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SmileDirectClub (SDC) Faces Low Aligner Shipment, Margin Woe

SmileDirectClub’s SDC ongoing operating loss, leveraged balance sheet and tough competitive landscape remain overhangs. The stock currently carries a Zacks Rank #4 (Sell).

Over the past year, shares of SmileDirectClub have underperformed the broader industry. The stock has declined 80.1% compared with the industry’s 14.8% fall. SmileDirectClub exited the second quarter of 2022 with lower-than-expected earnings. The company registered a year-over-year decline in revenues in the quarter due to lower unique aligner shipments. The company also witnessed a drop in both net and financing revenues on a year-over-year basis.

Throughout the second quarter, the macroeconomic challenges continued to impact SmileDirectClub’s core demographic and business spending. According to the company, challenges to consumer spending accelerated faster than anticipated during the quarter. These, combined with reduced stimulus, sustained high inflation and a shift in discretionary spending toward services, will result in less predictable demand curves and lower overall expected demand in the balance of the year. Accordingly, SmileDirectClub reduced its 2022 guidance.

The contraction of gross margin does not bode well. Escalating operating costs are building pressure on the bottom line. SmileDirectClub’s second-quarter marketing and selling expenses contracted 25.7%. General and administrative expenses were down 14.9% year over year. The company incurred an adjusted operating loss of $51.8 million in the quarter, marginally narrower than the year-ago adjusted operating loss of $52.7 million.

SmileDirectClub, Inc. Price

SmileDirectClub, Inc. Price
SmileDirectClub, Inc. Price

SmileDirectClub, Inc. price | SmileDirectClub, Inc. Quote

A huge debt balance, as well as a tough competitive landscape remains an overhang.

On a positive note, SmileDirectClub’s second-quarter average aligner gross sales price (ASP) was 1917, an increase of $27 over the first quarter. This was primarily driven by a price increase implemented in the United States in May and in the United Kingdom in late June. According to the company, additional geographies are targeted for increases during the second half of 2022.

Implicit price concessions as a percentage of gross aligner revenues are expected to trend back toward the company’s historical levels between 9% and 10%. Meanwhile, SmileDirectClub plans to hold its Investor Day its manufacturing facility in Nashville at the end of the year or the first quarter of 2023.

SmileDirectClub is currently focused on developing products to further differentiate its offerings in the oral care industry. In May 2022, the company announced the expansion of its best-in-class oral care product offerings with its new Wireless Premium Teeth Whitening Kit. In February 2022, it expanded its award-winning oral care product offerings with the new Stain Barrier. The latest whitening innovation from SmileDirectClub, Stain Barrier, protects teeth with an invisible shield against common staining beverages, including coffee, tea, red wine and soda.

Key Picks

A few better-ranked stocks in the broader medical space that investors can consider are AMN Healthcare Services, Inc. AMN, ShockWave Medical, Inc. SWAV and McKesson Corporation MCK.

AMN Healthcare has a long-term earnings growth rate of 3.2%. The company surpassed earnings estimates in the trailing four quarters, delivering a surprise of 15.7%, on average. It currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AMN Healthcare has outperformed its industry in the past year. AMN has lost 12.8% against the industry’s 38.3% fall.

ShockWave Medical, sporting a Zacks Rank #1 at present, has an estimated growth rate of 33.1% for 2023. The company’s earnings surpassed estimates in all the trailing four quarters, the average beat being 180.1%.

ShockWave Medical has outperformed its industry in the past year. SWAV has gained 31.1% against the industry’s 32.6% fall.

McKesson has an estimated long-term growth rate of 9.9%. The company surpassed earnings estimates in the trailing three quarters and missed in one, delivering a surprise of 13%, on average. It currently carries a Zacks Rank #2 (Buy).

McKesson has outperformed its industry in the past year. MCK has gained 76% against the industry’s 14.5% fall.


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