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Blue Apron Holdings, Inc. (APRN) Q1 2019 Earnings Call Transcript

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Blue Apron Holdings, Inc. (NYSE: APRN)
Q1 2019 Earnings Call
April 30, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Ladies and gentlemen, good morning, and welcome to the Blue Apron Holdings First Quarter 2019 Earnings Conference Call and Webcast. This call is being recorded. Following the conclusion of today's remarks, the Blue Apron team will be taking your questions.

With that, I'd now like to turn the call over to Louise Ward, Senior Director of Corporate Affairs. Ms. Ward, please go ahead.

Louise Ward -- Senior Director, Corporate Affairs & Communications

Good morning, everyone, and thank you for joining us. On this morning's call, we have Findley Kozlowski, Chief Executive Officer of Blue Apron; and Tim Bensley, Chief Financial Officer. Various remarks that we make during this call about the company's future expectations, plans, and prospects constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by those forward-looking statements as a result of various important risks and other factors, including those described in our earnings release and the company's SEC filings.

In addition, any forward-looking statements represent our views only as of today and should not be relied upon as representing our views as of any subsequent date. We specifically disclaim any obligation to update these statements.

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During this call, we will be referring to non-GAAP measures, which are not prepared in accordance with Generally Accepted Accounting Principles. You are encouraged to refer to the earnings release and SEC filings, where we have described these measures in more detail, and to review the reconciliation of these non-GAAP financial measures to the most directly comparable GAAP measures. In addition, reconciliations of certain forward-looking non-GAAP measures referred to during this call are on our investor relations website located at investors.blueapron.com under Events and Presentations.

With that, I'd now like to turn the call over to Linda Findley Kozlowski, Blue Apron's CEO. Linda?

Linda Findley Kozlowski -- President & Chief Executive Officer

Thanks, Louise, and good morning, everyone. I'm thrilled to be speaking with you today as the CEO of Blue Apron. I want to provide a few brief remarks before handing the call over to Tim, who will walk through our Q1 performance and outlook for the remainder of 2019.

I'm honored and excited to be Blue Apron's new CEO. I have long admired Blue Apron for its pioneering leadership in a new category, its loved and trusted brand, and its high quality products, which I have gotten to know very well as one of Blue Apron's loyal customers over the last three years. I've spent the last three weeks getting immersed, connecting with our employees, customers, partners, and other stakeholders, and identifying opportunities to drive the business.

I'm enjoying exploring all of the new and different ways that we can integrate into our customers' lives, whether it's new products, new eating occasions, new channels, or a new understanding of what cooking means to people. Three key observations so far: First, the foundation of our business today is strong thanks to the hard work and dedication of Blue Apron's employees. It's energizing to join the organization at such an important point in the company's history. We have some critical milestones under our belt, including our most efficient operational performance to date, positive cash flow, and the achievement of profitability on an adjusted EBITDA basis. While there's more work to do, I'm encouraged by the progress made in these foundational areas, and I expect they will provide important efficiencies for the long-term.

Second, I'm pleased with the work the company has done to date in thoroughly understanding the needs and behaviors of our highest affinity customers. We're deliberating prioritizing this valuable segment, and focusing on the most efficient channels to reach them. From my experience, I believe that narrowing our focus to our highest impact opportunities in the business is an important foundational step, and critical as we build our growth strategy in the coming weeks and months.

Third, the company is rooted in a distinct culture guided by a worthy and inspired mission. Like me, many of our employees came to the company having been loyal customers. They are passionate about our brand and products, excited by the significant opportunities ahead of us, and are moving forward to capitalize on them with a sense of urgency.

In summary, my priorities coming into the organization are twofold: establish a differentiated customer centric strategy and build off the foundation that I believe is now in place to return the business to growth. I believe there are significant opportunities ahead for Blue Apron, including untapped, attractive growth prospects. Fundamentally, we are a company that delivers experiences. Convenience is one element of our value proposition, but our real differentiators are our brand, which stands for culinary authority; and our high quality products, which fuel discovery and connection.

We need to double down on these differentiated experiences by reaffirming our authority in the space, taking advantage of our inherent brand strength, and continuing to optimize our product portfolio. These will pave the way for future growth. I'm looking forward to work with the team to move Blue Apron into its next stage and will expand on the actions that we'll be taking in accordance with these priorities in the coming few months.

