BARK Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
June 1, 2023

There are 8 speakers on the call.

Operator

Afternoon, and thank you for attending today's Barq's Fiscal 4th Quarter and Full Year 2023 Earnings Call. My name is Jaeson, and I'll be the moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. I would now like to pass the conference over to our host, Mike Mujes, Vice President of Investor Relations.

Speaker 1

Good afternoon, everyone, and welcome to Bark's fiscal 4th quarter and full year 2023 earnings call. Joining me today are Matt Meager, Co Founder and CEO and Zaheer Ibrahim, Chief Financial Officer. Today's conference call is being webcast in its entirety on our website, and a replay of the webcast will be made available shortly after the call. Additionally, a press release covering the company's financial results was issued this afternoon and can be found on our Investor Relations website. Before I pass it over to Matt, I would like to remind you of the following information regarding forward looking statements.

Speaker 1

The statements made on today's call are based on management's current expectations and are subject to risks and uncertainties that could cause actual future results and outcomes to differ. Please refer to our SEC filings for more information on some of the Also during today's call, we will discuss certain non GAAP financial measures. Reconciliation to our non GAAP financial measures It's contained in this afternoon's press release. And with that, let me now pass it over to Matt.

Speaker 2

Thanks, Mike, and good afternoon, everyone. Last year, when I returned to running the business, we were facing some notable challenges, the biggest of which was that we were burning cash at a high rate. Along with a high burn rate, our cost of goods and fulfillment costs were rising rapidly. Our inventory balance is growing out of control, And the faster we grew, the faster we burn cash. My first priority was to reduce this cash spend and return us to the more profitable profile we had achieved in fiscal 2021.

Speaker 2

Today, I'm thrilled to report that we've made substantial progress in fiscal 2023, And we are entering fiscal 2024 as a stronger and more dynamic company. First off, We were free cash flow positive for the 2nd quarter in a row, ending the quarter with $178,000,000 of cash, $14,000,000 higher on a sequential basis. To put that in perspective, we burned $194,000,000 of cash In fiscal 2023, that figure was just $17,000,000 And if we look at the second half of fiscal twenty twenty three, we generated positive free cash flow of $17,000,000 In addition, we reduced our inventory by $29,000,000 over the year, freeing up working capital and ending the year with a much more manageable inventory balance of $124,000,000 Additionally, We continue to improve our cross selling capabilities over the course of the year, particularly across our consumable products, which helped drive a $2.11 increase in our average order value compared to fiscal 2022. This coupled with a sizable reduction in our cost of goods resulted in a 200 basis point improvement in our consolidated gross margin And resulted in our cutting our adjusted EBITDA loss nearly in half to negative $31,000,000 That is significant progress in a short amount of time, and I couldn't be prouder of our team.

Speaker 2

As we turn to the year ahead, we expect even greater improvements in the financial health of the business. For example, we anticipate our gross margin to expand We've successfully reset the financial profile of the business this past year. We will now turn our attention to growing faster in the years ahead. As we think about our future growth, there are 3 key pillars where we believe Bark has big opportunities and a right to win over time. These pillars are: 1st, our direct to consumer e commerce and subscription business.

Speaker 2

This is where we've established relationships And a strong brand with millions of customers who continue to spend more with Bark every year and are eager to buy our next product. 2nd, our consumables business. Bark has a strong start in consumables with treats, food, toppers and dental products. We bring fun and the ability to learn from our customers directly and rapidly to better inform future product development. This is a big opportunity for expansion.

Speaker 2

And looking further out, the 3rd pillar of our vision for Bark is services. Park is synonymous with dog happiness and joy for millions of dogs and their people today. This affords us with a unique opportunity to bring the same approach of bringing fun, joy filled solutions to more mundane service areas. This is a big opportunity for expansion over the long term. In our view, these pillars capture our broad vision for future growth, and we are well on our way to capitalizing on these opportunities.

