A seemingly never-ending storm has hovered over SunPower (SPWR 5.79%), which is at a record low with shares down more than 85% in the past year and 55% so far in 2024.
The latest setback came earlier this month as the residential solar services specialist disclosed it found errors in its financial statements going back to 2022, and that they need to be restated. This follows what has already been a difficult period for the company dealing with weak sales and widening losses in a tough industry environment.
Considering the financial challenges and ongoing uncertainties facing SunPower, this is a stock investors should avoid.
What's happening
SunPower disclosed misstatements related to capitalized costs and the classification of expenses in its 2022 audited financial statement and results through the first nine months of 2023. This will result in a charge of between $15 million to $25 million to income from continuing operations.
The amounts here are significant in the context of SunPower's current market cap of around $340 million. The company reported a net loss of $277 million in 2023, implying the amended result will be about 5%-10% lower.
While the full review has not been completed, the company has also announced that it will require a "remediation plan" to address "material weaknesses" in its internal controls and reporting systems.
Investors may have had clues that something was wrong when the company announced in February that its annual report would be filed late in addition to the news that its CEO was departing. These types of events can often be red flags for investors. In this case, SunPower's stock price performance highlights the consequence of a poorly managed business.
Steps the company is taking
SunPower will attempt to move forward starting with a broad restructuring to cut costs.
The company is reducing its workforce by approximately 25%, or 1,000 people; exiting its residential solar installations business; and shutting down its direct sales team. The plan is to transition to a third-party sales model, shifting its focus toward serving its dealer network and installation partners. The company expects to incur approximately $28 million in additional restructuring charges covering severance payments and some asset write-offs.
Chairman of the Board Tom Werner noted that SunPower's market has been slower to recover than the company anticipated and that the move to a "low fixed-cost model" better positions the company for a more sustainable future.
Wait and see
It remains to be seen whether SunPower will be able to execute a turnaround in what is likely a long road ahead, but investors should be wary.
The company will need to address its $290 million in net debt against recurring negative cash flows, a major fundamental weakness. All this comes in an operating environment for residential solar that remains poor, with high interest rates pressuring consumer demand for these types of energy investments.
My expectation is for shares to remain extremely volatile with the risk of a deeper sell-off until the company can present some measure of financial stability.
