Kidpik Corp. (NASDAQ:PIK) Q3 2022 Earnings Call Transcript

Kidpik Corp. (NASDAQ:PIK) Q3 2022 Earnings Call Transcript November 15, 2022

Kidpik Corp. misses on earnings expectations. Reported EPS is $-0.32 EPS, expectations were $-0.19.

Operator: Hello and welcome to the Kidpik Third Quarter 2022 Financial Results Conference Call. Please note this event is being recorded. I would now like to turn the conference over to Ezra Dabah. Please go ahead.

Ezra Dabah: Thank you, operator. We are pleased to welcome everyone to today’s call, where we will review Q3 2022 and provide an update on the business. We will begin with a review of our financial and business highlights, followed by a financial review, which Adir, as CFO, will take us through and then we will open the call to Q&A. Moshe Dabah, my son, our Chief Technology Officer and Chief Operating Officer is also available for any questions that you may have. I’d like to start by sharing that our third quarter results were, for the most part, consistent with our most recent earnings despite the increasingly challenging macro environment and the continued impact of changes on social media privacy policy on our new customer acquisitions.

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On a macro level, high inflation, increased interest rates and declining consumer confidence have weakened consumer sentiment, resulting in lower discretionary spending compared to the previous year. In the face of a challenging consumer environment, we are taking actions to ensure the health of our company. We have substantially reduced purchases of our new inventory and are focused on increasing sales from our current elevated inventory level, which we believe will support our cash flow needs in the short-term and give us the runway needed to scale our subscriber business as a private subscriber base and demonstrate a profitable business formula. In addition, we are taking other actions including reduction in various operating costs. Our team has committed to making the business profitable.

During the third quarter, we have managed to level off and keep the number of active subscribers constant. We are focused on growing our member base through new and existing paid and unpaid channels. We are also increasing our proprietary brand sales through our own e-commerce site shop.kidpik.com and other third-party platforms. During the third quarter, we achieved a meaningful increase in engagement with our customers and prospective customers through unpaid social initiatives, with support from our Kidpik ambassador program. We are continuously upgrading our proprietary technology platform to improve the customer experience and introduce new products and categories with the goal of growing sales. During the third quarter, we added size 12 and 18 months to our existing product offering, introduced husky and slim sizes in selection of our basic bottoms and tops.

And we have recently launched a limited edition NASA collection for holiday gifting that inspires learning for boys and girls. Our competitive advantage of delivering head-to-toe stylized outfits at great value is appealing to parents and grandparents who are seeking convenience and style support when it comes to getting their kids dressed in confidence as they grow. While also enjoying the excitement of unboxing and the fun of discovery together as a family, the customer satisfaction of our subscription service is demonstrated by the 29,000 average 4-star reviews. We look forward to finding efficient ways to introduce many more customers to our personalized subscription service. Having our own proprietary brand gives us the opportunity to expand beyond the box.

We have recently developed technology that will allow us to list our products for sale through third-party retail e-commerce platform with the goal of increased distribution, brand visibility and sales. We invite you all to visit our newly launched holiday website at kidpik.com to see our elevated e-commerce brand experience with added new UX convenient features. Through our revamped website, customers can shop fashion items, gift items, shoe related outfits, restyle boxes, our famous basics and the many items we recently listed as gifts under $10 for the holiday season. Thank you for your interest and support. We look forward to seeing our brand deliver profitable growth in the years to come. With that, I’ll turn the call over to Adir to detail the financial highlights for the quarter.

Adir?

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Adir Katzav: Thank you, Ezra. Q3 revenue was $3.6 million, a decrease of 34.8% year-over-year and a decrease of 3.7% quarter-over-quarter. The decrease in revenue was primarily driven by a decrease in subscription box sales. Looking at Q3 revenue by channel, subscription sales were approximately $2.9 million, a decrease of 39.6% year-over-year. Amazon sales was lower at $469,000, a decrease of 17.6% year-over-year. Online website sales increased by 14.5% to $297,000. Moving to revenue by subscription for the quarter, active subscriptions or recurring boxes decreased by 40.6% to $2.3 million year-over-year. New subscriptions of first box decreased by 35.2% to $600,000. Total subscriptions decreased by 39.6% to $2.9 million, which represents 79% of total revenue.

Turning to gross margin, gross margin for the quarter was 16.3%, a year-over-year increase of 210 basis points. Shipped item for the third quarter decreased by 36% to $358,000. Keep rate for the first quarter was 68.5%, which is in line with our rate last year. On the bottom line, net loss for the quarter was approximately $2.4 million or a loss of $0.32 per share compared to net loss of $1.2 million or a loss of $0.22 per share last year. Speaking to non-GAAP adjusted EBITDA for the quarter was a net loss of $2.1 million compared to a net loss of $1.4 million last year. Now, to the balance sheet and cash flow, cash at the end of the quarter was approximately $220,000, which we used $7 million in operating cash flow for the 39 weeks period compared to $5.6 million last year.

In order to improve our cash position in the near-term, we plan to significantly reduce our purchases of new inventory, and if available, may enter into a cash advance or other financing arrangement. As of October 1, 2022, we add $15.8 million in total current assets, $6.1 million in total current liabilities and the working capital of $9.7 million. With that, I will turn the call back to the operator for Q&A. Operator?

Q&A Session

Operator: Thank you. Today’s first question comes from Edward Reilly with EF Hutton. Please go ahead.

Edward Reilly: Hi guys. The reversal in new subscriptions is nice to see just going from Q2 to Q3. I am wondering what’s driving this and maybe if you could provide any information on the trends in October and November?

Ezra Dabah: Hi Ed. How are you doing? It’s hard for us to provide information in October, I usually don’t do that. As it relates to basically managing to keep our subscription constant and not having it fall. We did very nicely on quite a few of our existing channels. We actually found a way to get Facebook to work for us again. For a while that channel was quite broken. And we are really happy to see that working again for us. And we are using other channels as many as we can. And we are very, very focused going forward on maximizing every possible channel to get acquisitions. At the same time, we are also very focused on making sure that the CAC or acquisition is a reasonable CAC to make sure that the CAC to LTV ratio is profitable, not just spending for the sake of increasing subscribers, but making sure that the CAC is a reasonable CAC for us and the profitable to our LTV.

Edward Reilly: Okay. Got it. Thanks. Facebook working for you guys again, seems to be a pretty big deal. I am just wondering if there any other channels that you used in the past that might begin to show improvement again?

Ezra Dabah: We have tried Pinterest for quite a few times to no avail. We are actually really happy to see Pinterest working, of course, to some extent more expensive than the Google or Facebook channel. But it’s working in a reasonable way for us. So, from that point of view, it’s nice to see and using other channels as well, using ambassadors in a much bigger way. We are focused on SEO, which is actually increasing. So, we are focused on every possible channel and we think there is more room for us to focus in even a bigger way going forward.

Edward Reilly: Okay. Great. Then you mentioned some cost cutting initiatives that you guys are taking. Where are these costs coming from and I am wondering if you can maybe quantify how much savings you are expecting?

Ezra Dabah: Close to coming €“ Adir, do you want to take this?