BARK Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2023

There are 8 speakers on the call.

Operator

Good morning, good afternoon, and good evening. My name is Robert MacArthur, and I will be your conference operator today. At this time, I'd like to welcome everyone to Bark's Fiscal First Quarter 20 24 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a questions and answer session.

Operator

Followed by the number 1 on your telephone keypad. Thank you. And now I will turn the call over to Mike Mujes, Vice President, Investor Relations.

Speaker 1

Good afternoon, everyone, and welcome to Bark's Q1 fiscal year 2024 earnings call. Joining me today are Matt Meeker, 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 in 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 discussion on some of the factors that could affect our future results and outcomes. Also during today's call, we will discuss certain non GAAP financial measures. Reconciliation to our non GAAP financial measures is 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. On our last call, we discussed the substantial progress we made in improving our unit economics and strengthening the long term financial health of our business. These efforts coupled with our continued expansion into large TAM categories like consumables and the progress we made unifying our platform made us a stronger and more dynamic company as we entered fiscal 2024. I'm pleased to report that the year is off to a solid start. At a headline level, we delivered $121,000,000 of total revenue and recorded a 280 basis point improvement in our gross margin reaching 61% in the quarter, our Q1 exceeding 60% as a public company.

Speaker 2

Our adjusted EBITDA loss was $7,000,000 a 43% improvement compared to last year and ahead of our guidance. All in all, the work we have done over the past 18 months is beginning to materialize in a notable way. We continue to expect to be in the neighborhood breakeven adjusted EBITDA, while also generating positive free cash flow for the full year. As a result, we're able to drive growth in a much more meaningful way. Going a level deeper on revenue, we generated $81,000,000 from toys and $40,000,000 from consumables.

Speaker 2

If we exclude revenue from our subscription boxes, our consumables category grew 39% year over year to over $5,000,000 And remember, this is prior to us generating any consumables revenue in the wholesale channel, which is where we expect meaningful gains in the future. Our confidence there comes from our partnering with virtually every major retailer in the U. S, expanding over 40,000 retail doors today. Simply put, we have the relationships and track record to introduce new products across the $40,000,000,000 plus consumables category. Furthermore, while we can't discuss specifics today, We are confident that Bark Treats will be carried nationally in fiscal 2025 and possibly as early as the end of this fiscal year.

Speaker 2

This is exciting as it will contribute meaningfully to our top line given these partnerships are typically large in nature. Moreover, it will help build awareness of Bark's presence in Consumables, given the millions of people that will see our new treat offerings on a daily basis. Treats are also just the tip of the spear. In the spring of 2024, we intend to pitch our retail partners on our full consumables product line, including dental, toppers and food. In light of these opportunities, we expect our Commerce segment to grow considerably over the next 3 to 5 years.

Speaker 2

We're often asked how this will affect our gross margin long term, so let me address that directly. Our gross margin in the Commerce segment is lower at roughly 40 spend compared to the 60% plus we enjoy on our direct to consumer business. So our retail expansion will have a drag on our consolidated gross margin long term. However, remember that our Commerce segment has far fewer costs by way of shipping and fulfillment and marketing. So from a contribution standpoint, Commerce is in line, if not slightly higher than our direct to consumer margin when factoring in operating expenses.

Speaker 2

Put simply, growth in our Commerce segment will be an important driver of our long term profitability and we are very excited about our opportunity in the $40,000,000,000 consumables category. Another opportunity is expanding our direct consumer channel within our unified channel, which now features all of our consumables products alongside our huge toy subscription box products. I'm happy to announce this unified site, which can be found at shop. Barq.co, is growing rapidly. We are still improving and iterating.

Speaker 2

However, our conversion rates on the new site have improved significantly and have remained consistently higher than our legacy box sites over the past few months. This is happening as we ramp up the advertising spend, which is leading to adding more new customers at highly efficient rates. This is great news and it underscores the need for us to invest more aggressively in pushing prospective customers to it. Furthermore, not only our customers on the new site converting at a higher rate, but they are also shopping across categories to a greater degree. Overall, I'm thrilled with how we've been able to diversify our direct to consumer business in a relatively short amount of time.