I will now turn the call over to Tim to talk through the Q1 progress and our quarterly financial results.

Tim Bensley -- Chief Financial Officer

Thanks, Linda. Speaking on behalf of our entire team, we're delighted to have Linda as our new CEO. She hit the ground running three weeks ago, and it's been reinvigorating for our entire organization to have her on board. We look forward to benefiting from her rich and diverse experience across various critical aspects of our business on our journey back to growth.

Today, I'd like to refer back to the priorities that we last discussed in January, and provide and update on how we've delivered against these actions in Q1. I'll provide you with a summary of our financial results and an outlook for the rest of 2019. We'll then take your questions.

In January, we told you that we were going to streamline our Product, Technology and G&A, or PTG&A, costs while continuing to optimize our operations. We also said we would be homing in on the most efficient customer acquisition channels to reach high affinity consumers, leading to reduced but higher return marketing spend. While we knew that this focus would result in lower revenue in the near-term, this deliberate decision was centered on our conviction that strengthening our customer base and driving toward profitability are critical steps for building a healthy, sustainable business.

We're happy to report that our approach unfolded as planned. In Q1, we delivered our most efficient operational performance to date, had positive operating cash flow and free cash flow, significantly improved our net loss, and achieved profitability on an adjusted EBITDA basis.

Before I dive deeper into these financial results, I'd like to first highlight the strategic initiatives we laid out in November and how we executed on these in Q1 to achieve our goals. First, our operational optimization remains a positive story as we continue to gain efficiencies throughout our fulfillment center network while optimizing our cost structure. Cost of goods sold, excluding depreciation and amortization improved over the past six quarters from 78.1% of net revenue in the third quarter of 2017 to a record best of 58.3% of net revenue in the first quarter of 2019. This is the result of continued improvements in all three of our fulfillment centers and further efficiency gains in labor, food, shipping, and packaging costs from enhanced planning and process-driven strategies.

The strength and stability of our fulfillment center network was especially evident in the first quarter as we seamlessly launched our new WW product line and effectively transferred additional volume into our Linden fulfillment center from our Arlington facility. Launching these initiatives while also achieving our best margin performance to date gives us confidence that we are well-positioned operationally for additional product and channel expansion down the line.

Second, we are sharpening our focus on our direct-to-consumer business through our work to prioritize high affinity consumers. As we focus on the most efficient channels and methods to reach this valuable consumer segment, we're encouraged by some early improvements we're seeing in our key metrics as a result. For example, we noted on our last call that average revenue per customer and orders per customer would be key indicators of a strengthening customer base as we pursue this new focus. We are pleased to see improvements in both of these metrics on a year-over-year and quarter-over-quarter basis. In addition, our customer acquisition costs are improving, with expected average payback for new customers well within our goal of 12 months or less.

As we've said before, our deliberate decision to prioritize a narrower set of high affinity consumers is centered around our conviction that this shift will have a sustainable, positive impact on the business. Another important vehicle for us to reach high affinity consumers is through strategic partnerships, particularly those that can give us access to an engaged customer base that we can onboard in a relatively efficient manner.

We continue to be pleased with our WW offering, and since launch have seen strong interest in the Blue Apron WW menus from both new and existing Blue Apron customers. We have additional marketing opportunities in the pipeline with WW in the coming months, and look forward to generating additional awareness of the product. Based on the favorable response and interest in the Blue Apron WW menus so far, it's clear that a health-conscious offering is a compelling and valuable proposition for consumers who are interested in cooking fresh, healthy, high-quality meals at home while discovering new ingredients and cooking techniques through the Blue Apron experience. We will continue to explore ways to leverage our brand to tap into the growing demand for health-and-wellness solutions.

Third, we are methodically expanding our reach through additional channels. Selling Blue Apron products through additional channels continues to be a key pillar of our strategy with significant opportunities ahead, as we know that we need to be available to consumers whenever and wherever they are thinking about meal occasions.

We're pleased that our relationship with Jet continues to expand in scope. In February, we launched new Knick Knacks product on Jet, adding to the rotating selection of Blue Apron meal kits available. In the next few weeks, we will once again expand our presence on Jet's platform by launching a shop, which will include an additional suite of culinary tools and marketplace items, such as seasonings and spices, available through same-day or next-day delivery across most of New York City.

