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Earnings Results: Sonos sees strong demand fuel earnings beat, but supply constraints could limit upside

Sonos Inc. said it continues to see strong demand for its audio products, though the speaker maker acknowledged Wednesday that its revenue upside could be limited by the ongoing supply crunch.

The company easily topped revenue expectations for its fiscal second quarter, logging $399.8 million, up from $332.9 million a year before. The FactSet consensus was for $353 million in revenue.

Those results reflected “very healthy performance that was driven by good underlying demand that we continue to see,” Sonos
SONO,
-8.61%

Chief Financial Officer Brittany Bagley told MarketWatch.

Sonos maintained its revenue outlook of $1.95 billion to $2.00 billion for the full fiscal year, which Bagley said balances the company’s upbeat view of future demand with its measured understanding of supply-chain realities.

“It would be hard for us to have upside on back half of year because we just don’t have the supply to support it,” she said, though demand has been strong. “Since our last quarter, we’ve had war in Ukraine, the dollar strengthening versus the euro, continued inflation, and we’re watching all that really carefully, but we continue to have a great customer who is investing in audio products and the home.”

Sonos also announced new products Wednesday, including a lower-priced sound bar, which it expects will continue to stoke demand.

The company’s push to get supply into the hands of consumers hasn’t come without cost, however, Bagley said, as Sonos has seen some pressure on its gross margins. Sonos had a 44.8% gross margin in its fiscal second quarter, down from 47.8% in the fiscal first quarter.

It also tweaked its gross-margin outlook for the full fiscal year to 45.5% to 46.0%, whereas its prior forecast called for 45.0% to 47.0%.

Bagley shared that Sonos is working hard to get enough supply of its products, including the new ones, but the company is “paying a bit more from a gross-margin standpoint to be able to do that” and expects it will “continue to cost more.”

The company posted net income of $8.6 million, or 6 cents a share, compared with $17.2 million, or 12 cents a share, in the year-prior quarter. Analysts tracked by FactSet were expecting 5 cents a share in GAAP earnings.

On an adjusted basis, Sonos earned 26 cents a share, compared with 31 cents a share a year before, while analysts were modeling 17 cents a share.

Sonos posted adjusted earnings before interest, taxes, depreciation and amortization (Ebitda) of $46.9 million, down from $48.5 million a year before but ahead of the $35 million that analysts had been projecting.

For the full year, it now expects adjusted Ebitda toward the lower end of its prior range. Sonos models $290 million to $310 million in adjusted Ebitda, whereas its earlier forecast called for $290 million to $325 million.

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