Speaker 2

Shop. Bark.co is the future of direct to consumer at Bark and it's available to everyone today. In our core business, on the toy side of the house, we've seen this category stabilize a bit over the last few months, but still experiencing headwinds. This is the case in both our direct to consumer and commerce segments, but we see signs of this improving, especially in retail. For example, inventory levels at our retail partners have come down to more normalized levels and we are beginning to deliver new orders in the current quarter with more to come in fiscal Q3.

Speaker 2

Overall, we continue to expect growth in this category to be largely consistent with overall industry growth long term. In our direct consumer core channels, we continue to improve our cross selling capabilities, which generated $10,000,000 in revenue last quarter. And from an average order value standpoint, we saw an $0.82 increase compared to last year. On that note, We had 2 initiatives that impacted our AOV growth last quarter. First, we ran a really successful 4.20 promotion, whereby we lower the base price of our cannabis theme box to $4.20 And second, We reduced the base price of Super ChewEr as we saw the gross margin improvements coming and wanted to drive growth in box subscriptions.

Speaker 2

Q1. As a result, we do expect more moderate AOV growth in this channel in fiscal 2024 compared to last year as we balance our margin expansion with our focus on driving long term growth. Turning to gross margin, Last quarter, we achieved a fantastic gross margin of 61%, impressive 280 basis point improvement in our consolidated gross margin over last Gear and our Q1 over 60% as a public company. Looking at our direct to consumer segment, Our gross margin improved by 200 basis points to over 62%. These are notable improvements and we expect our gross margin to improve even further as the year progresses.

Speaker 2

Improvements like these power our drive for profitability and open up options for us to pass price breaks on to the customer in order to fuel growth. This is a great position to be in and we expect continuous improvement throughout the year. Furthermore, we are also becoming more efficient across our G and A lines. First shipping and fulfillment expense was 30.1 percent of revenue last quarter, a 130 basis point improvement compared to the same period last year. Between gross margin and shipping and fulfillment, that's a 4 10 basis point improvement year over year.

Speaker 2

In addition, we've taken out approximately $19,000,000 of annual headcount over the last few months. These are always difficult decisions. However, We believe that these initiatives will enable us to do more with less by becoming a simpler, more nimble organization, and we saw some of the benefits flow through the P and L this quarter. For example, other G and A as a percentage of revenue improved by 160 basis points to 27.5% with more improvements to count. Bringing all of that together, our adjusted EBITDA loss was $7,000,000 a 43% improvement compared to last year.

Speaker 2

Looking ahead, we anticipate our collective adjusted EBITDA over the next three quarters to be breakeven or better. We also reduced our cash burn by more than $8,000,000 compared to Q1 last year, ending the quarter with $164,000,000 in cash on hand. In the last 9 months, we've generated $3,000,000 in positive free cash flow. This presents us with many opportunities to put this cash to work, including paying down debt, buying back stock, potential M and A opportunities and enjoying the high rate of interest we are collecting on that balance today. And while we don't expect significant revenue growth for the full year, we are confident that Q1 marked the bottom as we expect our top line to gain momentum in subsequent quarters, particularly as we grow our consumables footprint across our direct to consumer and wholesale channels.

Speaker 2

Overall, I'm feeling very good about our position and the quarters ahead. Looking back, when I returned to the CEO role 18 months ago, We faced a number of challenges. In our pursuit of growth, we lost sight of our core vision and lacked the capital discipline that had been ingrained in the organization during my first 10 years running the company. In light of this, it was paramount that we prioritized returning to a simpler more nimble organization and stabilize our cash burn. During the course of fiscal 2023, We took decisive steps to simplify our supply chain, reducing vendors and leveraging our scale.

Speaker 2

We also improved our fulfillment network streamlined our people needs. Collectively, these actions are benefiting our unit economics in a meaningful way. To help quantify all of this. On a similar revenue base to last year, we expect to be in the neighborhood of breakeven adjusted EBITDA this year. This would reflect a $31,000,000 improvement in 12 months and a nearly $60,000,000 improvement in the last 2 years.

