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Sonos “Wonky’ Claims CFO, APAC Sales Crash

Sales of Sonos products in Asia-Pacific, of which Australia makes up the biggest market, have fallen 21 per cent during the past year, with their specialist channel sales also slumping. Profits at the US sound Company are also down, according to the Q3 2023 financials. The CFO has described the results as “Wonky”.

Overall sales are up from US$664M at January 2022 to $675M at December 2022, however the business has not said how much of the increase is attributable to price increases due to inflation.

In Asia-Pacific of which Australia is their largest market, sales fell from US$45.18 to US$38.5M.

Eddie Lazarus, CFO and Chief Legal Officer seen below, said the local decline in Sonos sales is attributed to a fall in TV sales.

“The Australian television market has been weak. We think it’ll bounce back. It’s, as you know, a relatively modest part of our overall revenue. The Australian market had a dip. China is now reopened and that’s a big part of the Australian economy. We’ll see how that flows through, but we don’t see any kind of long-term implications here.” he claims.

He has not said how many foreign nationals buy a Sonos speaker in Australia, compared to their home Country. Nor has he said what percentage of Sonos Australia sales are soundbars Vs network speakers.

Globally, the business also saw their custom-install systems business fall from $134M to $114M.

The business delivered an adjusted EBITDA of $123.9 million compared to $163.1 million last year.

The adjusted EBITDA margin came in at 18.4 per cent compared to 24.6 per cent last year.

Gross Margins at the business declined because the business forced to invest in promotion campaigns in an effort to grow sales.

Accrued advertising and marketing expenditure in December was $12.8M.

In October 2022, the business spent an additional $21.2M in a market where their margins were falling.

Sonos has also taken a crack at Apple.

Weeks after Apple launched their new HomePod, which is seen as a major threat to Sonos, CEO Patrick Spence claimed of the new Apple offering, “It looks suspiciously like the model it launched – and swiftly culled – a couple of years ago.”

During a conference call, Spence directly referenced Apple’s new product when he said, “We never want to get over-confident in these things, but you know, even seeing what’s emerged, you know, recently, from Apple, I could not be more excited or confident about the product roadmap we have and our ability to take more and more of that $96 billion [global audio market.]”

Sonos, he said, had “seen some of the traditional players go heavy discounting”. He went on to claim that this was a trend his company had “always fought against and don’t really believe in”.

Spence told investors, “Consumer spending was rather tepid, especially as the pendulum has swung away from goods and toward travel and services as the consumer enjoys some of the activities that they were deprived of during the pandemic.”

He added, “The consumer electronics space in particular continues to experience softness after three years of very strong growth.”

CFO and Chief Legal Officer Eddie Lazarus said, “Our year over year comparisons have been and will continue to be a bit wonky. This is due to timing of backlog fulfillment, whether we were in or out of stock on key products, if we ran normal promotions, and many more factors.

“Although we see the shape of our year normalising somewhat in Fiscal 2023, we will likely have to lap this year to get back to some semblance of normalcy in terms of year over year comparisons.”

When asked about their ongoing fight with Google, Lazarus said, “The next big moment here is going to be May 8, when we open trial in Northern California in our first trial against Google – that trial will last something like 10 days.”

When asked further questions about the Asia-Pacific market, and in particular weakness in their mainstream and IKEA business which according to Lazarus makes up 56 per cent of their overall business, CEO Spence said, ” I just talked to our key person over at IKEA the other day.

“He said he had discussed the recent launch of the new Sonos IKEA offering. IKEA is still working on some in-store displays… It’s not where they would have wanted it to be at this point or ourselves. I think it’s a matter of, like, them getting refocused on it from an execution perspective in-store as opposed to anything else.

“I do think it’s been a little bit harder for IKEA coming out of the pandemic to get the footfall back and kind of drive what they would normally see in terms of their business overall, not just with our products.”

As for future sales, John Babcock of BofA Securities questioned whether reports that revenues would be down 55 per cent to 60 per cent from 1Q to 2Q was a reality.

Lazarus responded, claiming, “Timing of new product initiatives is always a key factor… There’s not a question of inventory overhang. We haven’t changed our expectation with respect to that even as well as we did in the first quarter, so it’s just the way the wave of the year is working out.”

Sonos Product Range US dollar pricing.

 



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