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Blue Apron Q1 Earnings Have Low Expectations

Rich Duprey, The Motley Fool

Blue Apron (NYSE: APRN) will have a new CEO presiding over the meal-kit maker's first-quarter earnings conference call with analysts on Tuesday, April 30, but it's likely she won't be able to deliver any better news than her predecessor did.

Sales are likely to be down, customers will undoubtedly be fewer, and the outlook for the company still bleak as the meal-kit industry Blue Apron helped popularize continues metamorphosing. Let's take a look at what investors face going into the first quarter.

Meal-order page on tablet computer

Image source: Getty Images.

Stuck with a small base

The problems confronting Blue Apron and its new CEO, Linda Kozlowski, are legion and well known. Although the concept of having ready-to-cook, pre-portioned meals and condiments delivered to the door sounds appetizing, the reality is it's a highly inefficient business model with high-priced meals, high customer acquisition costs, and low customer retention rates. Blue Apron's results since its 2017 IPO have epitomized those flaws.

Last quarter, the number of customers it served plunged 25% to 577,000, although average order value and revenue per customer rose year over year. That was actually by design, as former CEO Brad Dickerson set out to cater to the company's best customers and ignore just about everyone else.

The problem is it's an admission that Blue Apron can't grow, so it needs to be content with being a much smaller company that delivers an excellent product to the customers it does have. While that's great as a business plan, it's a lousy idea as an investment, and Blue Apron's stock has lost 50% of its value during the past year. And the fact that it's trading at $1 per share right now shows it was no high-flyer this time last year.

The other problem Blue Apron faces is that competition is plentiful, from rivals like Hello Fresh to supermarkets including Walmart (NYSE: WMT), Kroger, and Albertsons, each of which offer their own meal kits or have bought meal-kit companies to stock its shelves. That has helped commoditize the product, making it relatively very cheap in comparison with Blue Apron's offerings. Also, it allows consumers to buy a meal kit on a whim rather than being locked into a set meal a week ahead of time.

But possibly profitable

One benefit Blue Apron has realized from greatly narrowing its focus was its ability to greatly reduce its net loss to just $15.4 million $39.1 million a year ago, while adjusted earnings before interest, taxes, depreciation, and amortization improved $12 million year over year from a loss of $19.7 million to a loss of $7.8 million, a 60% improvement. That enabled Dickerson to reiterate his belief that Blue Apron would be able to post an adjusted EBITDA profit for both the first quarter of 2019 and the full year.

To achieve that profitability, the meal-kit company has been on a cost-cutting binge, including reducing marketing costs by 20%, optimizing its cost structure, and transferring much of its production from its Texas facility to its new one in New Jersey.

Getting an operation in transition as lean as possible is one thing, but getting it growing again is quite another, and while Kozlowski won't have made an impact on first-quarter results, investors may get an opportunity to hear during the conference call whether her vision for the company is different than what Dickerson imagined.

How it grows from here

Expanding its customer base is essential if it wants to grow, something that only focusing on your best customers can't do. It's hoped Kozlowski will be able to provide meaningful updates on the partnerships Blue Apron entered into with Weight Watchers (NASDAQ: WTW) and Walmart's Jet.com site.

While investors shouldn't get their hopes up that the arrangements will have brought in many new customers, it would be beneficial for confidence in the company's way forward if they can flesh out with actual numbers how many new customers its partners brought in. Last quarter, investors were simply treated to airy statements of "higher than expected" demand from WW, though admittedly it was still only a month or so after the deal was signed.

WW has its own meal kits, and all the problems Blue Apron faces with the general public applies to WW members as well, regardless of whether the meal kits fit in with WW's weight-loss plans.

A strong quarter with a brighter outlook based on real numbers, not on hope for change, could turn the story of Blue Apron around, but investors will protect themselves from disappointment if they go into the earnings report without high expectations.

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Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.