Speaker 2

In light of this progress, we can once again direct our focus towards driving long term growth. In conclusion, I'm very pleased with our progress. Our new consumables products are growing at a healthy clip. Our gross margin is improving with each passing quarter. Our unified platform is ramping up and we are quickly approaching breakeven adjusted EBITDA and sustainable free cash flow generation.

Speaker 2

And while we do not expect top line growth to be the standout this fiscal year. We do expect our top line to gain momentum from what we believe is the low point here in Q1. Furthermore, we have even greater confidence in our ability to deliver high single to low double digit top line growth in fiscal 2025 given all of our recent progress. With that, I will turn the call over to Zaheer.

Speaker 3

Thanks, Matt, and good afternoon, everyone. Having spent 7 months in the CFO seat, I've gained a much deeper understanding of our business and I've become increasingly optimistic about our long term prospects with significant opportunities for market expansion in new and exciting categories like consumables. Importantly, these prospects can now be pursued with a profitability focused framework in place. To that end, Our overarching focus over the past year has been improving our unit economics and establishing a solid foundation for long term profitability. Clearly, we're seeing this come through in our recent results, which now enables us to begin redirecting our focus toward driving long term top line growth, particularly in consumables where we have a massive runway both in B2C and retail.

Speaker 3

With that said, let's jump into our financial results for the quarter, which are playing out largely as we anticipated coming into the year. Beginning at the top of the P and L, we delivered total revenue of 120,600,000 broadly in line with the low end of our guidance range. Total revenue was down 8% compared to last year, which was primarily driven by an 8 percent decline in total orders, partially offset by an $0.82 or approximately 3% increase in our average order value. It is worth noting while total orders were down, our customer base today is of a much higher quality compared to this point last year. Nonetheless, as we mentioned on our Q4 call, we expected revenue to be down year over year in the first half and then begin to gain momentum in the second half.

Speaker 3

So these dynamics were largely anticipated coming into fiscal 2024. From a segment basis, we delivered $111,900,000 of D2C revenue and $8,700,000 of Commerce revenue. Within our D2C segment, approximately 64% of the revenue was derived from toys and accessories, while 36% of the revenue was driven by consumables. Moving on, we delivered $73,000,000 of gross profit in the quarter versus $75,800,000 last year. As Matt highlighted earlier, We achieved healthy margin expansion last quarter and we expect this trend to continue throughout the year.

Speaker 3

Our consolidated gross margin was up 280 basis points, while our DTC gross margin improved 200 basis points versus last year. For the full year, we continue to expect our consolidated gross margin improved between 203 100 basis points. Where we fall in this range will come down to how much margin we choose to give back to customers to help drive top line growth. Moving down the P and L, total G and A was $69,400,000 in the Q1, down nearly $10,000,000 compared to Q1 last year. Looking at our G and A line in more detail, shipping and fulfillment expense was $36,200,000 while other G and A was $33,200,000 Factoring in volume impacts, shipping and fulfillment was down 130 basis points and G and A was down $5,300,000 compared to Q1 last year, reflecting the tangible progress we have made in reducing expenses throughout the P and L.

Speaker 3

As many of you are aware, we took out $19,000,000 of annualized other G and A expenses, primarily related to headcount costs through the 2 cost reduction initiatives that we announced earlier this year. To provide some more color on the announcement we made last month. We reduced our net headcount by approximately 8%, which is expected to generate roughly $7,000,000 of annual savings. These are always difficult challenging decisions. As Matt discussed, the organization has grown more complex over the last 2 years and this initiative was largely aimed at simplifying our organizational structure, allowing us to become more efficient and nimble.

Speaker 3

It's also worth mentioning that this initiative was in the works during our Q4 call and was included in the adjusted EBITDA guidance we had previously provided. We anticipate that these initiatives will help bring us to the neighborhood of breakeven adjusted EBITDA for the year on a similar revenue base to FY 2022 and FY2023. This would reflect a significant improvement from the $58,000,000 $31,000,000 adjusted EBITDA losses we have recorded in those fiscal years, respectively. We also anticipate that operating a leaner organization will allow us to gain greater leverage as we scale. Moving on, Our marketing expense for the quarter was $17,600,000 $1,300,000 above last year.

