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Why Is SmileDirectClub (SDC) Down 5.1% Since Last Earnings Report?

A month has gone by since the last earnings report for SmileDirectClub (SDC). Shares have lost about 5.1% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is SmileDirectClub due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

SmileDirectClub Q2 Earnings Lag Estimates, View Cut

SmileDirectClub reported a loss of 17 cents for second-quarter 2022, wider than the year-ago loss as well as the Zacks Consensus Estimate of a loss of 14 cents.

Revenues

Revenues in the second quarter totaled $116.8 million, missing the Zacks Consensus Estimate by 19.4%. The top line also declined 28.2% from the year-ago number. The company shipped roughly 62,705 unique aligner orders, down 17.8% sequentially. The quarter’s average aligner gross sales price (ASP) came in at $1,917, up 1.4% on a sequential basis.

Net revenues (related to retainers, whitening, and other ancillary products) came in at $116.8 million, down 28.2% from the year-ago quarter. Financing revenues (interest associated with SmilePay program) in the reported quarter were $8.9 million, down 22.4% from the year-ago quarter.

Margins

Gross profit in the reported quarter was $125.8 million, down 27.8% from the prior-year quarter. The gross margin of 72.9% contracted 76 basis points (bps).

Meanwhile, marketing and selling expenses contracted 25.7% to $71.2 million. General and administrative expenses were $72.3 million, 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.

Financial Updates

SmileDirectClub exited the second quarter of 2022 with cash and cash equivalents of $158.3 million compared with $144.7 million at the end of the first quarter of 2022. Total debt (short and long-term) at the end of the second quarter of 2022 was $792.2 million compared with $739.6 million at the end of the first quarter of 2022.

Cumulative net cash flow used in operating activities at the end of the second quarter of 2022 was $79.1 million compared with $59.4 million in the year-ago period.

Guidance

Burdened by the ongoing unfavorable consumer spending and inflationary issues, SmileDirectClub has reduced its guidance for 2022.

The company now expects total revenues in the range of $450 million to $500 million (from the earlier band of $600 million to $650 million). The Zacks Consensus Estimate for the same is pegged at $610.9 million.

Gross margin (as a percentage of total revenues) is expected in the range of 69.5% to 71.5% (72.5-75.0% guided earlier) for full-year 2022.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

The consensus estimate has shifted -100% due to these changes.

VGM Scores

Currently, SmileDirectClub has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise SmileDirectClub has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.

Performance of an Industry Player

SmileDirectClub belongs to the Zacks Medical - Dental Supplies industry. Another stock from the same industry, AmerisourceBergen (ABC), has gained 0.9% over the past month. More than a month has passed since the company reported results for the quarter ended June 2022.

AmerisourceBergen reported revenues of $60.06 billion in the last reported quarter, representing a year-over-year change of +12.5%. EPS of $2.62 for the same period compares with $2.16 a year ago.

For the current quarter, AmerisourceBergen is expected to post earnings of $2.58 per share, indicating a change of +8% from the year-ago quarter. The Zacks Consensus Estimate has changed +0.6% over the last 30 days.

AmerisourceBergen has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of A.


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