APRN - Blue Apron: Another Reverse Stock Split On The Menu

Summary

• Blue Apron is once again trading below the NYSE minimum listing requirement.
• The meal-kit service company is suffering from a precarious liquidity position and consecutive quarters of high cash burn.
• Against a short interest that stands at nearly 50% and a roadmap for continued dilution, it's hard to see the appeal of a long position.

Blue Apron ( APRN ) had to engineer a 1-for-15 reverse stock split a few years ago after its commons had fallen below the NYSE $1 minimum listing requirement. The meal-kit service company potentially stares down a similar action with shares yet again now trading just below the minimum listing floor. Whilst any such move has been lessened by the positive 26% year-to-date increase of its shares, the New York-based company continues to face a broadly uncertain future with the demand for its meal kits flatlined, underlying profitability metrics negative, and its average diluted shares outstanding in an insatiable upward trend.

The business model is straightforward. Blue Apron delivers fresh meal kits to its customers who sign up via different tiered monthly plans that correspond with the number of servings and meals per week that they'd like. On the menu for the week ahead are Sweet & Spicy Shrimp, Oven-Baked Turkey Bolognese, and Couscous-Stuffed Poblano Peppers. The appeal to its customers is clear. Blue Apron, and meal-kit food platforms more broadly, essentially marry a restaurant and food market to offer variety to otherwise static diets.

Customers get to try new meals they'd probably have never considered with easy-to-follow instructions and with all the ingredients delivered fresh to their doorstep. A serving for two delivered twice a week currently comes with a $57.95 per month plan. Hence, Blue Apron could be thought of as an augmentation of the existing weekly food plans of their customers.

We've Been Here Before

The company currently trades on a $35.62 million market cap against revenue for its last reported fiscal 2022 third quarter which came in at $109.7 million , flat from the year-ago comp but still a small miss of around $240,000 on consensus estimates.

The company trades on a price to trailing 12-month sales multiple of 0.07x , an incredibly low and rare level of discounting for any type of company. It is nearly 94% lower than the median for its peer group to help form a market cap that infers heavy distress. Blue Apron's 45% short interest reflects the almost unending pessimism that has stalked its common shares since it went public in 2017 and you can't fault the bears here.

Blue Apron sales have stalled for years, switching between meagre and negative year-on-year growth as gross margins continue to decline. The last year for this dynamic was especially pertinent with rapid food and energy inflating driving a deterioration of gross margin and pushing the company's net loss further into negative territory. Blue Apron recorded a gross profit of $35.3 million for its third quarter, down 2.75% from the year-ago period despite revenue being the same. On a sequential basis, gross profit was down around 253 basis points from the prior second quarter. During their earnings call, management blamed the decline on increased packaging, shipping costs, and a fall in total customers.

The quarter had some bright spots with the average order value per customer reaching $70.83 , an all-time high, whilst average revenue per customer also notched a new record at $340. Critically, Blue Apron's weakness stems from its persistent net losses and corresponding cash burn from operations. Net loss during the quarter was $25.8 million with cash burn from operations at $21 million. This came up against cash and equivalents of $31 million as of the end of the third quarter to form a run rate that's under six months.

The Outlook For 2023

With total debt as of the end of the third quarter at $63.2 million, almost 2x the market cap, the company will have to continue to lean on equity to raise capital to extend its runway. Blue Apron has initiated an aggressive cost-cutting drive meant to better secure its future and made the decision to lay off around 10% of its corporate workforce with further reductions in marketing and consulting also being planned for 2023. Overall, Blue Apron wants to bring in cost reductions of around $50 million in 2023, a figure that would equate to 20% of their SG&A expenses for the last four quarters.

And whilst there were mentions of profitability, this seems unlikely for 2023 with the cost costs largely insufficient to push the company into a more profitable footing. Critically, the company needs its balance sheet to maintain compliance with a $25 million minimum liquidity convent. Hence, it's not clear if the bulk of current cash and equivalents can be used to meet operational cash demands. This uncertainty comes as the consumer discretionary industry faces the specter of a recession which could impact average order values and the overall onboarding of new customers just as spending on marketing is set for a reduction. However, with inflation also flatlining cost pressures should be relatively lessened this year. Critically, Blue Apron still has an at-the-market offering program still running. This dilution forms the only way to backstop a zero-growth and unprofitable business. I fail to see the appeal here over the long term but the short term could see more upside volatility with the bulls currently dominating sentiment after more than a year of being hidden away. This is to be avoided rather than shorted with more rapid and aggressive volatile price movement likely over the next few weeks.

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