BARK, Inc. (NYSE:BARK) Q4 2023 Earnings Call Transcript June 1, 2023

BARK, Inc. misses on earnings expectations. Reported EPS is $-0.08 EPS, expectations were $-0.045.

Operator: Good afternoon, and thank you for attending today’s BARK’s Fiscal Fourth Quarter and Full Year 2023 Earnings Call. My name is Jason, and I’ll be the moderator for today’s call. All lines will be muted during the presentation portion of the call with an opportunity for questions-and-answers at the end. [Operator Instructions]. I would now like to pass the conference over to our host, Mike Mougias, Vice President of Investor Relations.

Mike Mougias: Good afternoon, everyone, and welcome to BARK’s fiscal fourth quarter and full year 2023 earnings call. Joining me today are Matt Meeker, Co-Founder and CEO; and Zahir Ibrahim, Chief Financial Officer. Today’s conference call is being webcast in its entirety on our website and a replay of the webcast will be made available shortly after the call. Additionally, a press release covering the company’s financial results was issued this afternoon and can be found in our Investor Relations website. Before I pass it over to Matt, I would like to remind you of the following information regarding forward-looking statements. The statements made on today’s call are based on management’s current expectations and are subject to risks and uncertainties that could cause actual future results and outcomes to differ.

Please refer to our SEC filings for more information on some of the factors that could affect our future results and outcomes. Also during today’s call we will discuss certain non-GAAP financial measures. Reconciliation to our non-GAAP financial measures is contained in this afternoon’s press release. And with that, let me now pass it over to Matt.

Matt Meeker: Thanks, Mike and good afternoon everyone. Last year when I returned to running the business, we were facing some notable challenges, the biggest of which was that we were burning cash at a high rate. Along with a high burn rate, our cost of goods and fulfillment costs were rising rapidly, our inventory balances growing out of control and the faster we grew, the faster we burned cash. My first priority was to reduce this cash spend and return it to the more profitable profile we’ve achieved in fiscal 2021. Today, I’m thrilled to report that we’ve made substantial progress in fiscal 2023, and we are entering fiscal 2024 as a stronger and more dynamic company. First off, we were free cash flow positive for the second quarter in a row, ending the quarter with $178 million of cash, $14 million higher on a sequential basis.

To put that in perspective, we burned $194 million of cash in fiscal 2022. In fiscal 2023 that figure was just $17 million, and if we look at the second half of fiscal 2023, we generated positive free cash flow of $17 million. In addition, we reduced our inventory by $29 million over the year, freeing up working capital and ending the year with a much more manageable inventory balance of $124 million. Additionally, we continue to improve our cross-selling capabilities over the course of the year, particularly across our consumable products, which helped drive a $2.11 increase in our average order value compared to fiscal 2022. This, coupled with a sizeable reduction in our cost of goods, resulted in a 200 basis point improvement in our consolidated gross margin, and resulted in our cutting our adjusted-EBITDA loss nearly in half to negative $31 million.

That is significant progress in a short amount of time, and I couldn’t be prouder of our team. As we turned the year ahead, we expect even greater improvements in the financial health of the business. For example, we anticipate our gross margin to expand at a similar rate to last year, while being in the neighborhood of breakeven adjusted EBITDA. Additionally, we expect to be free cash flow positive for the full fiscal year. We believe that this profile will give us a healthy foundation for long-term growth. In the same way that we successfully reset the financial profile of the business this past year, we will now turn our attention to growing faster in the year’s head. As we think about our future growth, there are three key pillars where we believe BARK has big opportunities and a right to win over time.

These pillars are first, our Direct to Consumer e-commerce and subscription business. This is where we’ve established relationships in a strong brand with millions of customers who continue to spend more with BARK every year, and are eager to buy our next product. Second, our consumables business. BARK has a strong starting consumables with treats, food, toppers and dental products. We bring fun and the ability to learn from our customers directly and rapidly, to better inform the future product development. This is a big opportunity for expansion. And looking further out, the third pillar of our vision for BARK is services. BARK is synonymous with dog happiness and joy for millions of dogs and their people today. This affords us with a unique opportunity to bring the same approach of bringing fun, joy-filled solutions to more mundane service areas.

