A Preliminary Look at Sonos’ Fiscal 2026, 3rd Quarter Results
On Wednesday, Sonos, Inc (Nasdaq: SONO) released the results for the third quarter of Fiscal 2026 and, on the face of it, things looked pretty good. The company reported revenues in the quarter increased by 9% and net income was $29.9 million versus a loss in the quarter last year of $3.4 million. Investors reacted strongly, driving up the value of the stock by, 8% at one point – and that was on a down day on Wall Street. Shares of SONO closed up 4.3% after flying higher earlier in the day.
Then on Thursday, the value of Sonos stock reversed course and sank by a startling 17.6%!
Read more on the latest twists and turns at Sonos…
The mood of CEO Tom Conrad and CFO Saori Casey was bubbly as the company released its financial results for the third quarter (Q3) of Fiscal 2026. As the company stands on the cusp of possibly its first full year of revenue growth after three years of revenue declines, success is so close they can taste it. Keep in mind, Q4 is the company’s biggest quarter as it captures the holiday selling season and is the quarter they do the most marketing and promotion. Also, this year, due to the quirks of the calendar, Sonos gets one more selling week.
The Reinvention of the Business
“Our third quarter demonstrates the inflection we’ve been talking about, as revenue growth accelerated and the reinvention of the business continued to take hold,” said Conrad. “Over the past 18 months, we’ve built a leaner, more focused company and a healthier core business centered around our system strategy…”
NOTE: For those of you turning to this post to see my usual deep dive on Sonos’ results, this will be a truncated version. I am waiting to fully review the SEC filings for the quarter before I do my typical deep dive. This report will give you a top-level read of their results with some of my initial reactions. Don’t worry, more will come later.
The Q3 Results Looked Pretty Good
The Q3 high-level results look undeniably good. Revenues came in at $375.3 million in the quarter, an increase of $30.5 million or 8.85% over revenues of $344.8 million in the same quarter last year. However, it bears pointing out that this result was actually lower than Q3 of Fiscal 2024 when the company launched its Sonos Ace headphones. And while Ace would eventually fizzle – perhaps the victim of being over-hyped – Sonos retailers loaded Ace in heavily, driving Sonos Q3 revenues to $397.1 million.
The company pointed to the fact that it was experiencing solid demand for its speakers as one contributing factors to the turnaround in revenues. Another factor was strong international demand, with all export markets seeing sales growth.
This Year There Were Profits
Earnings also looked decent. Thanks to lower cost of revenues, Gross Profit came in at $189.3 million, up $36.6 million or 26.4% over the gross profit in Q3/2025 of $149.7 million. That’s a Gross Margin of 50.4%; however, the company notes that gross profit was helped by the fact that it received a tariff refund from the government of $23.2 million.
The company also turned in a decent Operating Income this year, even though Total Expenses were up over $5.1 million (largely due to increased R&D expenses). But this was largely due to the fact that the company had an operating loss last year. This year, operating income was $31.5 million versus an operating loss of $2.9 million in the same quarter last year.
Company Booked a Net Profit in the Quarter This Year
Finally, Net Income for the quarter was $29.9 million versus a net loss of $3.4 million last year.
The company did own up to continuing challenges, the most notable of which is the rising memory chip costs. Also still vexing, the tariff program, although the company seems confident in its ability to handle that.
On the upside, the app is working well, and Sonos says it is firmly back into a period of growth momentum.
Structurally Improving the Business
Q3 was another strong quarter, as revenue and Adjusted EBITDA both landed near the high end of our guidance range. We generated healthy free cash flow and built our cash balance sequentially and year over year, while returning $30 million to our
Saori Casey, Sonos Chief Financial Officer
shareholders through share repurchases. Q3 marks our eighth consecutive quarter of disciplined execution against our commitments and structurally improving our business.
Revenue grew 9% in Q3, up from 2% in the first half, and we’re now growing revenue, expanding gross margin, and growing profit at the same time. We’re carrying this momentum into the fourth quarter as we focus on building durable growth while operating with discipline.
Tom Conrad, Sonos CEO
So This Begs the Question: If Everything is So Great, Why Did the Stock Price Sink 17.5% on Thursday?
That is a great question. At this point, I can’t give you a definitive answer, but I can tell you the buzz running around Wall Street today about it. Some analysts are saying Sonos has a “valuation” problem – meaning the stock price is too high given the inherent value of the stock. Others say it is a “sell on the news” problem.
What is “sell on the news?” An old adage on Wall Street is that smart traders “buy on the rumor and sell on the news.” Sonos stock ran up significantly just prior to the earnings announcement being distributed. And those results, in the eyes of some analysts, were good, but not particularly great.
Some Troubling Elements Emerged
Add to this, some troubling elements that emerged on the conference call with analysts. First, in a surprise announcement, we learned late yesterday that CFO Saori Casey has decided to retire. I can tell you, key executives leaving the company makes financial analysts nervous.
Secondly, many analysts felt the company held back on its guidance for Fiscal 2027, as if uncertain whether momentum would continue. Or perhaps nervous about committing to a bullish forecast. Between Sonos appearing wishy-washy about 2027, and the stock at high valuations, investors appear to have decided to “Sell on the News.” Hard to say, but if you look at the chart here, it is clear that something spooked investors, and the sell-off continued in after-hours trading.
For more information on Sonos, visit sonos.com.
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