Kidpik Corp. (NASDAQ:PIK) Q4 2021 Earnings Conference Call March 31, 2022 4:30 PM ET
Company Participants
Ezra Dabah – Chairman, President and Chief Executive Officer
Adir Katzav – Executive Vice President and Chief Financial Officer
Moshe Dabah – Vice President, Chief Operating Officer, Chief Technology Officer and Secretary
Conference Call Participants
Eddie Reilly – EF Hutton
Susan Anderson – B. Riley
Operator
Ladies and gentlemen, thank you for standing by and welcome to Kidpik Corp full year and fourth quarter 2021 earnings conference call. Today’s call will be conducted by the company’s Chief Executive Officer Ezra Dabah, and it’s Chief Financial Officer Adir Katzav.
Before I turn the call over to Mr. Ezra Dabah, I’d like to remind you that statements made in this conference call concerning future revenues, results from operations, financial position, markets, economic conditions, growth objectives, product releases, partnerships and any other statements that may be construed as a prediction of future performance or events are forward-looking statements, which may involve known and unknown risks and uncertainties, and other factors, which may cause actual results to differ materially from those expressed or implied by such statements.
Non-GAAP results will be also discussed will also, excuse me – will also be discussed on the call. The company believes the presentation of non-GAAP information provides useful supplementary data concerning the company’s ongoing operations and is provided for informational purposes only. With that said, I’d like to turn the call over to Ezra Dabah to begin.
Ezra Dabah
Thank you operator. We are happy to welcome everyone to our second conference call as a public company. We’re going to start with a review of our financial and business highlights followed by a financial review, which our CFO will take us through. And we will then open the call to Q&A. Moshe Dabah, my son who is our Chief Technology Officer and Chief Operating Officer is also available for any questions you may have. I will start by commenting on top line margins and some of our KPIs, both in terms of what we stand and some of the drivers and trends we are seeing.
First, Q4 revenue of 5.3 million brought our annual revenue to $21.8 million, which represents nearly a $6 million increase or 29% increase versus the prior year. The drivers of that growth were largely unchanged from what we discussed last quarter, namely is sales from the boys and toddler product lines and from our fashionable and established girls subscription box. Also for the year, sales of our online eCommerce shop, although small increased by 75% to $785,000.
The fourth quarter ended up being challenging. As discussed in our Q3 call. The revenue reduction was mainly due to changes in data access and unavailability across social media advertising platforms, which impacted new customer acquisitions. We believe this challenge will remain in place in the near future. We are working to overcome this market-wide change. We are intensifying our focus on existing channels, such as Google search, our newly expended ambassador program, TikTok, Pinterest and Snapchat.
In addition, we aim to build upon our existing brand partnerships and introduced new collaborations similar to our partnership with Disney that we announced earlier this month, which will enable us to gain brand awareness amongst new customer databases that contain our target audiences. The team is also in process of adding new customer acquisition channels. We are initiating a paid influencer campaign strategy where we will enlist key influencers in the fashion and parenting space to share their experience with Kidpik with their many followers.
We are pursuing YouTube and Connected TV as advertising channels to communicate our convenient-free personalized styling service to new audiences. And for the first time we are planning to roll out targeted in-home direct mail for this upcoming summer season. It’s important to note that the fundamentals of our business are strong and the future of our industry is projected to strengthen. We have an executive management team that has built a time-tested and great brand in the children’s wear industry.
Our combined knowledge of in-house merchandising, sourcing, and branding, coupled with the immense technology we have built with data-driven analytics gives us a unique position within the kids subscription marketplace and enable us to deliver great product and value to a price sensitive children’s wear consumer. This bodes well for our company as we play in the subscription market known to be one of the fastest growing industries.
The service we provide is reviewed by our members and I quote all around great, amazing subscription Kidpik knows my kid, obsessed and in general, lots of love and thanks. We have over 15,000 five star reviews with more happy reviews coming in daily. We are excited to be fulfilling our mission of changing the way parents shop by delivering personally-styled high quality assets that make kids look great and inspire confidence.
Lastly, we have built our own Kidpik fashion brand, which gives us the opportunity to expand beyond subscription by selling our brand through other eCommerce platforms and retail channels. At this time, we are focused on growing our own website eCommerce sales on shop.kidpik.com, which we invite you all to experience and where we see great growth opportunities.
So the key takeaways are, we have a strong potential – that we have strong potential for growth and believe we will overcome the current challenge and reaccelerate the pace of new acquisitions. We are confident that the team, the product and the underlying business value proposition that we have at Kidpik will able us to scale and reach our growth objectives. Our products and services are appealing to parents who value more quality family time, having an expert stylist for their child, getting outfits that make the children look great and feel confident and the fun unboxing experience and discovery we provide.