Speaker 3

As I mentioned on the Q4 call, The progress we've made in improving the financial health of the business affords us the opportunity to invest more in areas like marketing, including driving more traffic new unified site, which as Matt mentioned is converting at a very encouraging rate. Of course, we will remain disciplined with Investor Relations and Marketing Investment. However, we do expect this line to be up for the full year compared to last year. And lastly, Our adjusted EBITDA loss was $7,400,000 approximately $3,000,000 better than the midpoint of our guidance range. We did benefit from some timing related items in the quarter and therefore do not expect all of the beat for this quarter to flow through to the full year.

Speaker 3

Compared to last year, adjusted EBITDA was $5,600,000 better, reflecting the significant strides we have taken to improve our unit economics and cost structure throughout the P and L. Let me turn to our balance sheet for a moment. As we articulated on our last call, we expected negative free cash flow for the 1st 2 quarters of FY 2024, followed by a transition to positive cash flow for the second half and for the full year. And while we're still early into the fiscal year, this is largely how we see it playing out. During the Q1, free cash flow was negative $14,000,000 resulting in a quarter end cash balance of $164,000,000 About half of the $14,000,000 outflow was timing related as our accounts payable balance ran up in Q4 and came down in fiscal Q1.

Speaker 3

On the inventory front, We reduced our balance by an additional $12,000,000 versus the 4th quarter. Overall, we've been very pleased with our ability to consistently reduce inventory levels, which in turn has lowered logistics costs while also freeing up working capital. To put this progress in perspective, our total inventory is down nearly $50,000,000 from its peak in Q2 of fiscal 2023, and we continue to expect further progress during the remainder of the year. Let me now turn to guidance for the Q2 and full year. Starting with the full year, we are reiterating the top and bottom line guidance we had originally provided on our fiscal Q4 call.

Speaker 3

From a revenue standpoint, we expect total revenue to be flat to down 5% compared to fiscal 2023. The bookends of this range are essentially where we landed in FY 2022 and FY2023. However, we expect significant profitability improvements compared to the prior 2 years. From an adjusted EBITDA standpoint, we expect to be in the range of negative $8,000,000 to positive $2,000,000 for the full year. Beyond FY 'twenty four, we expect to deliver high single to low double digit revenue growth in FY 'twenty five as we continue to make progress in growing our consumables footprint in both D2C and retail channels.

Speaker 3

For this year's fiscal Q2, we expect total revenue of $123,000,000 to $127,000,000 The midpoint of this range would reflect a year over year decline of around 13%. Part of the decrease is D2C, while for Commerce, we are comping a significant pull forward of revenue associated with the holiday period in Q2 last year, which inflated our top line in the quarter. This year, we expect more evenly distributed commerce revenue between the 2nd and third quarters. From an adjusted EBITDA standpoint, we currently expect an adjusted EBITDA loss of $3,000,000 to 1,000,000 the midpoint of which would be in line with our EBITDA loss for the year despite the difficult top line comp, which again benefited from the holiday commerce pull forward last year. In conclusion, fiscal 2024 is off to a strong start.

Speaker 3

We continue to see step change improvements in our unit economics, a trend we expect to continue as the year progresses. And while we face difficult top line comps in the first half, we expect our top line to gain momentum as we enter the second half, particularly as our consumables product lines gain traction across our D2C and retail channels. Overall, we've made a lot of progress in this area and there are a number of exciting things in the pipeline that give us confidence in our ability to return to growth and growth which will be supported by a much more profitable infrastructure. With that, I will turn the call over to the operator for Q and A.

Speaker 2

Thank you for that.

Operator

Ladies and gentlemen, we're going transition into our Q and A session of today's call. And your first question comes from the line of Maria Ripps from Canaccord. Maria, go ahead.

Speaker 4

Great. Thanks so much for taking my questions. First, could you maybe just talk about your assumptions behind your Q2 guidance, sort of what kind of consumer engagement you're seeing on the platform if you exclude the pull forward from last year and the comp? And can you maybe just expand on some of growth drivers that you're assuming for the second half of this year.

