Blue Apron Expects Sales Slowdown After Beating Estimates

Updated on
  • Results show people are spending more per meal-kit order
  • Company cuts marketing costs, leading to decline in customers

Why Blue Apron Shares Are Down Despite Beating Estimates

Blue Apron Holdings Inc. reported third-quarter revenue that beat analysts’ estimates, reflecting efforts to get customers to spend more on its meal kits each month. But the company also reiterated a forecast that indicates growth will slow in the last three months of the year.

The shares fell 4.8 percent to $4.45 at 11 a.m. in New York, leaving them down more than 50 percent since Blue Apron’s June initial public offering.

Sales increased 2.5 percent to $210.6 million in the quarter ended Sept. 30. Despite losing customers for the second quarter in a row, Blue Apron got more orders for its meal kits during the period compared with a year earlier. The company also got more money per order, showing that customers who stick around are spending more.

Part of the increase in average customer revenue was due to “optimizations” in the mix of menu recipes included in the kits, Chief Executive Officer Matt Salzberg said on a call discussing results. But the company’s “immediate priorities” are to improve operations in fulfillment centers and boost profit margins, he said.

Embattled Blue Apron faces increasing competition from upstarts like HelloFresh AG and behemoths such as Amazon.com Inc., and has struggled with its warehouses. Blue Apron’s pitch to investors before the IPO had been that it would grow fast by tapping into a multi-billion-dollar opportunity in offering fresh food online.

Instead, sales have shrunk this year on a quarterly basis and customers have fled while the company focuses on paring costs. Last month, Blue Apron cut 6 percent of its workforce, following a previous round of layoffs and a temporary hiring freeze in August. Salzberg said shrinking the workforce was necessary for “future growth.” Blue Apron has also been spending much less on marketing, which is closely correlated with revenue growth.

Marketing expense this quarter was $34.2 million, a 31 decline from the prior year. The company had 856,000 customers, a 5.6 percent drop from last year and a 9.2 decline from the second quarter. Blue Apron expects to continue cutting marketing in the fourth quarter. This may result in a further decline in customers; the company said that marketing is a key driver for getting new people to try the product.

Reduced marketing will also lead to a slowdown in sales. Blue Apron reiterated forecasts for net revenue in the second half of $380 million to $400 million. This implies fourth quarter sales of as much as $189.4 million, which would be about a 12 percent drop from a year earlier.

Bloomberg’s Alex Barinka reports on Blue Apron’s financial results and forecast.

(Source: Bloomberg)

Once Blue Apron can “get the margin structure back in line, that would give us the opportunity to invest in marketing and invest in returns on marketing,” Chief Financial Officer Brad Dickerson said on the call.

Salzberg highlighted the need to get the company’s fulfillment centers in order. Blue Apron’s new facility in New Jersey has been plagued by delays, which has affected the quality of deliveries. The Linden warehouse has been key to Blue Apron’s expansion plans -- it would be bigger and would incorporate much more automation than existing sites, enabling the company to offer more options and personalization of its products.

These issues have also pushed up Blue Apron’s costs. Since the end of the third quarter, Blue Apron rolled out new products to all its customers and finished moving production to the Linden facility, the company said in the earnings statement.

At the end of the third quarter, Linden handled about 29 percent of Blue Apron’s national volume, Salzberg said. Now it’s handling about 50 percent, and Salzberg said that Blue Apron been able to stabilize its rate of getting complete deliveries to customers on time, a key quality metric and one that declined earlier this year.

In the third quarter, Blue Apron reported a loss of 47 cents a share, missing the average analyst estimate of a loss of 43 cents. Blue Apron widened its forecast for net losses in the second half to a midpoint of $134.5 million, reflecting the workforce restructuring charge. The forecast also reflects a charge in the fourth quarter of $5 to $8 million related to Blue Apron’s decision in October to abandon building a new fulfillment center in California.

Blue Apron is in danger of losing its No. 1 spot in the meal-kit category. European rival HelloFresh, which made its market debut in Frankfurt Thursday, expects to surpass Blue Apron this year, according to an investor presentation viewed by Bloomberg. HelloFresh is worth more than double Blue Apron’s market value.

While Blue Apron has been shrinking from quarter to quarter in 2017, HelloFresh grew double digits from the first to the second quarter. As of September, Blue Apron had 43 percent of the market, down from 57 percent last year, according to an Earnest Research analysis of anonymous consumer transaction data.

    Before it's here, it's on the Bloomberg Terminal.
    LEARN MORE