Santa Barbara-based speaker maker Sonos is laying off employees around the world after economic damage linked to the COVID-19 pandemic.
In an SEC filing, Sonos, headquartered at 614 Chapala St., said it began reducing its global headcount by 12% on Tuesday. In addition to the layoffs, Sonos is closing its New York retail store and six satellite offices.
“The company believes these initiatives will better align resources to provide further operating flexibility and more efficiently position the business for its long-term strategy,” read the filing.
The closures and layoffs are a part of a previously disclosed initiative “to reduce operating expenses and preserve liquidity” after Sonos reported a significant fiscal impact from COVID-19 in a letter to shareholders on May 6.
In the letter, Sonos CEO Patrick Spence revealed that Sonos experienced a 17% year-over-year decline in revenue in the second quarter of 2020.
“Coming off a strong first quarter, we had expected some softness in the second quarter, and we did see challenges primarily from a large retail partner in the U.S. rebalancing inventory as well as some weakness in our German market from inventory rebalancing at our distributor,” said Mr. Spence.
In March, the company saw a total revenue decline of 23% year-over-year. Mr. Spence said this was due to the “typical replenishment order cycle” in the majority of Sonos’s end markets being disrupted by the COVID-19 pandemic as there has been a decline in global demand and broad physical retail closures.
Since that time, Sonos has reviewed planned investments, reduced marketing investments, managed and tightened inventory, and eliminated certain discretionary operating expenses, according to the filing.
“We are focused on having a lower operating expense run rate in the second half of fiscal 2020 as compared to the first half of fiscal 2020. We are confident that these are the right measures to take at this time, but will continue to review our investments as we learn more over the coming weeks and months,” said Mr. Spence.
With the closure of retail stores, Sonos has focused on direct-to-consumer sales through channels like Sonos.com. In March, the company saw a 32% year-over-year increase in revenue through those channels, according to Mr. Spence.
“Our direct-to-consumer channel revenue has accelerated meaningfully to approximately 400% year-over-year growth in April following the success of our ‘At Home with Sonos’ marketing campaign, which ran from April 2 through May 5,” Mr. Spence said. “With millions of people working from home, we realized that we had an opportunity to make their lives a little more joyful during this time and get in front of consumers with relevant promotions and messaging,”
Despite Sonos’s success in direct-to-consumer markets, uncertainty and challenges remain as the company is still unsure of when physical retail will reopen or how the global economy will recover.
In addition to the layoffs and closures, the company’s board of directors approved a 20% reduction in Mr. Spence’s base salary from July 1 to Dec. 31 and for other executive officers of the company from July 1 through Sept. 30.
All members of the board of directors also agreed to forgo their annual cash retainer from the beginning of July to the end of December.
In its filing, Sonos estimated $25 to $30 million in restructuring and related impairment charges, including approximately $9 million to $11 million in employee severance and benefit costs and approximately $16 million to $19 million related to site closures and other charges.
Nine million dollars to $11 million of the costs are expected to result in future cash expenditures.
Sonos said that the layoffs and closures are “are not reflective of any material changes in the company’s business since it reported second quarter fiscal 2020 results.”
Sonos will provide further details on its business and the cost savings resulting from these initiatives when it reports third quarter fiscal 2020 results.