Speaker 2

Sure. Thanks for the question, Maria. So you mentioned in the question there's the retail comp to last year where we had the big pull forward. So that takes care of the retail side. The drivers for the Q2, it is this continued rotation away from core or the legacy platforms that we have onto the unified platform.

Speaker 2

And as I mentioned, now all of our products are there at shop. Barq.co. The conversion rates and performance there are very strong and improving month by month. So we're very encouraged by it. And it is more consumables heavy, almost exclusively consumables up until recently.

Speaker 2

So there's a different dynamic to it. And it's just rotating into that and building the customer base on that site as we maintain the core platforms. So we're going to continue that rotation through for the rest of the year and then rotate out of those core sites probably sometime next Dairy.

Speaker 4

Got it. Thank you for that. And then I just wanted to ask you about your food business. Can you maybe just talk about sort of the second slate of breeds that you introduced sort of last year? And at this point, what are you actively investing in as it pertains to that segment of your business?

Speaker 4

Is it sort of investing Expanding your existing breeds or working towards rolling out more breeds or just maybe talk about that a little bit.

Speaker 2

Expanding more with the existing, but also viewing the customer more holistically. And again, everything is centered around that barq.co platform where we're trying to have every customer engage with a wider set of products. So one of the reasons for going to the unified platform is that In our core platforms, there's really the opportunity to only engage with a single product at a time. You can't have 1 point 2 items per order. You can only have 1 item per order.

Speaker 2

So we're trying to have the customer engage with more products and doing so quite successfully, thereby raising the average order value,

Speaker 3

food being one of those

Speaker 2

and have recurring relationships as often as we can or whenever it makes sense. So thereby stretching out the lifetime value of that customer or the life of that customer. Just to give you an example, we love a customer who comes in, subscribes to a BarqBox, also puts food in their cart, subscribe and save on that and throws toppers in just as a one off purchase. That customer might normally last to the Barq box for 15 months in churn, but now because they've got food in the basket, they're going to extend out several more months or years beyond. And we have the ability to add things to their shipments as they're coming like the toppers we know their daughter already enjoyed or treats or new products.

Speaker 2

That's the perfect customer and that's the profile we're developing. So the food is obviously an important component of it, but it's only one component of the whole mix.

Speaker 4

Got it. Thanks so much, Matt.

Operator

Your next caller comes from the line of Ryan Myers from Lake Street Capital Markets. Ryan, your line is open.

Speaker 5

Hey, guys. Thanks for taking my questions. First one for me, just wondering if you can highlight what you guys are doing to currently market the consumables business and then on top of that the new shop. Barq.co platform and kind of how you've seen customers respond to that?

Speaker 2

Well, the marketing of consumables and the marketing of the shop.barq.co platform are very tightly coupled today because that is the main place where we are selling all of our consumables until they start to hit retail channels hopefully later this fiscal year or definitely next year. So those 2 are coupled tightly together. Up until Very recently up until I'd say like through the end of June, we were doing very little outbound marketing or media spend against that platform and promoting those individual consumable products, mainly pulling from our installed user base on the core or legacy side of our business. We were doing that in order to constantly learn and test and optimize and improve our conversion rates and get the behavior of that customer where we wanted it to be. We accomplished that.

Speaker 2

We saw enough of a trend that we felt it was permanent. And therefore, the media spend starting in July has really ramped up. It's as you might expect with us in the early days here, it's a lot of digital, It's a lot of direct response, social media, search, that type of thing, but we're going to add much more to that mix as we go forward, but that's the start of it right now and super encouraged by what we've seen in terms of the results.

Speaker 5

Got it. That's helpful. And then can you talk a little bit about how you are prioritizing the use of cash? You talked about paying back debt, maybe going into some buybacks and then M and A, just some more color there would be helpful.

Speaker 3

Hi, Ryan. So the great news is that At the very least, we're earning about 5% interest today on the existing cash balance. But that said, There are likely higher returns we can generate by putting some of that to use elsewhere. So our first preference is taking out our debt. So we have convertible notes that mature in 2025.

