By Dan Gallagher

Sonos Chief Executive Tom Conrad's job would be hard enough if he just had to sell expensive speakers. Selling the idea that his speaker company can finally master the software game is a heavier lift.

That, however, is the task at hand for the new CEO. Conrad was named to the post last month, succeeding longtime chief Patrick Spence who took the company public in 2018. The switch confirmed that Sonos is still reeling from a disastrous update to its app in May of last year, which left many customers who shelled out for premium speakers unable to use their products.

Fiscal first-quarter results from Sonos on Thursday confirmed that the damage has lingered. Revenue fell 10% year over year to $550.9 million for the December-ending quarter, while operating income plunged 40% to about $48 million. One particularly telling stat is that the company's unit sales for the second half of the calendar year fell 14% from a year earlier to about 2.7 million products sold -- the fewest for that period since 2016. And that was with the company's first-ever entry into the premium headphone space.

Those headphones, called the Sonos Ace, should have been a valuable expansion opportunity for a company long confined to home-based speakers. But the launch that took place about a month after the app rollout turned out to be "the worst time possible," Sonos Chief Financial Officer Saori Casey admitted on the company's earnings call on Thursday. She also noted that the initial sales of headphones to retailers a year earlier will skew comparisons for the company's June-ending quarter this year. Analysts now expect Sonos's revenue to fall 3% for the fiscal year ending in September after an 8.3% drop last year.

Can the new boss eventually turn things around? Sonos is still a strong name in premium audio, despite the damage done to the brand by last year's app fiasco. And Conrad has extensive experience in product design, software and music platforms, having co-created Pandora and served as the chief technology officer there for 10 years. He has hit the ground running despite the "interim" label on his title as the company conducts a formal search before naming a permanent replacement for Spence. Sonos announced a restructuring effort before its earnings release this past week that will cut the size of its workforce by 12%.

Cuts that extensive can be demoralizing for a company already deep into an extended rough patch. But last year's botched app rollout also revealed a company with significant structural weaknesses, which means painful changes were also necessary. Conrad said on Thursday's call that his reorganization of the company's product teams "revealed organizational layers and redundancies that were not serving us," adding that the cuts included about half a dozen vice presidents.

"Stepping back, we are impressed by management's ability to rip costs out of the model," Erik Woodring of Morgan Stanley wrote in a note to clients on Friday. He kept his sell rating on the stock though, citing "a tough demand backdrop and elevated uncertainty" that hangs over Sonos.

Indeed, only 38% of analysts rate Sonos as a buy, compared with 73% before the app rollout last year, according to FactSet data. And while the stock has picked up some gains over the past few months, it is still down 22% since the new app launched compared with a 16% rise for the S&P 500 in that time.

"The worst seems to be behind Sonos, but they are still early in their transformation," wrote Brent Thill of Jefferies on Friday. This speaker maker still has a lot of noise to cut through.

Write to Dan Gallagher at dan.gallagher@wsj.com

(END) Dow Jones Newswires

February 09, 2025 07:00 ET (12:00 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.