Speaker 2

Before I dive into more specifics of the road map for fiscal 2024, I'd like to touch on some additional highlights from our Q4 and fiscal 2023 results. Zahir will then discuss our financial results and provide guidance for fiscal 2024. You may have noticed that we updated our KPIs and revenue segments in this afternoon's press release. Since going public 2 years ago, Our business is undergoing important changes. We've evolved from a pure play subscription company to a brand selling a diverse catalog of products With the flexibility for customers to purchase all these products on virtually any cadence they choose.

Speaker 2

If you visit food. Bark.co today, you can see this evolution firsthand. Under the legacy subscription based KPIs, our non subscription and auto ship customers weren't included in our active subscription metrics, despite many of them frequently returning to Bark. As a result, we updated our KPIs to reflect how we are managing the business today. These metrics are total orders, which include 1 offs or subscriptions and average order value, which is now calculated from total orders as opposed to the legacy shipments metric.

Speaker 2

Essentially, we are aiming to achieve higher volume of orders and increase the value of those orders. We believe these metrics better reflect where the business is today and more importantly, where the business is going. We also provided a new breakout of our revenue segments to provide more granularity to our product mix, specifically toy revenue and consumables revenue within our DTC segment. For example, in fiscal 2023, we generated approximately $307,000,000 from toys, which also include accessories such as beds, apparel and other essentials, and roughly $165,000,000 from consumables, which include treats, food, toppers and dental. We recognize that not all revenue is created equal, And thus, we believe that providing more granular category information will be beneficial to investors as they follow our journey and expansion into higher TAM areas in the consumable space.

Speaker 2

Let's now turn to some of our Q4 and full year fiscal 2023 highlights. Total revenue in the Q4 was $126,000,000 $5,000,000 ahead of our guidance. For the full year, total revenue was just over $535,000,000 an increase of 5.5% compared to Fiscal 2022. This growth was driven by a healthy $2.11 increase in our average order value, which is largely a result of our strong relationships with our customers. These relationships help drive Total cross sell revenue of $41,000,000 for the full year, up nearly 35% compared to last year.

Speaker 2

This is a huge asset Looking at our revenue breakdown in more detail, toy revenue increased 5% to $371,000,000 in fiscal 2023, which includes toy revenue driven by our Commerce segment. Total consumables revenue, which has virtually no retail presence today, Increased by 7.2 percent to $164,000,000 The majority of this growth was driven by Food and Dental. Turning to our Commerce segment. We delivered $63,000,000 of revenue, up roughly 7% compared to last year. Today, this business accounts for approximately 12% of total revenue and reflects only selling toys through over 40,000 retail doors.

Speaker 2

Selling consumables to these retail partners is a massive opportunity, and we expect our commerce share of revenue to more than double in the next 5 years. As some of you are aware, we are currently presenting a new treat offering to our retail partners. And while it is still early days, these conversations have been well received. I anticipate having treats And a portion of our retail footprint toward the end of fiscal 2024 with much greater distribution in fiscal 2025. As a reminder, it takes approximately 1 year between signing agreements and having products on shelves.

Speaker 2

So while this is a massive opportunity for Bart, It will be much bigger growth driver next fiscal year. Moving on, we generated a full year consolidated gross margin

Speaker 3

We are now

Speaker 2

at approximately 58%, up 200 basis points versus last year. Our DTC gross margin was 60.5% for the year, up 241 basis points. We are thrilled with our gross margin improvement in fiscal 2023, which is the direct result of actions we took to improve our long term profitability profile. Importantly, We expect our gross margin to improve by a similar amount or more in fiscal year 2024. Moreover, We reduced our annual G and A expense by $12,000,000 through the cost reduction initiative we announced in February, of which $10,000,000 will flow into fiscal 2024.

Speaker 2

We also renegotiated contracts with our strategic shipping partners, which lowered transportation costs and limited potential surcharges. These actions, many of which are just beginning to benefit the P and L, Improved our full year adjusted EBITDA loss by nearly 50% to negative $31,000,000 On that note, let's now turn to our strategic priorities for the year beginning with profitability. As I mentioned earlier, We were free cash flow positive for the Q2 in a row, generating positive free cash flow of nearly $17,000,000 in the 4th quarter and ending the year with a total cash balance of $178,000,000 This is encouraging progress, But we need to turn profitable quarters into profitable years, and that is where we are today. Zahir will discuss our guidance in more detail, We expect to deliver multiple adjusted EBITDA profitable quarters this fiscal year and be in the neighborhood of breakeven adjusted EBITDA for the full year. This would represent another significant step change improvement compared to the $31,000,000 EBITDA loss we recorded in fiscal 2023 And the $58,000,000 loss we recorded in fiscal 2022.

