2023-08-23 08:52:46 ET
Summary
- BARK, Inc. is a dog-centric online pet retailer that offers various products and services for canines.
- The company recently announced a new stock buyback authorization and posted second-quarter results that delivered reduced expenses.
- The company is getting closer to producing positive cash flow, and the stock appears cheap on a price to sales basis.
- An analysis on BARK, Inc. follows in the paragraphs below.
"A well-trained dog will make no attempt to share your lunch. He will just make you feel so guilty that you cannot enjoy it. " -Helen Thomson
It has been quite a while since we looked at online pet retailer BARK, Inc. ( BARK ) . The company recently announced a new stock buyback authorization and posted quarterly results. Given that, it seems a good time to circle back on this small cap concern. An analysis follows below.
Company Overview:
BARK, Inc. is headquartered in New York City. This 'dog-centric' retail concern provides products and services for dogs. The company operates in two segments, Direct to Consumer and Commerce. The first serves dogs and their owners through monthly subscription services under the BarkBox and Super Chewer names. BARK, Inc. also makes toys, treats and other canine focused accessories. The company's direct-to-consumer business makes up the bulk of its revenues. The stock trades just over $1.25 a share and sports an approximate market capitalization of $230 million. BARK, Inc. operates on a fiscal year that begins October 1st.
First Quarter Results:
The company posted its first quarter numbers on August 8th. The company had a non-GAAP loss of a nickel a share, three pennies above expectations. Net loss for the quarter was $11.7 million, a better than 24% improvement over 1Q2023. Revenues did fall some eight percent on a year-over-year basis to $120.6 million, which was approximately $1 million shy of expectations. Leadership then lowered forward guidance slightly for the coming quarter. BARK now projects second quarter revenue to between $123 million and $127 million. The analyst firm consensus at the time was just under $130 million. Management did keep its full year revenue target unchanged as flat or down up to five percent from FY2023's sales. $81 million of sales came from toys this quarter and $40 million from consumables. It also expects full year adjusted EBITDA to be between a negative $8 million and a positive $2 million.
Some other factoids from the quarterly earnings report. Direct to Consumer sales were down five percent from the same period a year ago to $111.9M while Commerce sales fell 32% to $8.7 million. Gross margins rose nicely from 57.8% in 1Q2023 to 60.6% in this quarter. This was primarily the result of the average order size increasing 82 cents from a year ago as well as a $10.2 million drop in G&A to $69.4 million. The company also reduced its inventory from $124.4 million to $112.5 million.
Analyst Commentary & Balance Sheet:
Since the start of June, four analyst firms including Lake Street and Jefferies have reissued Buy ratings on BARK. Price targets proffered range from $1.50 to $4.00 a share.
Approximately nine percent of the outstanding float in the stock is currently held short. Three insiders including the CFO have purchased just under $400,000 collectively so far in 2023. There have been no insider sales in the stock so far this year. The company ended the second quarter with just under $165 million in cash and marketable securities on its balance sheet. The company's free cash flow in the second quarter was a negative $13.7 million, an improvement of $8.4 million from the same period a year ago. BARK, Inc. has long-term debt of approximately $80 million.
Verdict:
In FY2023, BARK, Inc. lost 35 cents a share on revenues of $535 million. The analyst firm consensus sees revenues falling some three percent in FY2024 but losses dropping to a dime a share. They also project a high single digit rebound in sales in FY2025 and the company getting right at break-even status on the earnings front.
While the $7.5 million stock buyback authorization seems small, it would retire more than three percent of the outstanding float at these prices. The company is also limited to this amount on an annual basis it can repurchase due to existing debt covenants. It was still a nice vote of confidence by management who appears to be doing a good job reducing operating expenses and improving cash flow.
Equating for net cash on the balance sheet, the stock sells for just over 30% of annual sales. Competitor Chewy, Inc. ( CHWY ) goes for just over one times annual sales, albeit that company is seeing sales growth in the low double digits and is closer to achieving breakeven status.
That said, management still believes it can deliver breakeven adjusted EBITDA and generate positive free cash flow for this full fiscal year. Leadership also has stated its BARK treats will be carried nationally in fiscal 2025, if not by the end of this fiscal year. The company is focused on substantially increasing the sales from partnering with pet retailers in its Commerce division over the next three to five years. While margins are lower here, it is a $40 billion annual market.
Given the progress the company has made on the expense front, BARK's solid balance sheet, and positive cash flow potential on the near-term horizon, the stock seems to have a favorable risk/reward profile pending further developments.
"A dog teaches a boy fidelity, perseverance, and to turn around three times before lying down ."-Robert Benchley
For further details see:
BARK: Slow, But Steady Progress