Fulfillment Woes Brought $35M Hit to IRobot's Holiday Quarter

Chip shortages and shipping delays prevented iRobot from filling $35 million in Q4 orders, said CEO Colin Angle on the company’s Thursday earnings call. Sales fell 16% year on year to $455.4 million, said the company. Shares plunged14.3% Thursday to close at $62.47.

Delays resulted mainly from port congestion, warehouse labor shortages and a major snowstorm in the Pacific Northwest in the last week of the quarter, said Chief Financial Officer Julie Zeiler. Delays caused many of the orders to miss “key promotional windows,” she said, though some were fulfilled in Q1.

Semiconductor shortages prevented iRobot from meeting demand for some of its most popular premium Roomba models, Angle said. The company had a $44.9 million operating loss in the quarter vs. operating income of $15.3 million in the year-ago quarter. “Our 2021 profitability reflected the combination of lower revenue, and higher component costs, increased transportation costs, raw material, inflation and tariffs,” Angle said.

IRobot has acted to place longer commitments with its chip suppliers to ensure supply continuity, Angle said. Critical components include microcontrollers that operate lower-level robot functions and integrated logic chips that use older manufacturing processes, he said. The company committed to forward-looking demand plans “in a way that we hadn’t done in the past when we were optimizing for supply chain efficiency,” Angle said.

IRobot anticipates $42 million-$44 million in tariff costs for the year, Zeiler said, higher than the company forecast in early December. The new range “reflects our overarching focus on optimizing total landed costs across labor, materials, components and tariffs” with contract manufacturers in China and Malaysia.

Three-quarters of all Roomba robots produced for North America this year will be made in Malaysia, said Zeiler. As the number of robots produced there grows in the second half, tariff costs will decline toward year-end, she said. Operating costs this year will be higher for personnel additions to grow marketing efforts; R&D spend will also be higher, she said. Operating loss for Q1 is seen as $37 million-$44 million, she said.

IRobot expects to more than double its customer base over the next three years on higher performance robots and direct-to-consumer sales, said Angle. It also expects growth in robot accessories and air purifiers, with purifiers identified as a $150 million-plus category by year-end ’24. The company expects direct-to-consumer sales to grow through 2022 with "significant improvements” in the DTC channel’s contribution to overall revenue, Angle said.

Gross margin of 27.8% in Q4 was down 13 percentage points from the prior-year quarter, said Zeiler. That included 5 percentage points for higher air and ocean transportation, 4 for tariffs and the rest split among changes in pricing and promotion, higher component costs and more, she said.

Revenue for 2022 is forecast to grow 12%-18% to $1.75 billion-$1.85 billion, said Zeiler. The company expects about 65% of full-year revenue to come in the second half, with first-half revenue declines of 3%-8% followed by 26%-34% growth in second half. The revenue outlook assumes higher unit volume for robots, higher average selling prices and a $40 million contribution from the newly acquired air purification products, said Zeiler.