We continue to build our on-demand capabilities and are excited to announce that, in the next couple of weeks, we will be piloting a new same-day, on-demand service in the Bay Area. Through our own platform and digital experience, consumers in the Bay Area will be able to order meals by noon in order to receive the products at home later that day. The meals will be produced and shipped out of our Richmond facility. While we have tested same-day, on-demand offerings through third party platforms in the past, this is the first time that customers will be able to order products for the same-day, on-demand delivery without leaving the Blue Apron ecosystem. Consistent with our focus on finding ways that Blue Apron can evolve to better meet our customers on their terms, we are excited about the flexibility of this offering and look forward to building off the learnings that come from it.

Fourth, in the past year, our team has become leaner, more agile, and more focused. I am pleased to report that, with Linda coming on as CEO, there is a positive buzz throughout our offices and fulfillment centers as employees are excited about the next stage of the company's history under her leadership.

Turning to Blue Apron's financial performance for the first quarter. As mentioned earlier, we are pleased with our bottom-line performance and outperformance of the guidance provided on our January earnings call. In the first quarter, we significantly reduced net loss by 83% year-over-year to $5.3 million and reached an important milestone with adjusted EBITDA profit of $8.6 million, compared to a year ago adjusted EBITDA loss of $17.2 million. Quarter-over-quarter net loss and adjusted EBITDA improved by $18.4 million and $16.4 million respectively.

Our continued success on the bottom line has been driven by a number of factors, including a sharpened focus to our marketing strategies, streamlined PTG&A costs, and continued progress in achieving operational efficiencies across our fulfillment network, particularly in our Linden, New Jersey, facility. Net Revenue in the first quarter of this year was $141.9 million, compared to $196.7 million in the prior year and $140.7 million in the fourth quarter, directly reflecting the execution of our strategic initiatives announced in November.

Our sharpened focus on higher performance channels and attracting and engaging a more profitable consumer has resulted in reduced marketing spend. In the first quarter, marketing spend was 10% as a percentage of net revenue, or $14.2 million, a 64% reduction compared to the prior year and a 30% reduction from the previous quarter.

As we continue our approach of focusing on high affinity consumers, the improvement of key metrics indicates a strengthening customer base. Average revenue per customer and orders per customer strengthened on a year-over-year and quarter-over-quarter basis, both to the highest levels in five quarters. We remain confident that prioritizing financial rigor and quality customers is the right approach as we build to a strong, profitable foundation for future growth.

We saw further margin expansion with COGS, excluding depreciation and amortization, improving 750 basis points over the prior year and 250 basis points quarter-over-quarter to a record best of 58.3%. Over the last several quarters, we have repeatedly highlighted the accomplishments that our cross functional teams have made on the operational front through enhanced planning and process-driven strategies. This progress is evidenced by improvements in all of our primary operational cost categories -- labor, food, shipping and packaging -- and across our entire fulfillment center network, with our Linden facility continuing to lead the pack.

PTG&A costs were reduced 21% year-over-year to $39.1 million and were 14% lower quarter-over-quarter, a direct reflection of our commitment to judiciously manage costs and optimize our cost structure. Our cash flow profile continued to strengthen in the first quarter as evidenced by our positive operating cash flows, driven mainly by our improved adjusted EBITDA performance and working capital management. Capital expenditures in the first quarter were minimal at $1.7 million contributing to positive free cash flow, with limited capex needs expected for the remainder of the year.

Now, turning to our financial outlook for 2019. For the full year, we are reaffirming our confidence in significantly improving net loss and achieving adjusted EBITDA profitability. Specifically, for the second quarter, we expect net loss of $13-16 million and adjusted EBITDA of $0 million to positive $3 million, reflecting typical seasonal trends heading into the summer months and the back half of the year.

As we discussed on our last call, we will continue to follow our strategy of deliberately not pursuing unproductive revenue which will result in lower overall net revenue in both Q2 and for the full year 2019 in comparison to the prior year. We continue to anticipate average revenue per customer and orders per customer, leading indicators of a strengthening customer base, to improve during the year while also reflecting typical seasonal trends in the business. We believe that, under Linda's leadership, our new product and platform innovations and strategic partnership opportunities could accelerate our anticipated growth. We look forward to updating you on this progress. For easy reference, we have posted a reconciliation chart from our net loss to Adjusted EBITDA outlook on Blue Apron's investor relations website.

