Sonos, Inc. (Nasdaq: SONO) reported its second quarter fiscal 2023 results that reflect a softening in the home theater and audio markets. As a result, the Santa Barbara, Calif.-based company adjusted its full year forecast downward.

For Q2 2023, Sonos’ revenue decreased 23.9% year-over-year to $304.2 million. The dramatic drop is a bit misleading because in Q2 of 2022 Sonos was fulfilling tremendous amounts of backlog that had built up from the supply chain crisis. Due to that, the company was anticipating declines of 25% to 30% for the quarter, so the 23.9% decrease was slightly ahead of expectations. Still, in comparison to two years ago, the Q2 revenues are down 9%. Wall Street reacted negatively to the news with Sonos’ stock falling 24% on May 11 from $21.14 per share t $16.14 per share.

The company’s adjusted EBITDA for the quarter was a loss of $10.6 million compared to a profit of $46.9 million last year. For the full year, Sonos now anticipates revenues between $1.625 billion and $1.675 billion, which represents a year-over-year decline of 7.3% to 4.4%. As a result, the company plans to reduce expenses.

Speaking to investors, both CEO Patrick Spence and CFO Eddie Lazarus said there has been a definite softening in demand for audio products.

“A multitude of macroeconomic factors are pressuring the home theater category broadly, and competitors are becoming increasingly promotional. We are pleased to see share gains in home theater in Q2, but we are not immune to the widespread category weakness,” says Lazarus.

When asked by analysts where consumer spending was moving to, Spence said he did not know.

“All I know for sure… is that it’s not coming to audio right now from everything I see,” said Spence. “I am an expert on the audio industry side, and that is not where people are spending right now.”

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Spence noted that some of the other competitive wireless audio brands are offering discounts as high as 40% to try to stimulate sales, but Sonos is not taking that route.

He says, “Though our second quarter results were in-line with our guidance, we are reducing our expectations for the second half of Fiscal 2023 due to softening consumer demand and channel partner inventory tightening. As a result, we are taking swift action to reduce our operating expenses and protect our profitability. We remain focused on ensuring that Sonos will emerge from the current choppy consumer environment in a position of strength: we are profitable, we are debt free, and we have a huge market opportunity. Continuing to innovate is critical to delivering on our long-term growth ambitions and I have every confidence in our ability to continue to do so.”

Sonos Exploring Financing Options

Among the avenues Sonos says it is exploring is pushing more direct-to-consumer business, which represents 22% to 23% of its business. Also, Spence hinted that the company is looking at possibly creating a financing option for buyers to boost sales. He noted there are some “things in the pipeline” on that front and advised everyone to “stay tuned on that” as Sonos tested some financing programs.

Among the highlights from the quarter was the launch of the new Sonos Era 100 and Era 300, as well as the launch of the SaaS Sonos Pro offering. Spence noted that reactions to the Era 100 and 300 has been amazing and ahead of expectations. He believes those speakers will be the building blocks for Sonos for the next five to 10 years. The Era 100 features all new hardware and software, while the Era 300 offers immersive audio with Dolby Atmos.

“We’ve never had a more exciting product roadmap, but we’ve also never really faced kind of the short-term industry headwinds we have. So, we will navigate this period. We’re excited about what we have coming in the future, and we’re going to continue to stay focused on how we build a sustainable profitable company for the long term,” added Spence.

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