Last but not least, as a subsequent event to the quarters’ end. We announced that Bart Sichel joined our Board of Directors as an Independent Board Member. Bart is known for his marketing expertise. Having spent 13 years at McKinsey & Co., and almost a decade as Chief Marketing Officer at Burlington Stores. We are excited to have Bart joined Kidpik and believe he brings great marketing experience, resources, and value to our company. Welcome Bart.
With that, I’ll turn over the call to Adir. Adir?
Adir Katzav
Thank you, Ezra. As Ezra mentioned, Q4 revenue was $5.3 million a decrease of 10% year-over-year. The decrease in revenue during the fourth quarter was mainly because a reduction in new customer acquisition in the fourth quarter of 2021 due to changes in data access, unavailability across social media advertising platforms. The revenue for the year 2021 increased by 29% to $21.8 million compared to $16.9 million last year.
The increase in revenue for the year was a result of higher sales in each of our product lines. Girls collections, boys collections, which we launched in June, 2020 and toddler collections, which we launch in March, 2021.
Looking at full year revenue by channel, subscription sales increased by 23% to $18.4 million. Amazon sales increased by 70% to $2.6 million. Online website sales increased by 75% to 785,000.
During the full year revenue by product line, girls’ apparel increased by 10% to $16.7 million, boys apparels increased by 140% to $4.4 million. Total revenue was 819,000 versus zero last year.
Looking at Q4 revenue by channel, subscription sales were $4.3 million a decrease of 18% year-over-year. Amazon sales increased by 51% to 729,000. Online website sales increased by 87% to 279,000.
Turning to Q4 revenue by product line. Girls’ apparel decreased by 15% to 4 million, boys’ apparel decreased by 9% to 1 million. Total revenue was 244,000 versus zero last year.
Moving to full year revenue by subscription. Active subscription or recurring boxes increased by 36.9% to $15.6 million. New subscriptions for first box decreased by 19.8% to $2.9 million.
Total subscriptions increased by 23.3% to $18.4 million that represents 84% of total revenue.
Turning to gross margin. Gross margin for the quarter was 58.7%, an increase of 120 basis points compared to 57.5% in the fourth quarter of 2020. For the year, gross margin was 59.5%, an increase of 110 basis points compared to 58.4% last year. Shipped items for the fourth quarter decreased by 19% to 477,000 compared to 589,000 last year.
Full year shipped items were approximately $2.2 million, compared to $1.7 million last year, an increase of 24.9%. Keep rate for the fourth quarter was 70.8% compared to 64.8% last year. Full year average keep rate was 69% compared to 66.1% last year. The keep rate for the full year and the quarter represents a record for the company.
On the bottom line, net loss for the quarter was approximately $1.9 million or a loss of $0.28 per share compared to $1.5 million – $1.3 million or a loss of $0.34 per share last year. The net loss for the year was approximately $5.9 million or a loss of $1.05 per share compared to approximately net loss of $4.2 million or a loss of $1.12 per share last year.
Speaking to non-GAAP adjusted EBITDA, for the quarter was $1.4 million compared to $1.1 million last year, primarily due to a 564,000 increase in net loss offset partially by 329,000 in equity best compensation expense recorded in the fourth quarter.
Now to balance sheet and cash flow. Cash at the end of the year was approximately $8.4 million compared to 133,000 at the end of 2020. We completed our IPO in November, 2021 issuing about 2.1 million shares at a public offering price of $80.50 per share resulting in aggregate gross proceed of $18 million and the net proceeds of approximately $16.1 million.
In November, 2021, after the IPO we paid off in full the $3.2 million, our line of credit. As of January 1, 2022, we add 22.2 million in total current assets, 7.4 million in total current liabilities and the working capital of 14.8 million.
With that, I will turn it back to the operator for Q&A. Operator?
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] Our first question comes from Eddie Reilly with EF Hutton. Please proceed with your question.
Eddie Reilly
Hey guys. I was wondering if you’d comment on the social media advertising environment today versus maybe in the fourth quarter. I’m wondering if Facebook is maybe done anything in order to make advertising more effective or is it roughly the same as few months ago.
Moshe Dabah
Hey, this is Moshe. I’ll take that.
Ezra Dabah
Go ahead.
Moshe Dabah
Hey, it’s a good question. It’s definitely been a struggle with Facebook being able to get the data in terms of the restrictions that iOS 14 has put in place. Facebook, I believe has been making some improvements and they’re everyday changing the algorithms, what they’re telling us to help us identify customers on a better basis.
Eddie Reilly
Okay. Got it. And on the keep rate congrats there. Is this more driven from existing customers or new customers? Could you unpack that a little bit for me, on what’s really driving the, the increase in keep rate?
Ezra Dabah
Moshe, do we have that answer is existing versus, so go ahead with you.