In closing, we're pleased with our overall progress so far this year as we continue to establish a healthy foundation for the business. We're looking forward to working with Linda to advance our strategies and unlock additional opportunities for sustainable, profitable growth.

...

Okay. Linda and I will now take your questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. To ask a question, you may press * then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press * then 2. At this time, we will pause for a moment to assemble our roster. Our first question today will come from Matt DiFrisco of Guggenheim. Please go ahead.

Matthew DiFrisco -- Guggenheim Securities, LLC -- Analyst

Thank you. I just wondered, Tim, if you could clarify also, just as far as the lower 2Q on the revenue side? Is that in reference to year-over-year or sequential?

Tim Bensley -- Chief Financial Officer

Yeah. Well -- hey, Matt. First of all, thanks for the call. Yes. It certainly is going to be lower year-over-year, as I just went through in the script, for sure. And I think it's probably fair to say that our revenue throughout the year will then -- you can use our historical seasonal trajectory as a good indication of quarter-over-quarter.

Matthew DiFrisco -- Guggenheim Securities, LLC -- Analyst

Okay, so it -- 2Q is a lower seasonal quarter than 1Q, obviously, historically?

Tim Bensley -- Chief Financial Officer

Yeah, Q1 has typically been our highest revenue quarter and we would expect that to continue going forward.

Matthew DiFrisco -- Guggenheim Securities, LLC -- Analyst

Understood. And then, I guess, just as far as the marketing expense, how should we think of that also? That's been somewhat lumpy and skewed around a little bit more of the first and fourth quarter. Is that also going to be lighter in 2Q and then 3Q?

Tim Bensley -- Chief Financial Officer

One of the levers that we have to pull as we move through the go-forward quarters is just how much marketing we want to lean into. Right now, as we go into the second quarter, we're continuing to execute on this strategy of lower marketing but higher return marketing spend, so I would expect it to continue to be lower on a year-over-year basis, both in absolute dollars and as a percent of net revenue.

Of course, as we move through the coming few months, Linda will really be leaning into the organization as we try to develop new and more specific revenue growth driving strategies. And as those strategies start coming forward, we'll start making decisions about whether to lean into them more heavily. So, I'm a little hesitant to give you a specific guidance on the actual marketing spend. But, for the time being, I would expect it to be a similar trend to what we showed in Q1.

Linda Findley Kozlowski -- President & Chief Executive Officer

Yeah, Matt, just to jump in on that, this is -- I really do see pretty big opportunities within the high affinity customers and being able to engage that segment a little bit more directly. But, in doing that, we will still be prudent in our spend, making sure that we're staying within the ROIs of approximately one year payback. Because we think that threshold is really, really important and we are not going to be pursuing any initiatives that look at just short-term revenue opportunities at the expense of overall inefficient returns. But there is still a lot of opportunities, so we will be evaluating quarter-by-quarter spend as we go.

Matthew DiFrisco -- Guggenheim Securities, LLC -- Analyst

Excellent. Thank you, Linda. Welcome aboard, also. I guess, could you give us a -- last question -- just a big picture here? How much -- how would you size up the on-demand opportunity, especially since now you're putting it on your website, compared to the subscription model? Do you have any studies that tell you the size of the on-demand market for your product compared to the subscription model to your product?

Tim Bensley -- Chief Financial Officer

Matt, as you know, we've been out there and done a little bit of testing, so we have some ideas about that. But this is the first time that we're going to actually be out there offering the same-day, on-demand model through our ecosystem. Now, we're going to a pretty big geography with pretty much all of the Bay Area, so we're going to learn more about that. So, I'm a little hesitant right now to say how big that could be. But I think that'll be one of our key initiatives, and over the coming few months, hopefully we'll be able to get back to you with more -- how successful that is and how quickly we're going to be able to expand it. Linda, do you want to jump on?

Linda Findley Kozlowski -- President & Chief Executive Officer

Yeah. I think one of the exciting things that we have seen in data, though, is that we know that this is something that's actually complementary to the existing subscription offering. It's not necessarily an either/or. A lot of our subscription customers have asked for supplementary ability to do on-demand, so we think it actually helps drive the entire business forward, not necessarily split in two different directions.

Matthew DiFrisco -- Guggenheim Securities, LLC -- Analyst

But it would be a premium price point?

