Snap One Holdings the owner of Snap AV and Control 4 automation systems, is struggling to snap out of a losing streak, with the business reporting another fall in sales while still making big losses.
Analysts are also questioning their accounting methods for stock in the channel and their use of the terms ‘destocking’.
Net sales declined in the quarter and the business has only managed to shave a US$100m off their losses which now stand at $900M, this has led to another round of sackings at the US Company
As for the sackings CFO Michael Carlet said, “We believe this action was an important step to streamline our cost structure and to position the company for success in 2024,” Carlet said. 
In the last quarter sales came in at $270M Vs $281M with international sales falling from $36M to $34M, Australia falls into International sales with the local operation also taking a hit.
While net sales declined 3.9% the reduction in losses came after the business increased their margins from 40.5% to 42%.
The business that is wallowing in losses claims that they have continued channel inventory destocking headwinds and are reducing macro uncertainty from the business.
In a conference call with analysts, Snap One CEO John Heyman said the results were consistent with their expectations. However, analysts are questioning what Snap One management claim is “destocking and descoping” these are terms created by the company after COVID as integrators sought to protect their business during the COVID-19 supply chain shortages, by purchasing a excess inventory – so much so that they came out of the pandemic still carrying a lot of inventory.
Strata Gee claim This version of the Statement of Operations includes the percentage of sales for each item, which can help add context. For example, Snap One talks about its efforts to cut expenses, such as SG&A, which the company says declined 6%. In dollars that’s correct, but as a percentage of sales, it only declined 0.6%…a much more modest amount.
Despite the lift in revenues during COVID the business was still unable to reduce their losses until this quarter and only by $100M.
Strata Gee claims that analysts are sceptical of this destocking argument, largely because it was difficult for integrators to buy more than they needed because of the supply chain issues during COVID and the impact that the lack of processors was having on the industry.
Additionally, integrators especially the ‘man in a van’ installers who often buy stock when needed, with others only carrying a small amount of stock and only when they have a job signed off now carrying little stock as the market takes a steep dive due to issues impacted by the inflation downturn.
Strata Gee said, “It is very hard to believe that integrators were carrying so much excess inventory that it reduced their needs for an entire year”.
Snap One’s second suggestion that installations are being descoped – meaning clients or builders are cutting back on the scope of a given installation have also been questioned.
Heyman gave as an example, dealers only choosing to put two speakers in a room versus four…or more, leaving a room or two out of an automation installation in an effort to cut costs.
Despite the claim there was no hard data to show this is actually happening.
The company claims that there was $5 million in destocking that took place in the quarter however analysts, are to say the least, sceptical of the Companies accounting practises.
During the last quarter, all categories declined, with sales through domestic integrators dropping $4.2 million, other channels were down $4.9 million or 33% with international sales also falling 5.4%.
The business is also continuing to struggle with a negative product mix trend.
While the company sells products it designs, manufactures, and distributes under its own brand names which are referred to as the 1P or first-party products, t also distributes products for other companies under their brands known as 3P or third-party products.
The latest accounts reveal that the company makes more money on its 1P lines than it does on its 3P lines.
For multiple quarter, sales have been switching away from Snap One brands to third-party brands, hurting the sales of their own brands such as Control 4 and this is hurting profits due to a fall in average selling price.
