BARK (NYSE:BARK) Q1 2027 Earnings Call

0:00 Thank you for standing by, and welcome to the BARK First Quarter Fiscal Year twenty twenty seven Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

0:24 I would now like to turn the call over to Christina Donnelly, General Counsel. Please go ahead. Good afternoon, everyone, and welcome to BARK's fiscal first quarter twenty twenty seven earnings call. Joining me today are Matt Meeker, Co Founder and Chief Executive Officer and Brian Dosti, 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. 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 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 to differ.

1:14 Please refer to our SEC filings 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.

1:32 Thanks, Christina, and good afternoon, everyone. We are off to a good start in fiscal twenty twenty seven, 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 plan we described 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 $78,800,000 of revenue at the high end of our $77,000,000 to $79,000,000 guidance range. This was powered by strong subscriber retention, better than expected sales in the retail channel and BARK Air flights filling up.

2:24 Specifically, in B2C, net revenue landed at $66,700,000 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 $0.45 per unit versus last year. The lifetime value of our BARK box subscriber is near its highest level for us as a public company. Turning to Commerce. We delivered $12,100,000 in revenue this quarter, and we continue to expand with both new and existing retail partners across wholesale and marketplaces.

3:13 We are winning market share and growing this business with discipline, building a larger and more durable growth engine for BARK. We expect commerce revenue to increase meaningfully from here as we head towards the holiday season and prepare to launch with the Girl Scout cookie program this winter. We couldn't be more excited about what's ahead. Finally, looking at BARK Air, we posted $3,200,000 in revenue this quarter, a 37% increase from the same quarter of last year. This is despite challenges such as Europe to U. S. 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.

4:02 The demand for BARK, Air 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 FY 'twenty six 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 adjusted EBITDA. This strength is driven by our D2C gross margin, which has expanded steadily over the past several years, adding hundreds of basis points during that time.

4:51 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 $0 to $1,000,000 guidance range and up from $100,000 in positive adjusted EBITDA in the same quarter last year. Finally, we ended the quarter with $16,100,000 in cash and a debt free balance sheet. The decline from $19,000,000 at year end reflects both a normal seasonal build in working capital and continued share repurchases under our $40,000,000 buyback program. We remain committed to balancing continued investment in the business with returning capital to shareholders.

5:40 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 designs 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 forty 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 Lixter platform that we believe will be very on brand and disruptive to the category.

6:36 There is somewhat of a razor slash razor blade model with the Lixter platform. As we seed 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.

7:06 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 color ways of our CrocDog shoes. Our CrocDog 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.

7:57 We're 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 twenty twenty seven, we expect total revenue of 83 to $85,000,000 and adjusted EBITDA of 1,000,000 to $3,000,000 For the 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 the start to the year. Entering fiscal twenty twenty seven 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.

8:51 There is 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, and good afternoon, everyone. I'll review our financial results for the fiscal first quarter of twenty twenty seven and then update you on how we're tracking against the full year framework we laid out in June. First quarter revenue was $78,800,000 compared to $102,900,000 in the prior year period. As Matt noted, this reflects a smaller subscriber base we entered the year with as we instill greater discipline on marketing and promotional spending during our fiscal year 2026 and we are seeing green shoots in our underlying DTC metrics now.

9:42 Turning to segments, total D2C revenue was $66,700,000 Within that, BARK, AIR contributed $3,200,000 up 37% year over year and continues to perform well. Excluding Air, B2C revenue was $63,500,000 versus $86,800,000 last year. The composition of that decline is the part I'd point you to. B2C orders were down about 28% year over year, while average order value increased $0.45 Revenue decline is a volume story tied to the smaller base and the poor order economics continue to improve. That is the exact trade we said we were making. Commerce revenue was $12,100,000 down 11% versus the prior year period.

10:30 We continue to see Commerce as a long term growth driver and expect to exceed our results from last year as we go forward. Reported consolidated gross margin was 72.7 percent. That figure includes approximately $7,400,000 of IEPA tariff recoveries related to fiscal twenty twenty six cost of revenue, which 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, also on a normalized tariff adjusted basis. The $7,400,000 recovery relates to costs we incurred last fiscal year. It is excluded from adjusted EBITDA and it is not a recurring benefit to our margin structure.