Speaker 2

Furthermore, We expect to be free cash flow positive on a full year basis this year. This cash profile position gives us several strategic opportunities to expand the business faster and create value for shareholders. We are also confident in our ability to deliver these profitability gains As most of the heavy lifting is complete and the fruits of our labor are largely timing related. For example, The vendor contracts we renegotiated are improving the margin profile on all the new inventory we are bringing in today. We also have more favorable arrangements in place with our freight and domestic shipping partners.

Speaker 2

And while we realized some of these benefits last quarter, We expect even more material improvements in our margin and cost structure with each passing quarter. Overall, We view profitability as an accelerator to growth. As we begin consistently generating positive free cash flow and adjusted EBITDA, We will have greater flexibility to invest in future growth. And while we do not expect revenue growth for the full year, We do anticipate significant growth in our gross profit this year. On a similar top line to last year, we expect our gross margin to improve by another 200 basis points to 300 basis points for the full year.

Speaker 2

Furthermore, as we invest in our product pipeline And our sales efforts in the early part of the year, we expect our revenue growth to accelerate in the back end of fiscal 2024 and to a much greater extent in fiscal 2025. As it stands today, I anticipate we will have high single to low double digit revenue growth next fiscal year. And we have a reasonable line of sight to this acceleration as we have made considerable progress pitching consumables in commerce channels. On that note, let me now turn to our 2nd growth pillar, expanding our consumables business, which includes food, treats, toppers and dental. Put simply, consumables are a huge part of our business today, And they present an even greater opportunity in the future as we are only beginning to tap into our potential, particularly with our retail partners.

Speaker 2

Treats alone accounted for roughly 1 third of our total revenue last year, making us one of the largest treat companies by revenue in the U. S. However, currently, we do not sell them in retail. Just imagine how much bigger this can be when we take Treats and all of our consumable products to 40,000 retail doors where we sell toys. In summary, I'm proud of the progress we made in fiscal 2023 and I believe we are a stronger company today.

Speaker 2

Looking ahead, We expect our consumables business to grow at a healthy clip and consolidated gross margins to expand sequentially throughout fiscal 2024. We anticipate this coupled with additional operating leverage in our G and A lines will bring us in the neighborhood of breakeven adjusted EBITDA and positive free cash flow for Fiscal 2024. And looking beyond fiscal 2024, we expect high single to low double digit revenue growth Finally, We do not believe that our recent progress has yet to be reflected in our stock price, let alone our long term potential. For a business with over $500,000,000 in revenue, gross margins expected to be north of 60% And a loyal customer base of millions of happy dog households, we feel our stock is undervalued as we trade at levels near our $178,000,000 cash balance. Importantly, however, we have ample runway and flexibility to pursue growth opportunities that we believe will drive long term value for our shareholders, and we are excited about the many possibilities ahead.

Speaker 2

With that, I will turn the call over to Zahir.

Speaker 4

Thanks, Matt, and good afternoon, everyone. Since participating in my first bulk Earnings call back in February. I'll have the opportunity to gain a much deeper understanding of the business. In that time, I've been focused on identifying As you heard from Matt, we've made significant progress over the past year. However, I believe there are still plenty of opportunities As illustrated by our fiscal 2023 results, We're beginning to see material improvements in our unit economics.

Speaker 4

As we progress through fiscal 2024, We will be in a position to transition our focus to growth. Needless to say, we have a significant runway. And with a growing cash balance, we have a lot of flexibility to invest in growth that we are confident will create value for our shareholders. With that said, let me dive into our financial results in more detail. As Matt noted, We updated our KPIs in this quarter's press release, so I'll speak to those numbers.

