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iRobot Earnings: What to Watch

Investors have high expectations for iRobot's (NASDAQ: IRBT) upcoming earnings release. While shares touched 30% year-to-date declines in March, they've soared since then after the company announced a quick return to sales growth and profitability.

Wall Street will be looking for more progress on those scores when the robotic cleaning device specialist announces its third-quarter results on Oct. 20. And there'll be lots of attention on management's updated outlook for the all-important holiday shopping season ahead.

Image source: Getty Images.

Home cleaning wins

Many stocks involved in the home improvement, beautification, and maintenance niches have surged in recent months thanks to an intense new consumer focus on spending in these areas. iRobot fits right into that segment with its lineup of premium vacuum and floor-mopping devices.

Investors saw early evidence of the surging interest in last quarter's report that ran through late June. CEO Colin Angle credited elevated consumer desire to maintain a clean home as helping explain how sales rose 8% compared to the prior quarter's 19% decline.

The company is expected to continue that sales recovery in the upcoming report, with revenue again growing by about 8% to $312 million in Q3. It will be interesting to see whether shoppers continued purchasing its most premium models. That trend is good news for its brand strength and profitability, but investors are hoping to see gains both in average selling prices and sales volumes in this report.

Still cutting costs

The quick sales growth turnaround last quarter amplified cost-cutting changes that Angle and his team had already put in place. Those trends combined to make a big difference on iRobot's bottom line.

Operating income surged to over $70 million compared to just $5 million a year ago. Net profit was comfortably above $50 million just one quarter after iRobot reported substantial Q2 losses.

Investors aren't very confident about where earnings might land this quarter given all the variables around cost cuts, product pricing, and tariff charges. But iRobot has predicted modest sales growth for the full fiscal year, along with significant operating profit margin. The company may be in a position to back up those forecasts with specific numbers now that retailers are making their holiday season sales orders.

A tough 2021 for profits?

Looking further out, iRobot warned shareholders that profitability could take some big hits in 2021 thanks to tariffs on imported Chinese products. Moving part of its manufacturing base to Malaysia will bring temporary production inefficiencies, too.

Investors will probably look past those issues if iRobot can show that it is still leading in a growing global niche for premium cleaning devices. Its third-quarter sales report should support that bullish argument, but the main Wall Street focus will be on what management has to say about the upcoming holiday season.

The order pace from retailers in these critical weeks, especially from major partners like Amazon, sets the tone for the level of growth and pricing strength iRobot can expect over the holiday shopping season and for the wider 2020 year.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Demitri Kalogeropoulos owns shares of Amazon. The Motley Fool owns shares of and recommends Amazon and iRobot and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. The Motley Fool has a disclosure policy.


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