What happened
Shares of SmileDirectClub (SDC 23.08%) surged higher on Tuesday, soaring as much as 25.1%. As of 2:50 p.m. ET, the stock was still up 24.6%.
The catalyst that drove the oral healthcare company higher was a strategic shift to cut costs and focus on its most profitable markets.
So what
SmileDirectClub announced that it was taking a number of "strategic actions" to position the company for future growth while improving its business performance. The steps will include job cuts and the exit of certain international markets.
Image source: Getty Images.
After an extensive evaluation of the company's business opportunities, management has decided to suspend operations in a number of foreign markets. These include Mexico, Spain, Germany, Netherlands, Austria, Hong Kong, Singapore, and New Zealand. In conjunction with this move, SmileDirectClub plans to pause entry into any additional international markets while the global economy recovers from the impact of the pandemic. That way, the company is "allocating capital to countries with the greatest potential for near-term profitability."
SmileDirectClub also plans to reduce the size of its workforce, though the company was mum about how many jobs would be cut.
This will result in one-time reorganization costs of roughly $25 million, including lease buyouts, severance payments, and organizational changes. About $3 million of these expenses will be booked in the fourth quarter of 2021, while the remainder will be incurred in 2022. Management expects these changes to reduce costs by roughly $120 million in 2022.
Now what
The pandemic has been a drag on SmileDirectClub's business, as revenue slumped 12% year over year in 2020. There has been a marked improvement during the first nine months of 2021, with revenue up 8.3% compared to the year-ago period. However, the emergence of the omicron variant has once again pressured its performance as revenue slumped 18% in the third quarter.
Investors cheered as SmileDirectClub took steps to turn the tide while also reaffirming its previously issued guidance for full-year 2021 revenue in a range of $630 million to $650 million. This follows a well-received marketing campaign the company unveiled earlier this month.
