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Sonos (SONO) Down 5.6% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for Sonos (SONO). Shares have lost about 5.6% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Sonos due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Sonos Q1 Earnings Beat Estimates, Revenues Up Y/Y

Sonos reported a non-GAAP earnings of 79 cents per share for first-quarter fiscal 2023 compared with $1.03 in the prior-year quarter. On a GAAP basis, the company reported earnings of 57 cents per share compared with 87 cents reported in the prior-year quarter. The Zacks Consensus Estimate was pegged at 33 cents per share.

Quarterly revenues increased 1.2% (up 7% on a constant-currency basis or cc) year over year to $672.6 million, due to increased volume from higher promotional activity and improved product supply. The top line beat the Zacks Consensus Estimate by 11.7%. However, unfavorable foreign exchange movements affected sales by $39 million.

Revenues Details

Revenues from Sonos speakers were $539.1 million, up 7.4% from the prior-year quarter’s levels.

Sonos system products’ revenues were $114.4 million, down 15.1%. Revenues from Partner products and other totaled $18.9 million, down 32% year over year.

Region-wise, revenues from the Americas came in at $396.6 million, up 6.1% year over year. Revenues from Europe, the Middle East and Africa were $240.4 million, down 2%. Revenues from the Asia Pacific were down 21.3% to $35.6 million.

Other Details

Gross profit was $285.1 million, down 10.2% from the prior-year quarter’s levels. Gross margin contracted 540 bps year over year to 42.4%, mainly due to increasing component costs and resumption of normal holiday promotion and forex volatility.

Total operating expenses were $198.7 million, up from $184.8 million, reflecting higher research and development, and general and administrative expenses.

Operating income was $86.3 million compared with $132.6 million in the year-ago quarter. Adjusted EBITDA totaled $123.9 million compared with $163.1 million in the prior-year quarter. Higher operating investments resulted in the downside.

Cash Flow & Liquidity

For the fiscal first quarter, Sonos generated $182.3 million of cash from operations. Free cash flow was $167.6 million.

As of Dec 31, 2022, the company had $431.5 million in cash and cash equivalents compared with $274.9 million as of Oct 1, 2022. The company has no debt.

Guidance for Fiscal 2023

Sonos expects revenues to be down 3% to up 3% year over year and in the range of $1.7-$1.8 billion. On a constant-currency basis, revenues are expected to increase 1-7%. The gross margin is now projected to be between 45% and 46%.

Adjusted EBITDA is estimated to be between $145 million and $180 million, with the margin ranging from 8.5-10%.

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How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

The consensus estimate has shifted -123.68% due to these changes.

VGM Scores

Currently, Sonos has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Sonos has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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