Speaker 4

We will include our legacy KPIs for the last time in this quarter's 10 ks, So you will have the ability to close out the year. However, we will not be disclosing those figures going forward. On that note, We shipped 3,600,000 orders in the quarter, which includes subscription, auto ship and one off. For the full year, we shipped 14,900,000 orders, which were down 1.7% compared to the same period last year. As we discussed previously, the expectation coming into the year Was that virtually all of our revenue growth was going to be driven by improvements in our average order value as we become more effective at cross selling customers.

Speaker 4

This is precisely what happened. In the Q4, our AOV was $32.07 a $2.27 increase compared to last year. For the full year, our AOV was $31.70 a $2.11 increase versus last year. You'll note that these AOV figures differ slightly from the figures we were reporting previously. This is simply a function of orders being a larger denominator than subscription shipments, which only included subscription customers.

Speaker 4

Moving on, total revenue for the 4th quarter was $126,000,000 down roughly 2% compared to the Q4 last year. For the full year, total revenue was just over $535,000,000 an increase of 5.4% to fiscal 2022. On a segment basis, D2C revenue was down slightly by 1.5% in the 4th quarter, While Commerce revenue declined by 9.3% for the quarter, we continue to expect softness on the retail side through the first half of fiscal twenty twenty four as our retail partners look to sell existing inventory and remain cautious in this macro environment. Also note, Our retail presence to date consists solely of toys. As we begin to introduce the less discretionary products like treats in retail, We would expect less volatility on this line long term.

Speaker 4

For the full year, D2C revenue increased 5.3%, while Commerce revenue increased 6.7%. Gross profit in the 4th quarter was $72,000,000 up 12% compared to last year. This resulted in a 4th quarter gross margin of 57%, a 700 plus basis points increase year over year. As a reminder, in the Q4 of last year, We wrote off approximately $13,000,000 of inventory, largely relating to products no longer in line with the company's long term strategy. In the most recent Q4, we took a write down of $4,400,000 which reflects normal inventory shrink, aging products and importantly, The need for us to continue to refine our inventory management.

Speaker 4

As Matt pointed out, this scenario was exacerbated by carrying such a large inventory balance over the course of the year. Looking ahead, I'm confident that we have stronger processes Our current inventory balance of $124,000,000 is down nearly 25% And Page 2 fiscal 2023, thanks to a major focus from the commercial and operations teams. And moving forward, this will also reduce our P and L Thank you, sir. Moving on, our full year gross profit was $308,000,000 up 9% compared to fiscal 2022. This resulted in a gross margin of nearly 58%, 200 basis points higher than last year.

Speaker 4

This improvement is a direct result Growing our AOV, reducing inventory write downs and starting to see improved product costs flow through the P and L. We expect even stronger growth in our gross margin throughout fiscal 2024, particularly in our B2C segment. For example, our B2C gross margin was 60.5% in fiscal 2023, up 2 41 basis points versus last year. Looking ahead, we expect our D2C gross margin to improve 200 basis points to 300 basis points over the course of fiscal 2024. Moving down the P and L, total G and A was $69,200,000 in the 4th quarter, down roughly $16,000,000 compared to the same period last year.

Speaker 4

About 45% of this reduction is driven by improved shipping and fulfillment costs, while the remainder is a result of tighter cost management along with some timing shifts with earlier quarters. Total G and A for the year was $303,100,000 up $1,300,000 versus last year. Looking at G and A in more detail, shipping and fulfillment expense was roughly $157,000,000 down 1 point $6,000,000 compared to fiscal 2022. On a rated basis, shipping and fulfillment costs came down 200 basis points from 30 1.3% to 29.3 percent, directly as a result of improved logistics network management and recently renegotiated basis points improvement in our shipping and fulfillment extent in fiscal 2024. For other G and A spend, we expect our annual Run rates improved from the $12,000,000 cost reduction exercise we announced in February, of which $10,000,000 will flow into fiscal 2024.