This is a big opportunity for expansion over the long-term. In our view, these pillars capture our broad vision for future growth, and we are well in our way to capitalizing on these opportunities. Before I dive into more specifics of the roadmap for fiscal ‘24, I’d like to touch on some additional highlights from our fourth quarter and fiscal 2023 results. As a year, we’ll then discuss our financial results and provide guidance for fiscal 2024. You may have noticed that we updated our KPIs and revenue segments in this afternoon’s press release. Since going public two years ago, our business has undergone important changes. We’ve evolved from a peer-place subscription company, to a brand-selling a diverse catalog of products with the flexibility for customers to purchase all of these products on virtually any cadence they choose.

If you visit food.bark.co today, you can see this evolution firsthand. Under the legacy subscription-based KPIs, our non-subscription and auto-ship customers weren’t included in our active subscription metrics, despite many of them frequently returning to BARK. As a result, we updated our KPIs to reflect how we are managing the business today. These metrics are total orders, which include one-offs or subscriptions and average order value, which is now calculated from total orders as opposed to the legacy shipments metric. Essentially, we are aiming to achieve a higher volume of orders and increase the value of those orders. We believe these metrics better reflect where the business is today and more importantly, where the business is going.

We also provided a new breakout of our revenue segments to provide more granularity to our product mix, specifically toy revenue and consumables revenue within our DTC segment. For example, in fiscal ‘23 we generated approximately $307 million from toys, which also include accessories such as beds, apparel and other essentials, and roughly $165 million from consumables, which include treats, food, toppers and dental. We recognize that not all revenue is created equal, and thus we believe that providing more granular category information will be beneficial to investors, as they follow our journey and expansion into higher-TAM areas in the consumables space. Let’s now turn to some of our fourth quarter and full year fiscal 2023 highlights. Total revenue in the fourth quarter was $126 million, $5 million ahead of our guidance.

For the full year, total revenue was just over $535 million, an increase of 5.5% compared to fiscal 2022. This growth was driven by a healthy $2.11 increase in our average order value, which is largely a result of our strong relationships with our customers. These relationships help drive total cross-sell revenue of $41 million for the full year, up nearly 35% compared to last year. This is a huge asset and advantage for us as we build out our product pipelines further into consumables and services. Looking at our revenue breakdown in more detail, toy revenue increased 5% to $371 million in fiscal 2023, which includes toy revenue driven by our commerce segment. Total consumables revenue, which has virtually no retail presence today, increased by $7.2% to $164 million.

The majority of this growth was driven by food and dental. Turning to our commerce segment, we delivered $63 million of revenue, up roughly 7% compared to last year. Today, this business accounts for approximately 12% of total revenue and reflects only selling toys through over 40,000 retail doors. Selling consumables to these retail partners is a massive opportunity and we expect our commerce share of revenue to more than double in the next five years. As some of you are aware, we are currently presenting a new treat offering to our retail partners, and while it is still early days, these conversations have been well received. Anticipate having treats in a portion of our retail footprint toward the end of fiscal 2024 with much greater distribution in fiscal 2025.

As a reminder, it takes approximately one year between signing agreements and having products on shelves. So while this is a massive opportunity for BARK, it will be a much bigger growth driver next fiscal year. Moving on, we generated a full-year consolidated gross margin of approximately 58%, up 200 basis points versus last year. Our DTC gross margin was 60.5% for the year, up 241 basis points. We are thrilled with our gross margin improvement in fiscal 2023, which is the direct result of actions we took to improve our long-term profitability profile. Importantly, we expect our gross margin to improve by a similar amount or more in fiscal year 2024. Moreover, we reduced our annual G&A expense by $12 million through the cost reduction initiative we announced in February of which $10 million will flow into fiscal 2024.

