iRobot Struggles With Systemic Headwinds

iRobot Pulls Back Into A Buying Opportunity

iRobot NASDAQ: IRBT has confirmed the market’s fears and more. The company reported a fantastic quarter but one that was severely impacted by the global chip shortage and systemic supply chain challenges. Not only that, the company's guidance was negatively affected as well but within that, we see the seeds of opportunity. iRobot is well aware of their challenges and has announced a company-wide effort to mitigate them that has the company set up for the second wave of post-COVID economic recovery. That second wave will be driven by the recovery of the global supply chain and the resumption of normalized business across broad sections of the S&P 500 coverage universe. iRobot is very well positioned for that recovery.

iRobot Has A Great Second Quarter

iRobot had a good second quarter, we can't deny that. The company reported $366 in net consolidated revenue for a gain of 30.8% over last year. This beat the consensus by 375 basis points and is on top of a high single-digit positive comp in the previous year. For those interested in the two-year comparison, the company's revenue is up 40% from 2019 proving the strength of the business and the effectiveness of the growth strategy. On a segment basis, the company says that EMEA and top-tier sales in the US drove much of the strength. In regards to the company's headwinds, it says it lost out on $17 million in sales in the quarter which is worth 460 basis points of additional growth. We expect the company to recoup this growth, the only question is when.

On a segment basis, sales in the US grew by 40% on strength in mid-tier to top-tier robots. Sales in the EMEA group grew by 29% while sales in Japan increase by 7%. On a robot basis, sales of mid to high-level robots increased by 42% and accounted for 80% of sales. The company also broke out the eCommerce and DTC numbers which is important, eCommerce and DTC channels are key to the growth strategy and both are growing. The company says e-commerce grew by 20% over last year to account for 66% of the revenue while DTC channel sales increased by 36%.

The bottom-line results were also negatively impacted by the company's challenges. The GAAP EPS of - $0.10 missed the consensus by $0.12 while the adjusted EPS of $0.27 missed by $0.04 and led the company to lower guidance. Execs say they expect to emerge from the supply chain crisis in better shape than before but are expecting it to affect results through the end of the year. The company is now expecting revenue in the range of $1.55 to $1.62 billion versus the $1.69 predicted by the analyst with EPS in a wide range the barely includes the consensus estimate at the high-end. The takeaway from the guidance is the company is unsure exactly what results will be because of supply chain challenges but, fundamentally, the business is still strong.

iRobot Accelerate Its Share Repurchase Program

iRobot doesn't pay a dividend but it is a prolific purchaser of its own shares. The company repurchased about $50 million worth of its stock over the past quarter and just announced an acceleration of the repurchase program for this quarter. The company is expecting to spend  $100 million on share repurchases in August of 2021, just a few days away. As for the balance sheet, the company has zero debt and a lot of cash so we're not worried about the near-term business outlook.

The Technical Outlook: iRobot Gets Cheaper

Shares of iRobot are down about 10% in the wake of the earnings miss and guidance revelation and it may move lower. With revenue and earnings under pressure, and supply chain issues expected to linger through the end of the year,  there are other good Investments with better visibility for the market to focus on. The stock is still trading above key support In the range of $70 to $75 so the pullback may not get much deeper but we aren't holding our breath. If the $70 level fails we think the stock could fall all the way to the $40 level and retrace the post-COVID bounce. If it does we will be ready.