said. Gross margin of 39.2% was below expectations of 40%-42% due to increased reserves for excess component inventory, he said. Gross margin was adversely affected by the timing of cost recognition for “pricey spot market components,” he said.
Sonos’ Q4 ‘22 inventory balance was $454 million, up 145% year over year, Lazarus said. It invested in inventory in the first half after being “severely constrained” in 2020-2021, he said. The company will be able to work through the inventory it has “without doing any extraordinary measures,” he said.
For FY ’23, Sonos expects revenue to range from minus 3% to 3%, to $1.7 billion-$1.8 billion, said Lazarus, saying guidance assumes demand trends remain consistent with stabilization in the past four months. The company expects a $79 million foreign exchange rate headwind skewed to the first half.