We also renegotiated contracts with our strategic shipping partners, which lowered transportation costs and limited potential surcharges. These actions, many of which are just beginning to benefit the P&L, improved our full year adjusted EBITDA loss by nearly 50% to negative $31 million. On that note, let’s now turn to our strategic priorities for the year, beginning with profitability. As I mentioned earlier, we were free cash flow positive for the second quarter in a row, generating positive free cash flow of nearly $17 million in the fourth quarter, and ending the year with a total cash balance of $178 million. This is encouraging progress, but we need to turn profitable quarters into profitable years, and that is where we are today. Hear we’ll discuss our guidance in more detail, but we expect to deliver multiple adjusted EBITDA profitable quarters this fiscal year, and be in the neighborhood of breakeven adjusted EBITDA for the full year.

This would represent another significant step change improvement compared to the $31 million EBITDA loss we recorded in fiscal 2023, and the $58 million loss we recorded in fiscal 2022. Furthermore, we expect to be free cash flow positive on a full year basis this year. This cash profile position gives us several strategic opportunities to expand the business faster and create value for shareholders. We are also confident in our ability to deliver these profitability gains, as most of the heavy lifting is complete, and the fruits of our labor are largely timing related. For example, the vendor contracts we renegotiated are improving the margin profile on all the new inventory we are bringing in today. We also have more favorable arrangements in place with our freight and domestic shipping partners, and while we realized some of these benefits last quarter, we expect even more material improvements in our margin and cost structure with each passing quarter.

Overall, we view profitability as an accelerator to growth. As we begin consistently generating positive free cash flow and adjusted EBITDA, we will have greater flexibility to invest in future growth. And while we do not expect revenue growth for the full year, we do anticipate significant growth in our gross profit this year. On a similar top line to last year, we expect our gross margin to improve by another 200 basis to 300 basis points for the full year. Furthermore, as we invest in our product pipeline and our sales efforts in the early part of the year, we expect our revenue growth to accelerate in the back end of fiscal 2024, and to a much greater extent in fiscal 2025. As it stands today, I anticipate we will have high single to low double digit revenue growth next fiscal year, and we have a reasonable line of sight to this acceleration as we have made considerable progress pitching consumables in commerce channels.

On that note, let me now turn to our second growth pillar. Expanding our consumables business, which includes food, treats, toppers and dental. Put simply, consumables are a huge part of our business today, and they present an even greater opportunity in the future, as we are only beginning to tap into our potential, particularly with our retail partners. Treats alone accounted for roughly one-third of our total revenue last year, making us one of the largest treat companies by revenue in the U.S. However, currently we do not sell them in retail. Just imagine how much bigger this can be when we take treats and all of our consumable products to 40,000 retail doors where we sell toys. In summary, I am proud of the progress we made in fiscal 2023, and I believe we are a stronger company today.

Looking ahead, we expect our consumables business to grow a healthy clip and consolidated gross margins to expand sequentially throughout fiscal 2024. We anticipate this, coupled with additional operating leverage in our G&A lines, will bring us in the neighborhood of breakeven adjusted EBITDA and positive free cash flow for fiscal 2024. And looking beyond fiscal 2024, we expect high-single to low double-digit revenue growth in fiscal 2025 as we expand our consumables business into new channels like retail. Finally, we did not believe that our recent progress has yet to be reflected in our stock price, let alone our long-term potential. For a business with over $500 million in revenue, gross margin is expected to be north of 60% and a loyal customer base of millions of happy-dog households.

We feel our stock is undervalued as we trade at levels near our $178 million cash balance. Importantly however, we have ample runway and flexibility to pursue growth opportunities that we believe will drive long-term value for our shareholders and we are excited about the many possibilities ahead. With that, I will turn the call over to Zahir.

Zahir Ibrahim: Thanks, Matt and good afternoon everyone. Since participating in my first BARK earnings call back in February, I’ve had the opportunity to gain a much deeper understanding of the business. In that time I’ve been focused on identifying areas that will drive business performance, both on the top line and bottom line, and set up BARK for long-term success. As you heard from Matt, we’ve made significant progress over the past year. However, I believe there are still plenty of opportunities for improvement to our long-term profitability profile. As it was stated by our fiscal 2023 results, we are beginning to see material improvements in our unit economics. As we progress through fiscal 2024, we will be in a position to transition our focus to growth.