Tim Bensley -- Chief Financial Officer

We're going through the pricing scenarios right now as we roll it out. There's a lot of different components to it. Right now, our anticipation is that it will be at a slight premium to our overall subscription offering.

Matthew DiFrisco -- Guggenheim Securities, LLC -- Analyst

Thank you.

Operator

The next question will come from Youssef Squali of SunTrust. Please go ahead.

Youssef Squali -- SunTrust Robinson Humphrey -- Analyst

Great. Thank you very much. A couple questions. Linda, congratulations on the new assignment. On the, I guess, just overall strategy, can you maybe expand, or help us gauge, and major strategy differences in the way you see the business and how you're planning on managing it versus your predecessor? How do you particularly balance the return to growth and profitability? And then, in terms of the same-day announcement, just maybe help us understand a bit -- I know that you can't really necessarily speak to the economics there because you haven't launched it yet, but maybe just help us understand the somewhat logistical details. Who does the delivery, the cost of delivery, and anything else that you can share? Thanks.

Linda Findley Kozlowski -- President & Chief Executive Officer

So, I'll just jump in first on the strategy and then turn it over to Tim to talk about Blue Apron on-demand. Obviously, I've been in the position for three weeks, so it's a little too early to talk about any specific differences. But what I do see, particularly through some of the high affinity customer work that's already been done, is that there's actually quite a bit of opportunity to build off of the foundation that's already been set with adjusted EBITDA profitability, and really the fundamental aspects of operations in the company.

And I see three different areas that are really ripe for development and change based on what our high affinity customers want. One, is really looking at the product portfolio. We know that people want to engage more deeply with us, and so how can we use that information to do that? Second is really the marketing tools. There's still a lot of opportunity there to improve and engage more effectively with our customers. And then, third, even getting deeper into things like ingredient sourcing, looking at the user flow and experience, and understanding how people want to engage, both from a digital and a physical product strategy perspective. All of those are areas of opportunity.

So, I'll be back in -- within the coming few months to talk more deeply about where we might be thinking from a growth strategy. But we are moving quickly and the opportunities are really there for the taking. Now, I'll turn it over to Tim.

Tim Bensley -- Chief Financial Officer

Hey, Youssef. I'm assuming that your question about unit economics is specifically about the on-demand test on the West Coast? Or --

Youssef Squali -- SunTrust Robinson Humphrey -- Analyst

Yes. Yes, exactly.

Tim Bensley -- Chief Financial Officer

Yeah, OK. So, we're pretty excited about this. I'll give you a couple reasons. First of all, clearly, it's right in the wheelhouse of our overall strategy to try to do -- find new ways to get to consumers basically on their terms. And this is the first time that we're going to be able to do this completely within the Blue Apron ecosystem. So, you'll actually be able to go into the Blue Apron site, and order it without involving a third party at all. I'll give you just a tiny bit about how it works and then I'll talk to you about the most exciting part, which [audio cuts out] economics.

So, going through our own platform, consumers in the entire Bay Area are going to be able to pretty much select up to two meals from the entire two-person signature offering -- so, essentially, the same two-person menus that are available on a subscription basis. If they order by noon, they're going to get it delivered to their home between 4:00-6:00 p.m. So, it's a true opportunity for them to order for that evening's dinner on-demand, same-day. Probably the most important thing in the purpose of your question, I think, is that we actually, right away from start, expect it to be at least margin neutral, and eventually has the opportunity -- depending, again, back to the pricing question -- even to be margin accretive to us.

So, unlike some of the other tests we've done, this is one that right of the box, in the pilot, we're going to be generating positive EBITDA -- on an adjusted EBITDA basis, we're going to be delivering positive profitability on each box that we ship. Again, we're starting it in a pretty big geography, in the Bay Area, shipped out of Richmond, and we're working on plans, depending on what we learn, to see how quickly we can expand and how we can both expand the offering and expand the geography. So, overall, it's pretty exciting for us.

Youssef Squali -- SunTrust Robinson Humphrey -- Analyst

Who's going to be doing the actual physical delivery on that?

Tim Bensley -- Chief Financial Officer

Yeah, we have a local third party logistics company that's doing the delivery. They're also delivering some of our core boxes in the Bay Area, so it's someone that we're now familiar with.