Moshe Dabah
Yes. So, for keep rate we saw improvement of keep it, on a quarterly basis. And that the keep rate is increasing, anywhere between a point or two points between quarter to quarter in the last year or so. So, it’s just showing the improvement of the platform. Our ability to get a merchandise that our customers want. So we are very happy, very pleased with the level of keep rate as we saw in the last quarter of 70.8% and for the year 69%.
Ezra Dabah
But Eddie, as the vast majority of our business is subscription, which is repetitive. So it’s definitely coming from both. And, but the vast majority is repetitive almost 80%.
Eddie Reilly
Okay, great. And then looks like Amazon sales have increased a lot. Could you give me some color on, on what you’re doing to drive growth in that channel?
Ezra Dabah
It was much more growth we have in that channel at this particular time, we are basically only selling I would say a couple of handful of basic items of ours. And so we see more growth in Amazon again, because we have a brand and because we could sell it through other platforms. We look forward in the future to basically be not just on Amazon, potentially be an on eBay or Walmart on Target stores and potentially in other platforms. So we do look, we do look forward to expand the platform that we sell the Kidpik product through.
Eddie Reilly
Got it. And finally last one for me, on shipping and handling but, what’s the term of the contracts you guys have?
Adir Katzav
Our contract is with FedEx, is somewhat evergreen. There is – there are some portions of the contract expiring in January of 2023. And those, those portions, I don’t know if we have any public information about that, but it does not have to do with our discounted rates. The part that’s expiring has to do with another part of the contract.
Eddie Reilly
I was wondering if you guys had any ability to potentially increase prices per box to maybe offset any, any increases in shipping prices.
Ezra Dabah
Yes, we have over the past couple of quarters actually, increased stock prices somewhat to, overcome some of the additional expenses for bringing the merchandise in from the far east. So no different than we have seen most other retailers do the same. So we’ve continued to do so and make sure that and high in use targets are met to the extent that we experience any additional costs.
Eddie Reilly
All right. Great. Thanks guys. Appreciate it.
Ezra Dabah
Thank you.
Adir Katzav
Thank you.
Operator
Our next question comes from Susan Anderson with B. Riley. Please proceed with your question.
Susan Anderson
Hi, good evening. I was curious, I may have missed this. I got on late, but did you guys say why the subscription box revenue was down in the quarter?
Adir Katzav
Mainly due to acquisitions being down, during the quarter new acquisitions.
Susan Anderson
Got it. Okay. Got it.
Adir Katzav
That has to, yes.
Ezra Dabah
Yes – we said that, that there was, new restrictions, privacy restrictions, on certain social media platforms that impact yeah. Acquisition its impact you know? Yes.
Susan Anderson
Okay. And then, I guess I’m just curious along those lines, you’re not seeing though, I guess, any change in consumer spending behavior by your customer, just given inflation and maybe cycling of the stimulus from last year as we kind of look into this year.
Ezra Dabah
We haven’t seen that as of now.
Susan Anderson
Okay. And then I guess, just how are you thinking about the drivers of growth by channel for this year, and then like how are the Disney partnership, what do you think that’s going to mean for the brand and just driving awareness to the brand? And then with the subscription boxes, are you expecting those to be down again in first quarter?
Ezra Dabah
Yeah, we are expecting that to continue at this particular time, we have taken quite a few measures to change that. We are implementing a paid influence program as we speak we are intensifying collaborations with other companies similar to what we did with Disney. We are intensifying looking at other channels that we haven’t really played in before specifically Connected TV, YouTube, which will be new to us. And we look forward to intensifying some of the other channels that we really haven’t played much in such as TikTok, Snapchat and like.
Susan Anderson
Got it. And did you guys talk about what you’re expecting just in terms of growth by channel for this year and how you think the new Disney partnership will have an impact on, I guess, awareness of the brand and help to drive growth?
Ezra Dabah
Yes. On the whole, we don’t speak about future projection. So really haven’t commented on that. We have done the Disney partnership as it relates to the new movie, Cheaper By The Dozen. And this is the second time or maybe even a third time that we have done a partnership with Disney. So we look forward for others in the future.
Susan Anderson
Great. Okay. Thanks so much. You guys.
Ezra Dabah
Thank you.
Adir Katzav
Thank you.
Operator
We have reached the end of the question-and-answer session. I’d now like to turn the call back over to Ezra Dabah for closing comments.
Ezra Dabah
Thank you, Operator. Thank you all for joining us today. Thank you for your interest. Thank you for your support. If you have any additional questions, please contact us at ir.kidpik.com. Wishing everybody a great day and great upcoming new month of April. Thank you.
Operator
This concludes today’s conference. You may disconnect your lines at this time, and we thank you for your participation.
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