Needless to say, we have a significant runway and with a growing cash balance, we have a lot of flexibility to invest in growth that we are confident will create value for our shareholders. With that said, let me dive into our financial results in more detail. As Matt noted, we updated our KPIs in this quarter’s press release, so I’ll speak to those numbers. We will include our legacy KPIs for the last time in this quarter’s 10-K, so you will have the ability to close out the year. However, we will not be disclosing those figures going forward. On that note, we shipped 3.6 million orders in the quarter, which includes subscription, auto-ship and one-off. For the full year we shipped 14.9 million orders, which were down 1.7% compared to the same period last year.

As we’ve discussed previously, the expectation coming into the year was that virtually all of our revenue growth was going to be driven by improvements in our Average Order Value as we’ve become more effective across selling customers. This is precisely what happened. In the fourth quarter our AOV was $32.7%, a $2.27 increase compared to last year. For the full year our AOV was $31.70, a $2.11 increase versus last year. You will note that these AOV figures differ slightly from the figures we were reporting previously. This is simply a function of orders being a larger denominator than subscription shipments, which only included subscription customers. Moving on, total revenue for the fourth quarter was $126 million, down roughly 2% compared to the fourth quarter last year.

For the full year total revenue was just over $535 million, an increase of $5.4% to fiscal 2022. On a segment basis, DTC revenue was down slightly by 1.5% in the fourth quarter, while commerce revenue declined by 9.3% for the quarter. We continue to expect softness on the retail side through the first half of fiscal 2024, as our retail partner look to sell existing inventory and remain cautious in this macro environment. Also note, our retail presence to-date consists solely of toys. As we begin to introduce less discretionary products, like treats in retail, we would expect less volatility on this line long term. For the full year, DTC revenue increased 5.3%, while commerce revenue increased 6.7%. Gross profit in the fourth quarter was $72 million, up 12% compared to the last year.

This resulted in a fourth quarter gross margin of 57%, a 700 plus basis points increase year-over-year. As a reminder, in the fourth quarter of last year, we wrote off approximately $13 million of inventory, largely relating to products no longer in line with the company’s long term strategy. In the most recent fourth quarter, we took a write down of $4.4 million, which reflects normal inventory strength, aging products and importantly, the need for us to continue to refine our inventory management. As Matt pointed out, this scenario was exacerbated by carrying such a large inventory balance over the course of the year. Looking ahead, I’m confident that we have stronger processes in place to better forecast, manage and control inventory. Our current inventory balance of $124 million is down nearly 25% in HQ fiscal ‘23.

Thanks to a major focus from the commercial and operations teams. And moving forward, this will also reduce our P&L exposure. Moving on, our full year gross profit was $308 million, up 9% compared to fiscal 2022. This resulted in a gross margin of nearly 58%, 200 basis points higher than last year. This improvement is a direct result of growing our AOV, reducing inventory write-downs, and starting to see improved product costs flow through the P&L. We expect even stronger growth in our gross margin throughout fiscal 2024, particularly in our DTC segment. For example, our DTC gross margin of 60.5% in fiscal 2023, up 241 basis points versus last year. Looking ahead, we expect our DTC gross margin to improve 200 to 300 basis points over the course of fiscal 2024.

Moving down the P&L, total G&A was $69.2 million in the fourth quarter, down roughly $16 million compared to the same period last year. About 45% of this reduction is driven by improved shipping and fulfillment costs, while the remainder is a result of tighter cost management, along with some timing shifts with earlier quarters. Total G&A for the year was $303.1 million, up $1.3 million versus last year. Looking at G&A in more detail, shipping and fulfillment expense was roughly $157 million, down $1.6 million compared to fiscal 2022. On a related basis, shipping and fulfillment costs came down 200 basis points from 31.3% to 29.3%, directly as a result of improved logistics network management and recently renegotiated contracts with our shipping and fulfillment partners.

