BARK, Inc. (BARK) Earnings Call Transcript & Summary

Thank you for standing by. And welcome to the BART first quarter fiscal year 2027 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star, then the number one on your telephone keypad. I would now like to turn the call over to Christina Donnelly, General Counsel.

go ahead good afternoon everyone and welcome to barc's fiscal first quarter 2027 earnings call joining me today are matt nieker co-founder and chief executive officer and brian dostey interim 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 addition 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 want to remind you of the following information regarding forward-looking statements. 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. and outcomes to differ. Please refer to our SEC filing for more information on some of the factors that could affect our future results and outcomes. We will also discuss certain non-GAAP financial measures on today's call. Reconciliation of our non-GAAP financial measures is contained in this afternoon's press release. And with that, let me pass it over to Matt.

Thanks Christina and good afternoon everyone. We are off to a good start in fiscal 2027, building on the progress we outlined last quarter. Our first quarter results reflect continued profitability alongside underlying momentum in the parts of the business we are most focused on growing, and they give us early confidence that the in June is working. After one quarter, we remain confident in our ability to build our top line sequentially and deliver a meaningful gain in adjusted EBITDA profitability. This quarter we delivered $78.8 million of revenue at the high end of our $77 to $79 million guidance range. This was powered by strong subscriber retention, better than expected sales in the retail channel, and Bark Air flights filling up. Specifically in D2C, net revenue landed at $66.7 million for the quarter. While this is down from last year, due to a much lower entry point into the year, The forward-looking indicators of the business are strong. Our subscriber retention rate improved by over 170 basis points compared to the same quarter last year. In addition, our average order value grew by 45 cents per unit versus last year. The lifetime value of a BarkBox subscriber is near its highest level for us as a public company. to commerce we delivered 12.1 million dollars in revenue this quarter and we continue to expand with both new and existing retail partners across wholesale and marketplaces We are winning market share and growing this business with discipline, building a larger and more durable growth engine for bark. We've We expect commerce revenues to increase meaningfully from here as we head towards the holiday season prepare to launch with the Girl Scout cookie program this winter. We couldn't be more excited about what's ahead. Finally, looking at BARC-AIR, we posted $3.2 million in revenue this quarter, a 37% increase from the same quarter last year. This is despite challenges such as Europe to US routes and fuel surcharges stemming from broader geopolitical conditions. We're happy to report that well over 90% of seats have already been sold for the second quarter. the demand for Barcare business is as strong as ever. And that strong revenue performance came with strong normalized consolidated gross margin of 63.4%. On a reported basis, gross margin was 72.7%. The difference reflects a one-time FY26 tariff refund. recognized entirely in this quarter that is excluded from our normalized gross margin. This refund does not recur. And while included in our net income, its benefit is excluded from adjustediva.gov. This strength is driven by our D to C gross margin, which has expanded steadily over the past several years, adding hundreds of basis points during that time. I'm proud of our team for delivering this result. Carrying all that through, adjusted EBITDA for the quarter landed at $600,000. Again, within our zero to $1 million guidance range and up from $0.1 million in positive adjusted EBITDA in the same quarter last year. Finally, we ended the quarter with $16.1 million in cash and a debt-free balance sheet. The decline from $19 million at year end reflects both a normal seasonal build in working capital and continued share repurchases under our $40 million buyback program. we remain committed to balancing continued investment in the business with returning capital to shareholders. Looking ahead, I'm excited about our product pipeline and what's coming out in the next few months. There are three products I'd like to discuss today. First is a new enrichment toy and treat combination product called Licksters. This is a major push into the enrichment category, which is the fastest growing segment of dog toys. Lixter solves two huge problems within the enrichment category for dogs and their people. It designed a durable toy that is easily refillable and cleanable for the human, while still being effective at keeping dogs challenged and engaged for more than 40 minutes, which we believe is more than double the time claimed by the current market leader. Our design team has been working on this for over a year and has developed a three-year innovation pipeline for the Elixir platform that we believe will be very on brand and disruptive to the category. There is somewhat of a razor-splash-razor blade model with the Lixter platform. As we see the Lixter toys into the market, we expect good attachment rates and recurring revenue of the treat refills. This is currently being introduced to our subscribers and their monthly boxes, and will roll out in Target, PetSmart, Walmart, Amazon, and Chewy this fall. Second, say hello to Crocs again this fall. After the successful debut of Crocs for Dogs last year, our partnership is expanding in October 2026 with new product categories including toys, beds, and accessories, along with additional colorways of our Croc Dog shoes. Our Croc Dog shoes have been our most successful TikTok product launch to date, and we're excited to build on that momentum this fall. Finally, we have a new partnership with Liquid Death that will also launch in the fall. This is a robust, audacious partnership we've been working on for a while. As part of Liquid Death's first ever collaboration in the pet space, Bark will be introducing a new line of toys and accessories, co-designed together with the Liquid Death team. excited for our consumers to get a hold of these products. There's so much ahead of us to be excited about and to drive our growth. And our excitement and enthusiasm leads us to guidance. So now turning to that guidance for the second quarter of fiscal 2027, we expect total revenue of 83 to $85 million and adjusted EBITDA of one to $3 million. full year we are reiterating our guidance on both the top and bottom lines. reflecting our confidence in the trajectory of the business. We are pleased with this start to the year, entering fiscal 2027 debt free. The quarter reflects continued discipline on the bottom line, strengthening growth throughout the business and steady execution against the strategy we laid out last quarter. There's still more work ahead, but we believe we are building from a stronger foundation and remain optimistic in our ability to deliver meaningful progress and improve profitability for our shareholders. With that, I'll turn the call over to Brian.