Speaker 4

We expect to see some headwinds on this line, such as inflation, but I'm confident that we will be able to offset these with disciplined cost management. Total marketing expense in the quarter was $15,400,000 $2,000,000 higher than last year. We decided to invest more heavily in marketing in the 4th quarter As a return we were seeing was encouraging, and we arguably underinvested in the fiscal Q3. For the full year, our marketing expense $68,800,000 about $5,600,000 below fiscal 2022. With the improvements in our gross margin, shipping and other G and A areas.

Speaker 4

We have the ability to further invest in media to drive awareness and traffic as opportunities arise. Lastly, we recorded an adjusted EBITDA loss of $3,400,000 in the 4th quarter, largely in line with guidance And an 85% improvement versus Q4 last year. For the full year, we recorded an adjusted EBITDA loss of 31,300,000 A 46% improvement compared to fiscal 2022 and nearly $5,000,000 ahead of our original guidance coming into fiscal 2023. From a balance sheet perspective, we ended the quarter with $178,000,000 of cash, dollars 14,000,000 higher on a sequential basis, And we ended the year with $124,000,000 of inventory, down $21,000,000 versus fiscal Q3. The improved P and L performance, reduction in inventory, coupled with timing on payables helped drive our 2nd consecutive quarter of positive free cash With the Q4 coming in plus $17,000,000 about $7,000,000 of the payables timing will impact Q1 fiscal 2024.

Speaker 4

Let me now turn to guidance. Beginning with revenue. For the full year, we're expecting revenue to be flat to down 5% compared to last year. Going into more detail, we expect total revenue from toys to decline, offset by growth in our consumables business. For example, we generated approximately $371,000,000 of revenue from toys in fiscal 2023, which includes toys revenues From our Commerce segment, we expect this category to decline in fiscal 2024 given the broader macro backdrop and their more discretionary nature.

Speaker 4

On the other hand, we expect consumables, which delivered $164,000,000 of revenue in fiscal 2023 To grow over last year. Moreover, we expect year over year revenue declines in the first half of the year given the difficult comps as a result of our growing revenue by nearly 16% in the first half of fiscal twenty twenty three versus fiscal 2022. We're also expecting softness on the commerce side of the business in the first half as retailers continue to closely manage their inventory levels. As we get to the second half of the year, we expect total revenue to begin to accelerate, particularly in the 4th quarter. From there, we expect high single to low double digit revenue growth in fiscal 2025.

Speaker 4

Nonetheless, We do expect healthy growth in our gross profit this year and currently expect our gross margins to improve by 200 to 300 basis points year over year. With that said, we currently expect 1st quarter revenue of between $121,000,000 100 and 23,000,000 And an adjusted EBITDA loss of between $10,000,000 $11,000,000 which would be an improvement of $2,000,000 to $3,000,000 as compared to the Q1 of last year. For the full year adjusted EBITDA, we expect a loss Between negative $8,000,000 and positive $2,000,000 This would reflect a significant improvement From the $31,000,000 loss we recorded last year and the negative $58,000,000 we recorded in FY 2022. Where we fall in this range will come down to a couple of factors. First, we may choose to invest some margin with customers to help fuel growth.

Speaker 4

And second, we will be nimble with our marketing investment and may choose to invest more heavily if the return is there. Nonetheless, we expect to be free cash flow positive for the year and expect our year end cash balance to exceed $180,000,000 all else being equal. From a timing perspective, we expect free cash flow to turn negative over the next two quarters and return to positive in the second half and for the full year. In summary, we have made significant progress in diversifying our product mix, improving our average order value And enhancing the economics of the business. We expect these efforts to result in BAWT being full year free cash flow positive And closing in on a breakeven adjusted EBITDA.

Speaker 4

As we turn the page on profitability, we'll quickly transition to growth mode on a profitable structure. From a new CFO's perspective, we have plenty of cash, a significant runway for growth and a management team that is laser focused on delivering the long term shareholder value. I couldn't be more excited about Bakkt's journey ahead. With that, I'll turn the call over to the operator for Q and A.

Operator

Our first question comes from Maria Ripps with Canaccord. Your line is now open.