We expect both of these drivers to result in around 100 basis points improvement in our shipping and fulfillment extent in fiscal 2024. For other G&A spend, we expect our annual run rate to improve from the 12 million cost reduction exercise we announced in February, of which $10 million will flow into fiscal 2024. We expect to see some headwinds on this line, such as inflation, but I’m confident that we will be able to offset these with disciplined cost management. Total marketing expense in the quarter was $15.4 million, $2 million higher than last year. We decided to invest more heavily in marketing in the fourth quarter as the return we were seeing was encouraging and we arguably under invested in the fiscal third quarter. For the full year our marketing expense was $68.8 million, about $5.6 million below fiscal 2022.

With the improvements in our gross margin, shipping and fulfillment and other G&A areas, we have the ability to further invest in media to gather awareness and traffic as opportunities arise. Lastly, we recorded an adjusted EBITDA loss of $3.4 million in the fourth quarter, largely in-line with guidance and an 85% improvement versus Q4 last year. For the full year we recorded an adjusted EBITDA loss of $31.3 million, a 46% improvement compared to fiscal 2022 and nearly $5 million ahead of our original guidance coming into fiscal 2023. From a balance sheet perspective, we ended the quarter with $178 million of cash, $14 million higher on a sequential basis, and we ended the year with $124 million of inventory, down $21 million versus fiscal Q3.

The improved P&L performance, reduction in inventory, coupled with timing on payables, helped drive our second consecutive quarter of positive free cash flow with the fourth quarter coming in plus $17 million. About $7 million of the payables timing will impact Q1 fiscal 2024. Let me now turn to guidance, beginning with revenue. For the full year we were expecting revenue to be flat to down 5% compared to last year. Going into more detail, we expect total revenue from toys to decline, offset by growth in our consumables business. For example, we generated approximately $371 million of revenue from toys in fiscal 2023, which includes toys revenues from our primary segment. We expect this category to decline in fiscal 2024 given the board a macro backdrop and their more discretionary nature.

On the other hand, we expect consumables, which delivered $164 million of revenue in fiscal ‘23 to grow over the last year. Moreover, we expect year-over-year revenue declines in the first half of the year, given a difficult prompt as a result of our growing revenue by nearly 16% in the first half of fiscal 2023 versus fiscal 2022. We’re also expecting softness on the primary side of the business in the first half, as retailers continue to closely manage our inventory levels. As we get to the second half of the year, we expect total revenue to begin to accelerate, particularly in the fourth quarter. For now we expect high single to low double digit revenue growth in fiscal 2025. Nonetheless, we do expect healthy growth in our gross profit this year, and currently expect our gross margins to improve by 200 to 300 basis points year-over-year.

With that said, we currently expect first quarter revenue of between $121 million and $123 million, and an adjusted EBITDA loss of between $10 million and $11 million dollars, which would be an improvement of $2 million to $3 million as compared to the first quarter of last year. For the full year adjusted EBITDA, we expect a loss of between negative $8 million and positive $2 million. This would reflect a significant improvement from the $31 million loss we reported last year, and the negative $58 million we recorded in FY22. Where we fall in this range will come down to a couple of factors. First, we may choose to invest some margin with customers to help fuel growth. And second, we will be nimble with our marketing investment and may choose to invest more heavily if the return is there.

Nonetheless, we expect to be free cash flow positive for the year and expect our year-end cash balance to exceed $180 million, all else being equal. From a timing perspective, we expect free cash flow to turn negative over the next two quarters and return to positive in the second half and for the full year. In summary, we have made significant progress in diversifying our product mix, improving our average order value and enhancing the economics of the business. We expect these efforts to result in-part being full year free cash flow positive and closing in on a breakeven adjusted EBITDA. As we turn the page on profitability, we’ll quickly transition to growth mode on a profitable structure. From a new CFO’s perspective, we have plenty of cash, a significant runaway for growth, and a management team that is laser focused on delivering the long-term shareholder value.

I couldn’t be more excited about BARK’S journey ahead. With that, I’ll turn the call over to the operator for Q&A.

Q&A Session

Operator: Our first question comes from Maria Ripps with Canaccord. Your line is now open.

Maria Ripps: Great! Good afternoon and thanks for taking my question. First, how are you thinking about sort of the longer term mix for the business in terms of subscriptions versus standalone purchases? And if purchases are becoming a greater portion of the business mix, what does this mean in terms of fulfillment and marketing and are there any changes that need to be implemented on that front?

