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Blue Apron Earnings: What to Watch

By Adam Levy - May 2, 2018 at 10:41AM

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Blue Apron continues to transition from its terrible 2017.

Brad Dickerson had a good start as Blue Apron's (APRN 5.60%) new CEO. The meal-kit delivery company generated more revenue and lost less per share in the last three months of the year than analysts were anticipating heading into the company's fourth-quarter earnings results.

Blue Apron will report its first-quarter earnings before the market opens on Thursday. Dickerson is hoping to keep up his momentum, and analysts are expecting $197.25 million in revenue and per-share loss of $0.24 on average.

But investors will want to dig deeper than just the headline numbers when Blue Apron releases its results. The company is in the middle of a major business transition. Not only did it install a new CEO last fall, it's working to win back customers after the transition to its new fulfillment center caused it to start losing customers and pull back on marketing. Here's what to watch when Blue Apron reports its first-quarter results to ensure that transition is on track.

A box of ingredients from Blue Apron.

Image source: Blue Apron.


Blue Apron lost 110,000 net customers in the fourth quarter as it continued to work through its difficulties at its new fulfillment center in Linden, New Jersey. Management says those problems are now behind it.

As such, investors should expect customers to increase in the first quarter, especially considering the marketing push the company made starting in December.

There are two sides to the customer growth story, though.

The first side is customer retention. Blue Apron doesn't provide details on customer retention, but improving the OTIF delivery rate (OTIF stands for "on-time, in-full") will certainly help. OTIF is a metric Blue Apron made up to describe deliveries that reach their destination on time with the correct ingredients. As you can imagine, a customer that receives an order late or who's missing ingredients is not a happy customer, and they're more likely to cancel. Investors should look for commentary on OTIF rates to determine that the company is moving in the right direction.

The second side is attracting new customers. Blue Apron is spending more on marketing again, which should help. It's also partnering with brands such as Whole30 and Airbnb to promote special recipes and attract a different set of customers. Investors should look for commentary on those partnerships and plans to create new ones.

Cost of goods sold

Blue Apron's cost of goods sold skyrocketed last year as it tried to transition to the Linden center. The fourth quarter saw some significant improvement from the third quarter, with cost of goods sold as a percentage of revenue declining 800 basis points. Still, the number came in at 70.1%, up 190 basis points from the year-ago period.

Investors should look for that number to continue improving as management takes steps to reduce food waste and improve the labor efficiency at the Linden plant. Improved efficiency could result from increased automation and increasing customer orders. If Blue Apron is unable to add a significant number of new customers, cost of goods sold could suffer.

For reference, Blue Apron's cost of goods sold as a percentage of revenue in the first quarter last year was 68.8%. Management guided for 67% to 68% cost of goods sold for the full year 2018.


As mentioned, Blue Apron is starting to ramp up marketing again. The company expects a lot of that marketing spend front-loaded in the seasonally strong first quarter.

Investors should keep an eye on that marketing expense, as it was a big concern for Blue Apron heading into its IPO. The pullback on marketing last year shifted the focus from marketing efficiency to fulfillment and customer retention, but now that it's ramping back up, investors should see how well that marketing spend is driving growth in customers and revenue.

Dickerson did warn investors that he expects relatively poor marketing efficiency in the first quarter, as the company has lost a lot of momentum in the market. Blue Apron now faces a lot more competition than it did just a year or so ago as big-name grocers have entered the market (some through acquisition of Blue Apron's competitors) and have lots of cash to spend on marketing.

Investors should watch for what percentage of revenue goes toward marketing expenses. Blue Apron spent a whopping 24.8% of revenue on marketing in the first quarter last year. Investors could very well see Blue Apron spend an even higher percentage in the first quarter if Dickerson's warning is accurate.

Blue Apron is still trying to turn things around. Dickerson believes it could break even in the fourth quarter, but the first quarter will see the company lose a considerable amount of money. Dickerson said he expects an adjusted EBITDA loss around the same level as the company saw in the first quarter last year, which was $46 million. The quarter was definitely another one of transition, but investors should keep an eye on the key metrics mentioned above to see that things are moving in the right direction.

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