Speaker 5

Great. Good afternoon, and thanks for taking my questions. First, how are you thinking about sort of the longer term mix for the business in terms of subscriptions versus standalone purchases? And if purchases are becoming a greater portion of the business mix, what does this mean in terms of fulfillment and marketing? And are there any changes that

Speaker 2

Thanks, Maria. What we're thinking for the mix over time is today, of course, it's still heavily subscription. But In the past couple of quarters, we have started to offer that mix or that choice to the customer that they can Subscribe and save or they can buy one off in order to raise the conversion rate. How that evolves over time is really going to depend on the mix of Products that we offer to them, so you'll of course expect BarkBox and Superchewer to be Subscription experiences going forward by and large, a product like food to have more regular delivery, So more prone to a subscription relationship, but that's one where today we offer the one off to And so it's not 100%. And then some products where it just makes no sense at all.

Speaker 2

And so how that falls out in a mix over time is going to follow the trajectory Of the products, especially in the consumables that we offer.

Speaker 5

Got it. That's

Speaker 4

very helpful. Maria, I'd probably add to that. But We're increasingly focusing on consumables, expanding our portfolio and offering both online And then we're taking those to retail as well. So over time, you'll see this increased mix of consumables versus toys in our portfolio as well.

Speaker 5

Got it. That makes sense. And then secondly, you talked about services as one of the growth pillars. Can you maybe just talk about how you're thinking about that category? What are some services that you have in mind?

Speaker 5

And what kind of investments will be required to get that Business up and running.

Speaker 2

Sure. It's a I would take it as a visionary statement, where we are In a really unique position in the market where our brand is synonymous with bringing joy to dogs and their parents. And we also have, as you know, millions of first party data points that are unique to us. So what we know is we know dogs really well. We know dogs and their people really well and we have a brand that's synonymous with happiness and joy and we are solely focused on dogs here.

Speaker 2

We're not selling hamster food. So there are ways that we think we can leverage that relationship and Ship in that data and these unique assets and that brand that go beyond the packaged goods. Services It's a next logical step in that. And if we just think about the obvious and non obvious Parts of the world there. That really opens up big opportunities for us.

Speaker 2

It's still for us Early days, so we're not ready to elaborate further as to what the specifics are, but if you look across the pet industry. And then Maybe take a little page from the relationship between parents of human children and their kids and how the world's evolved to serve them In multiple different ways, it's not just baby formula, but it's packaged goods and into services and how the world There's a similar long term vision for Bark and so we wanted to share that vision with you today.

Speaker 5

Got it. That's very helpful. Thank you very much for the color.

Operator

Our next question is from Ryan Myers with Lake Street Capital Markets. Your line is now open.

Speaker 6

Hey guys, thanks for taking my questions. First one for me, just wondering if you could unpack a little bit, how many of the consumable Customers are new customers to the Bark platform versus how many of them are from cross selling to existing Bark customers?

Speaker 2

Today so far, I don't have an exact percentage or figure, but I will say the large majority are From the cross selling to existing customers. So just as a reminder of the historical progress here, Back in August, so 9 months ago, we stood up a standalone platform We're a new platform food. Bark.co where we were selling only our food or our kibble product, no other consumable, no treats, no toppers, Certainly no toys or BarkBox or Super Chew experiences. And over time, we've added more and more and more of our products to that Where now all of those products live on that platform, unfortunately still at food. Bark.co, but Only recently did we add BarkBox and Superture.

Speaker 2

So we'll update the URL and make that a little more current or reflective of what's there. But as it was experimental and what we were trying to do is increase conversion rates on our kibble Initially and then the increasing conversion rate of how the customer engages with each of those products and then raise cross sell between those in the same session. It's been a testing environment and in order to Test that as cost effectively as possible, we've been leveraging our rather large base of customers And we've done that really successfully. The growth there has been fantastic, super encouraging for the 1st 9 months To the point that only now are we starting to invest any media dollars against bringing new people into the fold. So while I don't have a specific percentage as to what that breakdown is, it's going to skew very heavily towards People who are already in the Bark universe prior, but now that's starting to change with the media spend.