A – Matt Meeker: Thanks Maria. What we’re thinking for the mix over time is today of course it’s still heavily subscriptioned, but in the past couple of quarters we have started to offer that mix or that choice to the customer that they can subscribe and save or they can buy one-off in order to raise the conversion rate. How that evolves over time is really going to depend on the mix of products that we offer to them, so you’ll of course expect BarkBox and Super Chewer to be subscription experiences going forward by and large, a product like food to have more regular delivery, so more prone to a subscription relationship. But that’s one where today we offer the one-off to customers and they appreciate that and so it’s not 100%, and then some products where it just makes no sense at all. And so how that falls out in the mix over time is going to follow the trajectory of the products, especially in the consumables that we offer.

Maria Ripps: Got it, that’s helpful.

A – Zahir Ibrahim: Yeah Maria, I’ll probably add to that. Well, you know we’re increasingly focusing on consumables, expanding our portfolio and offering both online, and then we’re taking those to retail as well. So over time you’ll see this increased mix of consumables versus toys in our portfolio as well.

Maria Ripps: Got it, that makes sense. And then secondly, you talked about services as one of the growth skewers. Can you maybe just talk about how you’re thinking about that category? What are some services that you have in mind, and what kind of investments will be required to get that business up and running?

Matt Meeker: Sure. It’s a – I would take it as a visionary statement, where we are in a really unique position in the market where our brand is synonymous with bringing joy to dogs and their parents and we also have as you know, millions of first-party data points that are unique to us. So what we know is, we know dogs really well. We know our dogs and their people really well and we have a brand that’s synonymous with happiness and joy and we are solely focused on dogs here. We’re not selling hamster food. So, there are ways that we think we can leverage that relationship in that data and these unique assets and that brand that go beyond the packaged goods. Services is a next logical step in that and if we just think about the obvious and non-obvious parts of the world there, that really opens up big opportunities for us.

It’s still for us early days, so we’re not ready to elaborate further as to what the specifics are, but if you look across the pet industry and then maybe take a little page from the relationship between parents of human children and their kids and how the world’s evolved to serve them in multiple different ways. It’s not just baby formula, but its packaged goods and into services and how the world treats them. There’s a similar long-term vision for BARK and so we wanted to share that vision with you today.

Maria Ripps: Got it, that’s very helpful. Thank you very much for the color.

Operator: Our next question is from Ryan Meyers with Lake Street Capital Markets. Your line is now open.

Ryan Meyers : Hey guys! Thanks for taking my questions. First one for me, just wondering if you could unpack a little bit. How many of the consumable customers are new customers to the BARK platform versus how many of them are from cross-selling to existing BARK customers?

Matt Meeker: Today so far, I don’t have an exact percentage or figure, but I will say the large majority are from the cross-selling to existing customers. So just as a reminder of the historical progress here, back in August, some nine months ago, we stood up, a standalone platform or a new platform, food.bark.co where we were selling only our food or our kibble product. No other consumable, no treats, no toppers. Certainly no toys or BarkBox or Super Chewer experiences, and over time we’ve added more and more of our products to that where now all of those products live on that platform but unfortunately still at food.bark.co, but only recently did we add BarkBox and Super Chewer. So we’ll update the URL and make that a little more current or reflective of what’s there.

But as it was experimental and what we were trying to do is increase conversion rates on our kibble initially and then increase the conversion rate of how the customer engages with each of those products and then raise cross-sell between those in the same session. It’s been a testing environment and in order to test that as cost effectively as possible, we’ve been leveraging our rather large base of customers and we’ve done that really successfully. The growth there has been fantastic, super-encouraging for the first nine months. To the point that only now are we starting to invest any media dollars against bringing new people into the fold. So while I don’t have a specific percentage as to what that breakdown is, it’s going to skew very heavily towards people who are already in the BARK universe prior, but now that’s starting to change with the media spend.

Ryan Meyers : Got it, that’s helpful. And then, you kind of touched on this a little bit, but when we think about the adjusted EBITDA guide in Q1 and then for the full year, obviously there’s a lot of things going on in the gross margin there. But wondering if you can kind of unpack sort of that improvement from Q1 to exiting the year just a little bit more so we have a good understanding of kind of how that’s going to progress for the year.