Thanks, Matt. Good afternoon, everyone. I'll review our financial results for the fiscal first quarter of 2027, and then update you on how we're tracking against the full year framework we laid out in June. First quarter revenue was 78.8 million compared to 102.9 million in the prior year period. As Matt noted, this reflects a smaller subscriber base we entered the year with as we instilled greater discipline on marketing and promotional spending during our fiscal year 26. And we are seeing green shoots in our underlying DTC metrics now turning In the segments, total DTC revenue was 66.7 million Within that, Bark Air contributed 3.2 million, up 37% year over year, and continues to perform well. Including here, D2C revenue was 63.5 million versus 86.8 million last year. The composition of that decline is the part I'd point you to. DTC orders were down about 28% year over year, while average order value increased 45 cents. Revenue decline is a volume story tied to the smaller base and the poor order economics continue to improve. That is the exact trade you said we were making. Commerce revenue was 12.1 million, down 11% versus the prior year period. We continue to see commerce as a long-term growth driver and expect to exceed our results from last year as we go forward. Supported consolidated gross margin was 72.7%. That figure includes approximately 7.4 million of IEPA tariff recoveries related to fiscal 2026 cost or revenue. became eligible for submission and were recorded in the quarter. Excluding that recovery, first quarter gross margin was 63.4% compared to 63.8% in the prior year period. on a normalized tariff adjusted basis. 7.4 million recovery relates to cost we incurred last fiscal year. It is excluded from adjusted EBITDA, and it is not a recurring benefit to our margin structure. Quarter marketing spend was 9.5 million, down more than 5.6 million or 37% year over year. We continue to hold this discipline while remaining prepared to reinvest when efficient customer acquisition opportunities present themselves. SHIPPING IN FULFILLMENT EXPENSES WERE 23.8 MILLION, SHIPPING IN FULFILLMENT EXPENSES WERE 23.8 MILLION, DOWN FROM 31.8 MILLION, WERE 23.8 MILLION, DOWN FROM 31.8 MILLION, AND IMPROVED MODESTLY AS A PERCENTAGE DOWN FROM 31.8 MILLION, AND IMPROVED MODESTLY AS A PERCENTAGE OF NET REVENUE TO 30.2% FROM 30.9%. both the lower D2C volume and continued network efficiency work. Other general and administrative expenses were 23.9 million, down 1.6 million or approximately 6% year-over-year. Adjusted EBITDA for the quarter was approximately $600,000 compared to $100,000 in the prior year period. adjusted EBITDA excludes the IEPA recovery I described along with stock-based compensation, depreciation and amortization, legal matters, warehouse restructuring costs, and executive transition costs. We ended the quarter with $16.1 million in cash compared to $19.3 million at fiscal year end, and we continue to carry no debt. Accounts receivable was 20.4 million, up 12.3 million in March 31. That increases substantially the IEPA tariff recovery I described, which was recorded as receivable in the quarter and had no cash impact in the period. As of the balance sheet date, we have received 3.2 million of our IEPA tariff refunds. expect to collect the majority of the remaining IEPA receivable balance over the coming quarters. inventory with 72.4 million, down 75.5 million at fiscal year end, and down more than 25 million from 98.1 million a year ago. We expect to drive further inventory efficiency through the balance of fiscal 2027. We're happy with the solid starts of the year to come into fiscal 2027 debt-free, and our priority is driving consistent cash generation over the balance of the year. There's more work to do, and we're focused on delivering on profitability improvement and against the guidance we reiterated today.

And with that, I'll turn the call over to the operator for Q&A. As a reminder, if you would like to ask a question, press star, then the number one on your telephone keypad. To withdraw your question, simply press star one again. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Brian Myers with Lake Street Capital Markets. Please go ahead.