Speaker 6

Got it. That's helpful. And then you kind of touched on this a little bit, but when we think about the adjusted EBITDA guide in Q1 And then for the full year, obviously, there's a lot of things going on in the gross margin there. But wondering if you can kind of unpack sort of that improvement from Q1 to exiting the year, Just a little bit more so we have a good understanding of kind of how that's going to progress through the year.

Speaker 4

Hi there, Justin. So just talking about Q1, firstly, Relative to where we're exiting Q4, just a couple of things that drive the Q1 guidance. One is the revenue It's slightly softer in Q1 driven by just the retail inventory that we're seeing with some of our retailers and the environment that they're seeing. So that's reflected in the Q1 revenue guidance and arguably in the first half revenue that we're expecting to see Specifically for Q1 in terms of other parts of the P and L, there'll be higher levels of investment from marketing As we continue to see appropriate levels of return on investment and then in Q4, 2023, we saw some Timing benefits that came through in Q4 relative to earlier parts of the year, And we haven't modeled those or expect to see those come through in Q1 2024. As we look at 2024 across the year, you'll see from a top line perspective, we'll continue to gain traction both on D2C and also on the commerce side.

Speaker 4

Commerce, as I mentioned, retailer inventory starts aligning. You start getting into Q3 and Break the levels of just a promotional window as well. Q4, we start getting Traction with consumables on shelf as well. So you're getting more and more momentum on that side. And then from the D2C perspective, you're seeing Continued traction, as Matt mentioned, on the new site, increased cross sell, more momentum from the increased Marketing investment that we have, so that's continuing to build in terms of top line momentum and velocity.

Speaker 4

As we look at overall P and L, during 2023, we had really strong Margin gross margin improvement and we'll expect that to continue at a similar clip In 2024, as new contracts continue new contracts and new contract pricing kicks And we'll see that benefit flow through inventory and through the P and L in the first half. We've got additional contract renegotiations that will kick in for the second half of the year as well. So improved gross margins during the course of the year. Shipping and fulfillment, we had a really strong performance in 2023. Some of the benefits of that will flow into 2024 and we see a lot of opportunities from a network planning Perspective on the logistics side, so we expect that benefit to increase during 2024.

Speaker 4

And then finally on G and A, we did the cost reduction initiative in February, About $10,000,000 of that benefit is going to flow through in 2024. And then as we look across The various parts of our G and A base, there's areas for us to be tighter from a cost management perspective. So we'll see that Gain momentum during the course of the year. So you'll have, what I'd say, a couple of quarters in the year where we Expect to see positive EBITDA and continued top line traction and margin improvement going through the year.

Speaker 6

Got it. Makes sense. Thanks for taking my questions.

Speaker 1

Thank you.

Operator

Our next question is from Yigal Arounian with Citigroup.

Speaker 3

1st on the subscriptions and the new KPIs. Now is this always the vision for the company to kind of move A little bit more away from the subscriptions and give different options to your customers or was there something that you guys were seeing within The subscription model that made you want to move away and change your approach?

Speaker 2

It's certainly being responsive to the customer. Again, since we launched that new unified platform, We started at food based, and as I mentioned, we've added all the various products to there. We added our dental product in February, And that one's a really good example, a very stark example of all we offered previously was subscription And a real hunger or demand from the customer to purchase The one off items. So they might be on a subscription and, for example, run out of their gel and didn't have an outlet To repurchase or to purchase just the gel or just the chews, or to say, it doesn't last me exactly a month, It lasts me 3 weeks or 6 weeks. So that gave us a pretty clear signal and as we push Further into treats and toppers, even more of that activity.

Speaker 2

So, I would say over the past 6 months, it's become very apparent that the customer wants a lot more flexibility and we convert much better and have a better relationship when they do. And it's just a reflection of our move into consumables and that there is Different buying rhythm and there's a different customer experience built around those. So it's being responsive to that and us Reflecting that in the results we share with you, but also the way we manage the business.

Speaker 3

Okay. That's really helpful. On the unified platform, is it now where you want it to be, maybe the actual URL, or is there more work to do there? And then as you're getting there and you're talking about the The changes in the marketing strategy, and if you could just share a little bit more about what the things you're looking for there are in terms of pressing on the gas or not. And how your approach changes where you're not solely focused on driving a subscriber, but also 1 off for repeat purchases.