Zahir Ibrahim: Hi there Justin – Ryan, sorry. So just talking about Q1, firstly relative to where we’re exiting Q4, just a couple of things that drive the Q1 guidance, one is, the revenue is slightly softer in Q1, driven by just the retail inventory that we’re seeing with some of our retailers and the macro environment that they are seeing. So that’s reflected in the Q1 revenue guidance and arguably in the first half revenue that we’re expecting to see. Specifically for Q1 in terms of other parts of the P&L, that will be higher levels of investment from marketing as we continue to see appropriate levels of return on investment. And then in Q4 ‘23 we saw some timing benefits that came through in Q4 relative to earlier part for the year and we haven’t modeled those or expect to see those come through in Q1, 2024.

As we look at 2024 across a year, you’ll see from a top line perspective we’ll continue to gain traction both on DTC and also on the commerce side. Commerce as I mentioned, retailor inventory starts aligning, you start getting into Q3 and greater levels of just a personal window as well. Q4 we start getting traction with consumables on shelf as well. So you gain more and more momentum on that side. And then from the DTC perspective you’re seeing continued traction as Matt mentioned on the new site, increased cross sell, more momentum from the increased marketing investment that we have. So that’s continuing to build in terms of top line momentum and velocity. As we look at overall P&L, during 2023 we had really strong margin, gross margin improvement and we’ll expect Matt to continue at a similar clip in 2024 as new contracts continue – new contracts and new contract pricing kicks in and we’ll see that benefit flow through inventory and through the P&L in the first half.

We’ve got additional contract renegotiations that will kick in for the second half of the year as well. So improved gross margins during the course of the year. Shipping and fulfillment, we had a really strong performance in 2023. Some of the benefits of that will flow into 2024 and we see a lot of opportunities from a network planning perspective on the logistics side, so we expect that benefit to increase during 2024. And then finally on G&A, we did the cost reduction in initiative in February. About $10 million of that benefit is going to flow through in 2024. And then as we look across the various parts of our G&A based, there’s areas for us to be tighter from a cost management perspective, so we’ll see that gain momentum during the course of the year.

So, you’ll have what I’d say, a couple of quarters in the year where we expect to see positive EBITDA and continued top line traction and margin improvement going through the year.

Ryan Meyers : Got it. It makes sense. Thanks for taking my questions.

Matt Meeker: Thank you.

Operator: Our next question is from Ygal Arounian with Citigroup.

Ygal Arounian : First on the subscriptions and the new KPIs. Now, it’s always the vision for the company to kind of move a little bit more away from some subscriptions and give different options to your customers or was there something that you guys were seeing within the subscription model that maybe you want to move away and change your approach.

Matt Meeker: It’s certainly being responsive to the customer again since we launched that new unified platform. We started it food based and as I mentioned, we’ve added all the various products to there. We added our dental product in February and that one is a really good example, a very stark example of all we offered previously was subscription and a real hunger or demand from the customer to purchase the one-off items. So they might be on a subscription, and for example run out of their gel and didn’t have an outlet to repurchase – or to purchase just the gel or just the chewers, or to say it doesn’t last me exactly a month, it last me three weeks or six weeks. So that gave us a pretty clear signal and as we pushed further into toy – I’m sorry, into treats and toppers, even more that activity.

So I would say over the past six months it’s become very apparent that the customer wants a lot more flexibility and we convert much better and have a better relationship when they do. And it’s just a reflection of our move into consumables and that there’s a different buying rhythm, and there’s a different customer experience built around those. So it’s being responsive to that and us reflecting that in the results we share with you, but also the way we manage the business.

Ygal Arounian : Got it. It’s really helpful. On the unified platform is it now where you want it to be or maybe the actual URL, where we feel are more ways do that. And then as you’re getting there and you’re talking about the changes in the marketing strategy and if you could just share a little bit more about what the things you’re looking for there are in terms of pressing on the cash or not. And how your approach changes where you’re not fully focused on driving the subscribers, but also one-off where you see purchases.

