SmileDirectClub (SDC) is betting that Walmart could help bring smiles to its investors after a mixed reception to a late 2019 initial public offering.
The oral care company — known for its clear plastic teeth aligners — announced Monday it has inked an exclusive deal with Walmart (WMT) to debut a host of consumer products across its 3,800-plus U.S. stores and the retailer’s website. Initial products include an electric toothbrush, a teeth whitening system with an LED light, whitening toothpaste, a water flosser and an ultrasonic UV cleaner that sanitizes toothbrush heads, aligners, retainers and dentures.
“This has been a long time coming, we have worked on these products for over a year,” SmileDirectClub chief financial officer Kyle Wailes told Yahoo Finance. The products represent SmileDirectClub’s initial foray into consumer products — up until now, the company has primarily sold tooth aligners and a whitening agent.
SmileDirectClub’s well-known — yet controversial — teeth aligners interestingly are not on the product list. The company has entered into five-year non-exclusive agreements with both CVS Pharmacy (CVS) and Walgreen (WBA) to open up to 1,500 total shops in stores to hawk aligners. So it’s not as if SmileDirectClub is precluded from opening shops inside of Walmart.
It’s likely Walmart wants to see how SmileDirectClub’s products —which could be viewed as discretionary — perform with its lower-income consumers before devoting space to shops.
Wailes says the company is “looking at” piloting shops at some of Walmart’s Canadian locations. He didn’t rule out shops opening inside Walmart U.S. locations.
Nonetheless, it’s a nice win for the upstart SmileDirectClub for several reasons.
First, it gets the company instant name recognition inside the walls of the world’s largest retailer where many customers might be unfamiliar with the brand. Second, the product lines are affordable, and could move in good volume — therefore benefiting SmileDirectClub’s bottom line this year.
“We are excited about what this [Walmart deal] could mean financially,” Wailes said, adding the company hasn’t decided yet on whether to factor the deal into its initial 2020 outlook.
And lastly, if successful the products could lead to a deal for SmileDirectClub’s teeth retainer installation shops inside Walmart stores. Walmart has prioritized expanded, affordable healthcare services at the front of its stores the past year, and SmileDirectClub shops would fit that bill.
SmileDirectClub could use an early win in 2020 such as this one.
Shares of SmileDirectClub currently trade at $8.32, down sharply from its IPO price of $23 in September.
Indeed, the company did its part in November with its first earnings report as a public company to halt the stock price selloff. Third-quarter earnings came in ahead of Wall Street estimates. Sales soared. The full-year sales outlook was set above analyst forecasts. And the company’s earnings call all but said SmileDirectClub isn’t too far removed from profitability.
But investors still locked in on the company’s lack of profits as a source of concern.
The stock has also been pressured by a bill signed into law in California in October. The bill, AB 1519, requires a dentist providing orthodontics – traditionally or via telehealth — to review a patient’s latest X-rays. Investors viewed the bill as a giveaway to the well-entrenched dental industry who see SmileDirectClub and others like it as a financial threat. For SmileDirectClub, the law essentially makes it tougher to drive business in an important market — and may be seen as a stepping stone to similar legislation in other states.