Speaker 2

Yes. We're so really happy with it. It's not there in terms of it's done. It does have it reflects the breadth of products that we have and they're all under one roof. In that way, they're reflected there.

Speaker 2

Like you said, you want to make the URL a little bit less descriptive, I guess, So more generic to Bark. But overall, what we're looking for there is When a new customer enters Bark, is there a lifetime value greater than the sum of the parts And of course, that's a collection of The retention or the repeat purchase rates that we're seeing, their average order value, their margin, the items per basket, like How much they're adding to their orders or how effective we are at upselling. So, all of that needs to come together. There are parts of that We are already outperforming the core or the legacy part of the business, Conversion rate being one of those and that's where most of our focus has been. And so now we're focusing more On the overall move to lifetime value of that customer that we're converting really well, the other really key thing for us to learn And prove before we fully embrace it is, can we acquire New customers into Bark onto that platform that have a superior LTV at an attractive or better Cost of acquisition and do they have the same behavior and same profile?

Speaker 2

So again, We've just recently started spending money against that and acquiring customers and learning that rhythm. But as far as an experiment goes, It's doing very, very well. It's one of those early things. So Early is a key word there, but we're almost every metric in the business is one of those up into the right For 9 consecutive months kind of things. But it's definitely got work left to do.

Speaker 3

That's very helpful. Thank you.

Operator

Our next question is from Corey Grady with Jefferies. Your line is now open.

Speaker 7

Hi. Thanks for taking my question. So I wanted to ask about the opportunity to expand assortment at retail. It sounds like treats start showing up in Q4, but can you also address timing for Adding toppers, food and then expanding distribution for dental? Thanks.

Speaker 2

Yes. Treats are definitely the focus for this upcoming Q4 or there's a focus right now on the sales side. And I would Say if that's 1A then 1B is dental because we have a proven finished product there and we have Near term line of sight to a much improved margin profile on that product. So one of the things that's kept us Challenge of taking dental into retail to date has been making the margins work for us and for our retail partners. And with a new formulation, that's soon to come out, we've really addressed that and now there's Big growth opportunity there.

Speaker 2

So we've put it in the hands of our sales team. The ideal time for any dental product to launch In retail or launch anywhere is dog dental month, which is February. So our team is pushing very hard for that, But we don't have anything secured there. So definitely 1A is our new line of treats, which We're super excited about 1B is dental. And then we will follow with Toppers and Food.

Speaker 2

And if we stay on the same cycle that would show up near the end of fiscal 2025. There's the potential that you could Push it faster and have some small retailers, take you a little bit off cycle, but I wouldn't count on that.

Speaker 7

Got it. That's helpful. And then just for my follow-up, just on your sales guide. So you guided Q1 down 7% and you plan to exit, I think the year was growth in Q4. Can you maybe expand on the assumptions for the year that underpin that trajectory?

Speaker 7

Thanks.

Speaker 2

Sure. Well, we just talked about some of them there in retail and with consumables and bringing Certainly, a new category and a new line. And we really benefit and We haven't yet leveraged our retailer wholesale channel enough in this way, but one of the benefits for us is We're in 40,000 retail doors with our toys and quite successfully and we have great relationships. So that's something We need to leverage, we are leveraging and we're introducing ourselves into much bigger categories than toys, Treats being one of those. So that's one of the drivers as we introduce that to our retail partners.

Speaker 2

Another is, we're again certainly encouraged by the progress on our bark.co platform. And as I said, starting to spend some of our dollars there to acquire new customers and the profile that So some of that is subscribe and save activities, some of that is us learning To bring a one off customer back to repurchase again and again, but the acceleration there is compounding and that compounding leads to our direct to But as with any compounding business, it just takes a few months or a couple of quarters To build on itself, and then we move into our holiday season, we really get a surge on that on both sides of the house.

Speaker 7

Thank you.

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Earnings Conference Call
BARK Q4 2023
00:00 / 00:00