Matt Meeker: Yeah we’re – so, we’re really happy with it. It’s not there in terms of, it’s done. It does have – it reflects the breadth of products that we have and they are all under one roof. So not the way they are reflected there. Like you said, you want to make the URL a little bit more, less descriptive I guess or more generic to BARK. But overall what we’re looking for there is, when a new customer enters BARK, is there a lifetime value greater than the sum of the parts when scattered across the other four websites. And of course that’s a collection of the retention or the repeat purchase rates that we’re seeing, their average order value, their margin, the items per basket, like how much they are adding to their orders or how effective we are at upselling, so all of that needs to come together.

There are parts of that where we are already outperforming the core or the legacy part of the business, conversion rate being one of those and that’s where most of our focus has been. And so now we’re focusing more on the overall move, the lifetime value of that customer that we’re converting really well. The other really key thing for us to learn and prove before we fully embrace it, is can we acquire new customers into BARK onto that platform that have a superior LTV at an attractive or better cost of acquisition, and do they have the same behavior and the same profile. So again, we’ve just recently started spending money against that and acquiring customers and learning that rhythm. But as far as an experiment goes, it’s doing very, very well.

It’s one of those early things, so early the keyword there. But almost every metric in the business is one of those up into the right for nine consecutive months kind of things, but it’s definitely got work left to do.

Ygal Arounian : That’s very helpful. Thank you.

Operator: Our next question is from Corey Grady with Jefferies. Your line is now open.

Corey Grady : Hi! Thanks for taking my question. So I wanted to ask what you’re up to in your expanded assortment in retail. It sounds like treats started showing up in Q4, but can you also address timing for adding toppers too it and then expanding distribution for dental. Thanks.

Matt Meeker: Yeah, treats our definitely the focus for this upcoming Q4 or the focus right now on the sale side, and I would say if that’s 1A, then 1B is dental, because we have a proven finished product there and we have near term line of sight to a much improved margin profile on that product. So one of the things that’s kept us challenged of taking dental into retail to-date has been making the margins work for us and for retail partners, and with a new formulation that’s soon to come out, we’ve really addressed that, and now there’s a big growth opportunity there. So we put it in the hands of our sales team. The ideal time for any dental product to launch in retail or launch anywhere is Dog Dental Month which is February.

So our team is pushing very hard for that, but we don’t have anything secured there. So definitely 1A is our new line of treats, which we’re super excited about. 1B is dental and then we will follow with toppers and food. And if we stay in the same cycle, that would show up near the end of fiscal ’25. There’s the potential that you could push it faster and have some small retailers take you a little bit off-cycle, but I wouldn’t count on that.

Corey Grady : Got it, that’s helpful. And then just my follow-up, just on your sales guide, so you guide Q1 down 7% and you plan to exit I think the year with growth in Q4. Can you may be expand on the assumptions for the year that underpinned that trajectory. Thanks.

Matt Meeker: Sure. Well, we just talked about some of them there in retail and with consumables, and bringing certainly a new category and a new line. And we really benefit, and we haven’t yet leveraged our retail or wholesale channel enough in this way. But one of the benefits for us is we’re in 40,000 retail doors with our toys and quite successfully, and we have great relationships. So that’s something we need to leverage, we are leveraging and we’re introducing ourselves into much bigger categories than toys, treats being one of those. So that’s one of the drivers as we introduce that to our retail partners. Another is, we’re again certainly encouraged by the progress on our bark.co platform, and as I said, starting to spend some of our dollars there to acquire new customers and the profile that customer gets better and better.

So some of that is subscribe and save activity, some of that is us learning to bring a one-off customer back to repurchase again and again. But the acceleration there is compounding and that compounding leads to our direct to consumer channel, it’s getting better. But as with any compounding business, it just takes a few months or a couple quarters to build on itself and then we move in our holiday season, we’re really going to surge on both sides of the house.

Corey Grady : Thank you.

Operator: There are no more questions. So I’ll pass the call back over to the management team for closing remarks.

Matt Meeker : All right, thank you everyone.

Operator: That concludes the conference call. Thank you for your participation. You may now disconnect your lines.