Speaker 3

To the extent we're able to take those out at some meaningful discount and that would make a lot of sense. But it would have to be a meaningful discount given the strong interest rate where we're earning on our cash at present. We continue to think also that our stock is undervalued. And so if we're unable to reach a favorable agreement on the debt, our next best opportunity is to use some of our cash for a buyback program. Obviously, that's within the constraints of our debt agreement.

Speaker 3

And then those options All mutually exclusive given our strong balance sheet, we could choose to take out some or all of the convertible and buy back shares and still have plenty of cash on hand to run the business. Okay?

Speaker 5

Got it. Thanks for taking my questions.

Operator

Your next question comes from the line of Ygal Arounian from Citigroup. Your line is now open.

Speaker 6

Hey, good afternoon guys. You have Max Moore on for Yigal. I guess looking at the consumables business, it's a really interesting growth opportunity. I guess could you kind of a multi parter, Could you tell us like where you are with the investment side? Like do you have to do you think you have to do more on the food business and the treat side to get into retail?

Speaker 6

What's the sales cycles to get in there? I think maybe by the end of the year, but I guess what's the process to get into retail, the retail source of those? And then longer term, how do you see this impacting the mix of the business and unit economics? As I believe the Retail segment has lower gross margins than DTC.

Speaker 2

Yes. Thanks for the question, Max. The consumables area in terms of a lot of the prep work that you're talking about is something we've been investing in for certainly the past year and a half since I've returned the business. And you start with the base product development of the actual consumable itself, the treat, the topper, the Food in the Bag or the Dental product. And we've got a really strong product development team, who have great backgrounds and just a lot of experience in this area.

Speaker 2

They've both moved our offerings forward in a material way, but also simplified it and now we've restructured all of our agreements with a few key suppliers on that side, bringing our costs down on a unit basis in a pretty material way as well. So that's to say, we've done the hard work of getting the products developed really well, got the right partners lined up, the right cost structure lined up. And on the retail side, a big push for us was well, A Push With A Pull. Our retail partners where we were being very successful with our toy business, they were pulling us and saying, Can you please bring fund to our treat aisle? Can you please bring the fund to consumables?

Speaker 2

So that was encouraging for us and I would say fueled our enthusiasm and development around that. And we did that with the idea of going to those same partners this past spring, pitching them on what we'd come up with to bring fun to their aisles and started those pitches like I said in the spring, March, April. Our feeling is that the response we've had is very encouraging. Yes. We're pretty happy with the response in the back and forth.

Speaker 2

So, like we said in the script. There's nothing official to report today, but I'd say we feel very, very strong about where we stand on that. So at this point, it's hopefully some positive news of sign offs and purchase orders. And then if all goes according to plan, you would Did I cover everything that you asked there? I'm sorry if I forgot something.

Speaker 6

Yes, sorry. It's kind of like 3 questions. Sorry. Yes, just and then longer term, how should we think about like the mix between the retail and DTC businesses with us because and yes.

Speaker 2

Yes. So right now the mix has consistently been about 12% of our revenue from the wholesale channel versus direct to consumer. When we set out our 5 year plan or vision at the As we entered this fiscal year, we signal that what we would like to do is take that up to as much as tripling that. So call it mid-30s, even low-40s percent of our business on the wholesale channel and that would be powered by consumables bringing that's a major, major market opportunity over $40,000,000,000 of consumer spending there and a lot of that obviously through the wholesale or retail channel versus our toy business only being $3,000,000,000 So We've demonstrated the success in the toy business through that channel. We've got the consumable products lined up.

Speaker 2

We feel like the margins are and a great place for success. We started the conversations and so if we've done our job well, you'd see a big evolution away from or towards consumables going from about 30% of our total revenue last year to more than half over the next 5 years and the wholesale channel going from 12% to say mid-30s percentage over the next 3 to 5 years as well.

Speaker 6

Okay, great. Super helpful. And then just one quick on the macro. What are you guys seeing with the consumer discretionary spending, Maybe just holding up a little better than expected, but still kind of under pressure. And then if there's any difference between like the DTC and the retail segments.