Youssef Squali -- SunTrust Robinson Humphrey -- Analyst

Okay. All right. That's helpful. And lastly, I guess, as I look at the P&L and the way the revenues have come down throughout 2018, it looks like by the Q4 of 2019, the comps become pretty -- relatively easy since it seems like they -- your revenues even troughed on a sequential basis, Q4 into Q1. How confident are you -- or what kind of confidence do you have that you can actually show flat to potentially even some low single-digit growth in Q4 of this year?

Tim Bensley -- Chief Financial Officer

Yeah, so we're not going to guide to Q3 or Q4 revenue at this point. We are going to stick with -- for the full year, we still expect to be down of -- overall, in revenue in customer account. I think one of the key points to answer you question is going to be the specific growth strategies that we come up with working with Linda over the coming few months. As soon as we basically have a more solid idea about what those specifics are and how we're going to invest against them, we'll be able to come back and talk about at what point will we'll actually see that inflection point back to growth.

Youssef Squali -- SunTrust Robinson Humphrey -- Analyst

Okay. Sounds good. Thank you so much.

Operator

The next question will come from Shweta Khajuria of RBC Capital Markets. Please go ahead.

Shweta Khajuria -- RBC Capital Markets LLC -- Analyst

Great. Thanks for taking my question. How do you get visibility into the customer base, that it can stabilize? Meaning, at what point do you start thinking about you want to grow the customer base after focusing on the high affinity customers today? And then, second, is -- could you give a little bit more of an update on your partnership with Jet, on meal kits as well as on Knick Knacks, please. Thank you.

Tim Bensley -- Chief Financial Officer

Yep, absolutely. Maybe I'll take the first part of that and then I'll pass it off to Linda to talk about Jet and how that's going. Yeah, I mean, the basic strategy that we have, as we've talked about, is for us to really focus in our best customers, our highest affinity customers, and that's what we've been doing. The second part of that is purposefully avoiding putting marketing spend out there to attract customers that are not going to be high affinity customers. So, that's been the crux of our downturn in revenue and customer count. The point at which we actually have all the strategies in place that we both, that we think we can both have lower churn over our existing customer base because of some of the growth initiatives and product initiatives put out there, as well as a really refined strategy about how to continue to attract additional high affinity customers -- that's part of the specific strategy that I was just referring to in the last question, that Linda and the team is really doubling down on now and starting to think about.

So, the point at which we think that that customer base will stabilize and will start to grow, we'll be back to you in the coming few months. I will say that, as we've said in the last couple of calls, one of the things to continue to watch is also revenue per customer and orders per customer, as those numbers will actually start to turn positive, as they have in the last couple of quarters, before the actual customer count starts to turn positive. So, we're at least encouraged that that's happening already and we are starting to see an improvement in both of those metrics.

Linda Findley Kozlowski -- President & Chief Executive Officer

Yeah, I just want to echo what Tim said on that. I think what we are seeing already is increased acquisition efficiency and better quality customers coming in, and I'm really impressed with how that's impacting some of those early metrics that really indicate the potential for growth and the foundation for building a strong, new strategy based on what we've been looking at.

On the Jet front, Jet's been a great partner for us. And we're actually a really great performer on their site, so that's been extremely positive. We're really pleased with the performance to date. We've had a rotation of about six meals kits and four Knick Knacks. Where we're actually looking to expand now is, in a few weeks we're going to be opening a Blue Apron shop that actually gives a more holistic view of all the offerings available through same-day and next-day across New York City. So, that's our next step to drive a little bit more of a branded experience, where people can see a much more complete view of what's available.

So, for us this is really an important part about thinking about how we align our brand and culinary offerings with strategic partners. And it's part of our methodical channel expansion strategy that we can continue to build on and learn as we develop and think about broadening that in the future.

Shweta Khajuria -- RBC Capital Markets LLC -- Analyst

Thank you.

Operator

Again, ladies and gentlemen, if you would like to ask a question, please press * and then 1. The next question will come from Michael Graham of Canaccord. Please go ahead.

Michael Graham -- Canaccord Genuity Group, Inc. -- Analyst

Thank you. Just on the idea of a core customer, could you just maybe talk about how you define that internally? Is it tenure? Is it frequency? Or some other measure? Can you just, at a high level, talk about, of the 550,000 that you have right now, roughly how many of those you would consider to be core?