11:17 First quarter marketing spend was $9,500,000 down more than $5,600,000 or 37% year over year. We continue to hold this discipline while remaining prepared to reinvest when efficient customer acquisition opportunities present themselves. Shipping and fulfillment expenses were 23,800,000 down from $31,800,000 and improved modestly as a percentage of net revenue to 30.2% from 30.9%, reflecting both the lower DTC volume and continued network efficiency work. Other general and administrative expenses were 23,900,000 down $1,600,000 or approximately 6% year over year. Adjusted EBITDA for the quarter was approximately $600,000 compared to $100,000 in the prior year period.

12:06 Adjusted EBITDA excludes the IFA 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 $16,100,000 in cash compared to $19,300,000 at fiscal year end, and we continue to carry no debt. Accounts receivable was 20,400,000 up $12,300,000 at March 31. That increase is substantially the IEPA tariff recovery I described, which was recorded as a receivable in the quarter and had no cash impact in the period.

12:43 As of the balance sheet date, we had received 3,200,000 of our IEPA tariff refunds. We expect to collect the majority of the remaining IEPA receivable balance over the coming quarters. Inventory was 72,400,000 down $75,500,000 at fiscal year end and down more than $25,000,000 from $98,100,000 a year ago. We expect to drive further inventory efficiency through the balance of fiscal twenty twenty seven.

13:10 We're happy with this solid start to the year. We come into fiscal twenty twenty seven 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 and A.

13:49 Your first question comes from the line of Brian Myers with Lake Street Capital Markets. Please go ahead. Hey guys, thanks for taking my questions. Nice work on the progress during the quarter. So just thinking about direct to consumer and the return to growth in the second half of the year, Given what you guys saw in the first quarter, are you more confident now on that timeline? And then maybe what are some of the key metrics that you're watching really to determine, whether or not that inflection, in fact, is happening?

14:22 Hey. Thanks, Ryan. Yeah. I would say we're, probably the same level of confidence that we were when we came into the year. We put forward the plan, and we did the math and the math being how many new subscribers are we planning to add and, at what percent will we retain all of our subscribers and then, of course, the average order value for each one. We see what we saw in the first quarter here was,

14:54 really great performance year over year on the retention side, as I mentioned, over 170 basis points higher on the retention rate and really good performance on the AOV. And so we feel great about those. We feel great about the plan that we came into the year with, hitting the inflection point when we said we did we would. And a really nice thing is as we go further into the year, we're we're feeling extra confident about the commerce side of the business, which is nice to have because it it allows us to follow the plan and take all the right actions in d to c. So it's going well. It's right on track, and we feel good about, the pacing.

15:48 Got it. And then just that sort of leads me to my next question on the commerce business. Revenue down during the quarter. Can you just kind of unpack what the main drivers were there? And then just as the same thing as I asked with the direct to consumer business, what has you excited about Commerce? I know Girl Scouts is going come in, but what are kind of some other proof points as far as the kind of confidence level there in the second half? Yeah.

16:12 Yeah. And this is always the slowest quarter of the year for us, and it's a little bit slower than what we saw last year. It's always a lumpy business, and we expect it to be lumpy once again this year. So, you've got some timing elements of some things that maybe were, slipped into q four and therefore fell out of q one here and the other dynamic, but really a lot of things building for q two through '4 of this year. It it also is a long lead time as we know. There there are, of course, ongoing orders every week, but we have really great visibility to where those those big lumps are in the road.

16:59 And we've been winning, as I mentioned in my script, according to Nielsen, we've been winning market share in the toy category on a consistent basis over the last year, the last quarter, the last month, building good relationships with our major partners, some of which who I mentioned are taking our our new Lixter's product here in the fall, that being Walmart, Target, Chewy, Amazon. So very excited about that. We we like the outlook there. And, that just takes it eases up that pressure on the direct to consumer side of when you're when you're rebuilding that we don't have to do anything unnatural, that we can just stick to the plan, and it's it's a nice byproduct that the plan is going well.

17:55 Got it. Makes sense. Thanks for taking my questions. Thank you, Ryan. That concludes the question and answer session. Ladies and gentlemen, this concludes the BARK first quarter fiscal year twenty twenty seven earnings call. Thank you all for joining. You may now disconnect.