3 Things to Watch for When Blue Apron Releases Its Earnings Report

Blue apron (NYSE:APRN) will report its fourth-quarter results on Thursday, January 31, and investors are expecting positive results. The company announced that it will reach profitability on an adjusted EBITDA basis in the first quarter, so the company should show some positive trends in that direction in its report.

But there are many things to watch beyond the adjusted EBITDA number that the company wants investors to focus on. Investors will want to read the earnings report and listen to the conference call to learn more about the following three things.

Image source: Blue Apron.

Improving average revenue per customer

If there’s one metric customers should focus on now, it’s not EBITDA but revenue per customer. “The first metric of success here is that we grow revenue before we grow customers,” CEO Brad Dickerson told an investor conference last month.

Blue Apron’s new strategic initiative aims to focus on attracting valuable customers. It focuses its marketing on the most effective channels and reduces the number of new customers. Blue Apron finally realizes that its product is not for everyone, but it may have a valuable niche audience.

If the strategy works, it will shorten the payback period—the time it takes a company to recoup the costs of acquiring customers. Investors should look for commentary during the conference call.

So far, that strategy hasn’t worked out too well. Average revenue per customer fell 4.9% in the third quarter. Meanwhile, management noted that “the payback period for new customers is getting longer, primarily due to the rising cost of acquiring a customer” on the company’s third-quarter earnings call.

Strategic Relationship Updates

Blue Apron recently entered into several strategic partnerships. It started with Costco in the first half of 2018, but the warehouse chain stopped stocking its shelves with Blue Apron meal kits last November. Dickerson said the company intends to resume its partnership with Costco this year, but has no specific plans.

In the meantime, Blue Apron has entered into a supply partnership with Grubhub AND WalmartJet.com. These partnerships are an important part of Blue Apron’s on-demand strategy. Ultimately, Blue Apron wants to convert customers who don’t fit its subscription model to on-demand delivery. Look for executive commentary on adoption and potential expansion of pilots with each partner.

Recently, a company offering meal prep kits entered into a partnership with WW to develop recipes for those using WW’s Freestyle program. Management said that “to date, demand has been higher than expected.” Further comment is expected during the earnings call.

Earlier this month, Blue Apron announced a “new offering specifically designed for online and brick-and-mortar retail.” That sounds like it’s developing new partnership opportunities, so keep an eye out for any new partnership announcements during earnings.

Interest and amortization

Management focuses on adjusted EBITDA, but that does not mean that interest, taxes and depreciation are not real costs.

Depreciation increased 40% in the first nine months of 2018. This was largely due to the start-up of Blue Apron’s Linden, New Jersey, facility in mid-2017. Depreciation actually decreased by about 2.5% in the third quarter year over year.

Unlike other operating expenses, depreciation costs will be difficult to reduce because Blue Apron brought new equipment into service before changing its strategy to focus on the highest-value customers. That will be a drag as its revenue base continues to shrink.

Interest is another important factor to watch. The company decided to refinance its credit line, extending its final maturity by a year and a half to February 2021. It paid down about a third of its debt, but its interest rate rose 2 percentage points as a result of the extension. Interest costs rose in the third quarter, something investors should keep an eye on in the upcoming earnings report.

Investors drove up the stock price after management said it expects to turn a profit in 2019. That means there’s little room for error in the reporting. Pay close attention to see if the company is actually headed in the right direction.

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Adam Levy has no position in any stocks mentioned. The Motley Fool recommends Costco Wholesale. The Motley Fool has a disclosure policy.