Linda Findley Kozlowski -- President & Chief Executive Officer

Sure. So, first I'll get into a little bit about what the best customer looks like. And we've actually done quite a bit of qualitative and quantitative research on this, so it's really, really well defined. And it is a combination of demographics, cyclographic, and a lot of different areas. But a lot of it is based on their actual behavior within the Blue Apron products and site. So, that's particularly exciting for us because it's based on how they really engage with us.

When we think about some of the habits, and preferences, and other things that they align to, what we've done is we've been able to break them into a group of what we consider to be our highest quality customers, which represents about 30% of our customer base. And then, from there, we can start to look at cyclographic profiles that will help us target more easily, understand the other properties that they're actually participating in, and really much more cleanly identify how we can actually look at those particular segments and bring them in, as well as retain them and engage them for the longer term.

So, again, we're already seeing evidence that this is paying off in efficiency of acquisition, and also quality of customers. But it is about 30% of our base, and we are seeing significant improvement in demographics and cyclographic.

Tim Bensley -- Chief Financial Officer

Yeah, and just one thing, to go back to our last call -- or actually, two calls ago, we went through this in some -- quite a bit of detail. 30% of our newly acquired customers in every cohort tend to have the -- have the tendencies of our best customers. Of course, once people are retained in the previous cohorts -- 2018 and before -- a much higher percentage of our retained base than 30% is in that category of customer. So, I think we were -- had a couple questions on this last time. I want to be clear that you shouldn't expect that 70% of our current customers are not good, high affinity customers that we would be shedding over time.

Linda Findley Kozlowski -- President & Chief Executive Officer

[Crosstalk] Correct.

Tim Bensley -- Chief Financial Officer

Something more like very, very high percentage -- 80-90% plus -- of our current customers are in that high affinity. But each year, each cohort coming in, about 30% of those customers have been what we would consider to be acting like those best customers. Now, this year already, in 2019, we're really excited about the new cohort that we brought in on this more focused marketing spend, that both -- that the quality of those customers has actually been higher than in previous cohorts. So, we're very encouraged by that. And I think that's one of the reasons why the mix of best customers has picked up. You see, obviously, the increase in those core customer metrics of revenue per customer and orders per customer -- and even sequential quarter-over-quarter improvement in absolute orders from Q4 to Q1.

Michael Graham -- Canaccord Genuity Group, Inc. -- Analyst

Okay. That's helpful. Thank you. And then, just a quick follow-up. When you think about your value proposition to those customers, how -- can you just talk about the spectrum of convenience versus culinary experience? Do you feel like the company's product message has had that right in the past? Do you feel like you need to think that through a little bit differently going forward? Just maybe talk about the importance of convenience.

Linda Findley Kozlowski -- President & Chief Executive Officer

Yeah, so we do know that our customers choose us because they care about high quality, premium ingredients. And then, culinary driven recipes are another big aspect, as well as learning new cooking skills. So, that's really -- whether you're a new cook or whether you're an existing cook, you can learn something new and you can expand. And they also really like the unique ingredients that we offer in our boxes, where we are able to expand their horizons on things they may not have cooked before.

And then, the other thing that they cite that's really important is the ability to cook and share with family and loved ones at home. So, that's something that's really important to them. Convenience is certainly a part of what they're looking for with us, but it's on that base of the culinary authority and the experience, that they look at it on top of that.

Michael Graham -- Canaccord Genuity Group, Inc. -- Analyst

Okay. Thank you.

Operator

Ladies and gentlemen, this will conclude our question-and-answer session. As we approach the conclusion of our call, I will now turn it back over to Ms. Kozlowski.

Linda Findley Kozlowski -- President & Chief Executive Officer

Thank you very much, and thank you, everybody, for your time today. We're looking forward to updating you on strategies in our future dialogue. Have a good day.

...

Operator

The conference has now concluded. Thank you all for attending today's presentation. You may now disconnect your lines.

Duration: 37 minutes

Call participants:

Louise Ward -- Senior Vice President, Corporate Affairs & Communications

Linda Findley Kozlowski -- President & Chief Executive Officer

Tim Bensley -- Chief Financial Officer

Michael Graham -- Canaccord Genuity Group, Inc. -- Analyst

Matthew DiFrisco -- Guggenheim Securities, LLC -- Analyst

Shweta Khajuria -- RBC Capital Markets LLC -- Analyst

Youssef Squali -- SunTrust Robinson Humphrey -- Analyst

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