Speaker 2

Yes. I think you described it well there where we're starting to see our retail partners taking more inventory. So that's a positive sign for us. And we sort of expected that. We had that pull forward a year ago in the Q2 for us.

Speaker 2

And then quite the slowdown in the headwinds and now we're starting to see that loosen up a bit as Our partners clear their inventory. On the direct side, the retention on our new customers and our cohorts look fantastic, as good as they ever have looked, if not the best they've ever looked. So very, very strong on retention. Certainly headwinds in acquiring new customers there on the direct side relative to the toy or subscription box business. But that's really the only headwind and even that we're starting to see it loosen up a little bit.

Speaker 2

So I think the way you described it at the top was pretty spot on. All right, perfect. Thanks guys.

Operator

And our final caller today comes from

Speaker 2

the line of Max Rochnick from TD Your line is

Operator

open. Great.

Speaker 7

Thanks a lot guys. So I know it's early, but you've spoken a bit about a framework Q4 fiscal 2025 revenue growth. So I was hoping if you could speak maybe directionally to how growth could look by channel next year. And then just the key puts and takes that could get you to the low versus the high end guidance.

Speaker 3

Hey, Rob. How's it going? So in terms of the general direction. As Max said, in terms of our revenue profile this year, D2C is about 88%, Commerce is 12% of our business. And then looking at the product breakdown, 70% Toys and Other and Around 30 Percent Consumables.

Speaker 3

As we start to see consumables in retail exiting this year and And going network wide with a couple of customers during 2025 and then branching out to other customers during the course of the year, as well as introducing new product lines like dental products and start to introduce cable as well into retail. We expect retail to have a meaningful step up next year and probably grow the majority of that high single digit, double digit growth that we're expecting on our top line. As we continue to invest in our unified platform, We expect consumables to drive growth there as well. So majority of our growth on that high single digit, double digit overall top I'm coming from retail, but with strong performance also on the B2C side.

Speaker 7

Got it. That's Helpful. And then as we think about EBITDA margin expansion over the longer term, what are the top opportunities within G and A to run more and improve the cost structure. And then where do you think G and A as a percent of sales needs to go in order for you to reach your longer term profitability targets?

Speaker 2

Yes, I'll maybe start this one, maybe Zihir will chime in as well. But On the G and A side, there's really there's opportunity to still be more efficient overall. We've got as we talked about, We've moved now to this unified platform at shop.barq.co. It's powered by Shopify. So the development effort, if you will, around that is far less than running 1 rail site, let alone 4 of them simultaneously.

Speaker 2

So that means, you just don't need the development firepower in order to advance that platform at the same rate. Now that gives us the opportunity to use the strong development resources we have to advance it at faster rates and get more utility out of it or advance our revenue from that platform or it has the opportunity to redeploy those people into new revenue opportunities and build new products. But overall, you're operating more efficiently. So that percent of spend on G and A just from the team perspective should continue to come down, especially As I mentioned, this quarter is our what we expect to be our low point in terms of revenue from here on. So Just from that, we should grow into that percent of spend on G and A to come down.

Speaker 2

Q and A.

Speaker 3

Yes, sure. So a couple of things. 1, within our G and A, obviously, we have shipping and fulfillment in there as well. We've made great progress on that over the last 12 to 15 months. We continue to see improvements over the course of this year and going into next year.

Speaker 3

Just to give you a sense of that, we're reducing our warehouse footprint. We're consolidating the number of third party service providers as well. And both of those are just driving efficiencies in carrier rates, better network planning for us and just reduced overall costs on shipping and fulfillment. So we expect that to continue going into 2025. And then just to Matt's point on the other G and A, obviously, we've taken two measures that we have recently.

Speaker 3

So we feel good about where we're at overall from the other G and A perspective. We'll look at opportunities in some areas of spend like consultancy spend, professional services and so forth. But a lot of the upside, I think, on other G and A now comes from scaling the top line. We've got a strong base there that we can now scale off.

Speaker 5

Got it. It's very helpful. Thanks a lot, guys.

Speaker 3

Thank you.

Operator

Call. Ladies and gentlemen, that concludes today's conference call. You may now

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Earnings Conference Call
BARK Q1 2024
00:00 / 00:00