Tuesday, April 10, 2007

Calls of Note Part 6

Raymond James recently completed their iRobot (NASDAQ:IRBT) channel checks at various retailers across the country and found that Scooba stocking is down significantly, Roomba's movement through the channel has been slow, and overall competition in the specialty floor care category seems intense. The latter two findings seem to make sense and were well intimated by management. However, the lack of stocked Scooba in a broad sense at various retailers was a surprise and has us questioning their view on the market size of that product, the appropriate price point of that product, and really the true breadth of the co's floor care product line.

There were four key Scooba findings from the survey:
* Inconsistent Scooba Stocking: Five of the six retailers contacted were not consistently carrying Scooba product. Most said the product was not selling well.

* Discounts: The one retailer consistently carrying the product was using a heavy dose of incentives to move product. This makes us wonder if the $299 price point works for the channel. It is ironic though that the more expensive $399 price point seems more popular in direct sales mode.

* Intense Competition: Firm noticed a few significant new floor care products being stocked potentially at the expense of Scooba. While none of these compete directly with Scooba it appears that there is a "floor care" saturation point at retailers. Dyson, Dirt Devil, and Electrolux all seemed to grab incremental shelf space. There are also rumors that Dyson is once again eyeing the robot segment of the market.

* Uncertain Future: Firm received a divergent set of responses from store representatives regarding the product's future. It seemed fairly well split between those believing that the product was "permanently discontinued" and those believing that they "would probably have it in the future". Time will tell what the future holds.

Firm believes the focus on Scooba is essential during 1H07 given that it is one of the largest drivers of average selling price (ASP) performance for home robots. It is likely that this variable will be the single most watched item for investors to gauge what combination of volume increase and ASP erosion can combine to make 20% home robot growth achievable for the year.

Notablecalls: Expect to see pressure on the shares today.

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