BARK: May Surprise To The Upside On Execution Of Strategy (NYSE:BARK)

While BARK, Inc. (NYSE:BARK), a company, provides products, services, and content for dogs, has a long way to go to achieve profitability, it is taking steps that could lead to that goal if it can execute on its strategy.

One thing that I believe the company is doing right is to prioritize generating positive cash flow while becoming EBITDA positive, and after that look to growing revenue. Management was quick to state they are not only the company’s priorities, but they are prioritized in the order listed above.

To that end the company has started to focus on building up a larger base of premium customers which should provide higher margin and more consistent revenue.

With so many companies falling to the wayside because of the philosophy and practice of growth at any cost, it’s good to see BARK giving itself a chance to succeed by being disciplined in its approach, assuming it successfully practices what it preaches.

In this article we’ll look at some of the latest numbers, the initiatives the company is taking to improve the bottom line, and the prospects for the company going forward.

Some of the numbers

Revenue in the second fiscal quarter of 2023 was $143.8 million, compared to $120 million in revenue in the second fiscal quarter of 2023. Revenue in the first six months of 2022 was $275 million, compared to revenue of $238 million in the first six months of 2022.

Cost of revenue in the second fiscal quarter was $63.47 million, while total operational expenses were $89.5 million, resulting in loss from operations of $9.15 million, compared to a loss from operations of $15.42 million in the second fiscal quarter of 2022.

Adjusted EBITDA in the second fiscal quarter was negative $(2.0) million, up from the company’s adjusted EBITDA of $(8.8) million in the second fiscal quarter of 2022. Adjusted EBITDA for the full-year fiscal 2023 is projected to be $(31.0) million, better than the company’s previous guidance of $(33.0) million.

Net loss in the second fiscal quarter was $(10.64) million, or $(0.06) per share, compared to a net income of $6.46 million, or $0.04 per share in the second fiscal quarter of 2022.

Cash and cash equivalents at the end of the second fiscal quarter was $166.3 million. The company held long-term debt of $76.5 million at the end of the quarter.

In the first half of fiscal 2023 the company had negative operating cash flows of approximately $(35) million.

New subscriptions

In the second fiscal quarter BARK added 218,000 new subscriptions, ending the reporting period with 2.2 million active subscriptions. The acquisition cost per customer was $53.19, close to what it has been historically, and the new customers are spending more across its product categories.

The average order per customer was $32.18, up $2.45 per customer year-over-year, and an increase of $1.11 sequentially.

This reflects the transition the company is making to enhance its customer base, and based upon the numbers, so far, it’s executing on the strategy.

Management said it’s executing better and faster on the plan than originally expected.

Focus on breeds

Under the umbrella of food and consumables, the company initially launched a new program targeting three breeds in August 2022. While early in the initiative, management said it’s “very happy with the early results.” Momentum has climbed from the very early stage of the format, and customers are engaged and converting at a higher rate than they were at the beginning, with the majority of the new customers deciding to subscribe for recurring shipments at a clip of approximately 70 percent.

With the promising results associated with the first three breeds the company decided to expand the breeds by seven more, bringing the total to 10.

Offering food products for dogs is different than selling treats or toys, and demands more outreach to the customer, including education, as consumers take more time to examine food products for their dogs than they do for toys and treats. Included in the products that are developed to be offered at different life stages of dogs, include “base kibbles, toppers, supplements and accessories tailored to the dietary needs and individuality of each of these breeds.”

With these first 10 breeds the company now serves near to 30 percent of its customer base, pointing to a lot of potential going forward if there is a low percentage of churn and new breeds attract new and sustainable customers.

This new segment appears to be the main driver behind the improvement in cost per order.

I look at this more as a long-term catalyst for the company if its customer base embraces it further and new customers sign on. Even so, with numbers better than I thought they would be at this stage, it’s possible it could significantly contribute to revenue and earnings sooner rather than later.

Conclusion

The products of BARK are now in over 40,000 retail stores in the U.S., including its newest partner Sam’s Club and its 600 retail outlets around the country.

With cash and cash equivalents at the end of the second fiscal quarter of $166.3 million, the company does have some time to implement and execute on its business model, but the negative operating cash flow of approximately $(35) million in the last quarter means it can rapidly burn through that cash. It had a nice second fiscal quarter in regard to adding subscriptions, and if it can maintain a healthy growth rate there, it could accelerate BARK’s path to profitability.

Adding to that its strategy of transitioning to a customer base that has more disposable income has already proven to increase revenue per order, while increasing the number of subscriptions.

With that and the recent focus on developing products customized to different breeds, it has the potential to improve the bottom line as it prioritizes earnings overgrowth at any costs.

As for its share price, it hit a triple bottom of about $1.25 from June 30, 2022, to July 26, 2022, and has since bounced off that to trade at $1.93 as I write.

The company will probably be exposed to wide swings in its share price until it proves it can remove costs out of its business while incrementally growing revenue in the near term.

Further out, if it proves it can execute its business model at a profit, it can then focus on accelerating revenue while leveraging its success.

While I like the visibility of what the company is doing, and believe it has a chance at success, there is still a lot to prove, and if it can effectively and successfully execute on its strategy, it could generate some significant returns for shareholders.

For now, I would wait for at least a quarter or two to see how some of its new initiatives are taking place, and how they are having an impact on the bottom line of the company.