Kidpik Corp (PIK) 2022 Q2 法說會逐字稿

Good afternoon, and welcome to the Kidpik second-quarter 2022 earnings conference call. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Ezra Dabah, Chief Executive Officer. Please go ahead.

Thank you, Gary. We're happy to welcome everyone to today's call to review Q2 2022 and provide an update on the business. We're going to start with a review of our financial and business highlights followed by a financial review, which Adir, our CFO, will take us through, and we will then open the call to Q&A. Moshe Dabah, my son, our Chief Technology Officer and Chief Operating Officer, is also available for any questions you may have.

I'd like to start by sharing that new customer revenue and conversion rates increased over the past two months, and we have seen our active subscriber base increase over the past month. Kidpik's second-quarter results fell below our expectation as a result of continued weakness in new customer acquisitions and partly due to a decline in industry-wide consumer confidence.

As we previously mentioned, the rate of our new customer acquisition has been impacted by privacy policy changes across social media, which resulted in a 33% lower revenue for the second quarter of 2022. To address the impact of social privacy policy changes, we have launched several new programs that are beginning to show results. We have expanded our brand ambassador program, have focused on our search platform strategy and leveraging our own robust database, as well as focusing on other channels. We are constantly working to improve the customer experience and introduce new products and categories for our members to purchase.

Just last week, we launched Kidpik Baby, adding sizes 12 and 18 months to our existing product offerings, which presents an opportunity for growth amongst our existing members in addition to new target audiences.

We have relaunched our brand website, which we invite you to see, presenting an elevated image for the back-to-school season. We have added new features to our ecommerce website, Kidpik Shop, creating a convenient and streamlined way for both members and non-members to shop items, curated outfits, freestyle boxes, and our famous [2-4 Basics a la carte] with no subscription required.

In addition, we are testing an in-home direct mail program that is rolling out as we speak. We are continuing to explore other paid and unpaid channels to generate new opportunities for conversions. Our team has decades of experience operating a business with an integrated model and has honed their expertise across design, merchandising, and procurement. This, coupled with the proven proprietary technology and algorithm we have built, uniquely positions us to scale and reach our profitable growth objectives.

Our competitive advantage within the kid subscription marketplace is our ability to deliver head-to-toe stylized assets at a great value. This positions us to service a wide audience within the 50 billion and growing children's [wear] marketplace. As mentioned previously in the second quarter, we introduced the 12-piece box option, delivering even more items for our members to purchase in each box. We are happy to report that almost half of our new members are opting for the bigger box, and the keep rate of the 12-piece box are very similar to the traditional eight-piece box.

We're dedicated to fulfilling our mission to change the way parents shop by delivering personally styled high-quality outfits that make their kid look great and inspire confidence. Our products and services are appealing to parents who are seeking convenience and style support when it comes to getting their kids dressed while also enjoying the excitement of the unboxing and fun discovery experience. Positive customer engagement is illustrated by the 28,000 average four-star reviews of our service from happy parents and grandparents.

By the way, 15% of our active file are actually grandparents. Here's a quote from a grandma: It has been a remarkable year with Kidpik. The clothes are durable, great quality, and quite chic for our eight- and five-year-olds. The shoes are always a hit too. I would definitely recommend this box to anyone who wants to streamline shopping. There's always a variety of mix-and-match outfits. Oh, so versatile.

And a quote from mom basically describes what we are about: My daughter absolutely loves and looks forward to a box every month. I wish I could tell her stylist what a great job she always does. We have kept everything in each and every single box. As a busy working mother, it saves me time, and my kids look great.

I must tell you; this is the type of reviews that drives us to excel and do more. Having our own brand also gives us the opportunity to expand beyond the box. As mentioned in our first-quarter call, we have now implemented a software that enables us to market and sell our branded apparel and shoes on third-party ecommerce platforms. We are also seeking major retail partnerships with the goal of increased distribution and brand visibility. We invite you all to please visit us at kidpik.com to see our new ecommerce brand experience for the back-to-school season.

Thank you for your interest, and we look forward to seeing our strategy deliver profitable growth in the years to come. With that, I'll turn the call over to Adir to detail the financial highlights of the quarter. Adir?

Thank you, Ezra. Q2 revenue was $3.8 million, a decrease of 33.4% year over year. The decrease in revenue was primarily driven by a decrease in subscription box sales due to a reduction in new customer acquisitions in the second quarter of 2022. Looking at Q2 revenue by channel, subscription sales were approximately $3 million, a decrease of 38% year over year. Amazon sales was lower at $559,000, a decrease of 22% year over year. Online website sales increased by 103% to $241,000.

Moving to revenue by subscription for the quarter, active subscriptions or recurring boxes decreased by 31.6% to $2.7 million. New subscription of first box decreased by 66.1% to $0.3 million. Total subscriptions decreased by 38.4% to $3 million that represents 79% of total revenue. Turning to gross margin, gross margin for the quarter was 61%, a year-over-year increase of 70 basis points. Shipped item for the second quarter decreased by 39% to 354,000. Keep rate for the first quarter was 69.2%, which is in line with our keep rate last year.

On the bottom line, net loss for the quarter was approximately $1.6 million or a loss of $0.21 per share compared to a net loss of $1.4 million or a loss of $0.26 per share last year. Speaking to non-GAAP adjusted EBITDA for the quarter was a net loss of $1.1 million compared to a net loss of $1.2 million last year.

Now to the balance sheet and cash flow. Cash at the end of the quarter was approximately $2.5 million compared to $8.4 million at the end of 2021. We used $4.8 million in operating cash flow for the 26 weeks period, compared to $3.8 million last year. We're currently looking at various financing options available to the company in order to enhance our cash position. As of July 2, 2022, we had $17.1 million in total current assets, $5.3 million in total current liabilities, and the working capital of $11.8 million. With that, I will turn the call back to the operator for Q&A. Operator?

(Operator Instructions) Edward Riley, EF Hutton.

Hey, guys, thank you for taking my question. I was wondering if you could maybe quantify what you're seeing for the new customer revenue of the two recent months. I was wondering if we should expect new purchases in Q3 to be above that of Q2?

Well, we are seeing an increase in conversions over the past months. And as we have mentioned, we've also seen an increase for the first time over the past year in active subscribers. So at this particular moment, we look forward for that trend to continue into the third and fourth quarter.

Okay. How long do customers typically keep a subscription for?

Yes, Eddie, that's something that we have not shared before. So it's a good bunch of time, but we haven't shared that stat before.

Okay. [Let's see here.] For the baby boxes, congrats on rolling that out. I was wondering what percentage of current subscribers maybe -- might be interested in in that box as well?

Which box is that, the freestyle gift boxes?

The baby box.

The baby box. Well, we just launched it, and we've seen course conversions come through like we have before when we launched the toddler. And as it relates to a percentage, it's hard to say what that might be. We just launched it late last week. (Multiple speakers) But it's another two sizes, so potentially, it could increase the business over time by anywhere from 3% to 5%.

Okay, do you guys have data on your subscribers that have children in the 12- to 18-month range?

No, we only have data on our actual subscribers as to how -- what their age is. Most of them give us their age. But as to who else potentially is in the household, we [don't know].

Okay. And then, I'm wondering if you could maybe unpack how the discussions with retail partners have been.

We're just beginning that. We wanted to wait for a look and feel in our elevated aspirational look that we just rolled out, the back-to-school, before contacting them. So we have our eyes on a few retailers, and we look forward to contacting them over the next few weeks.

Okay, that's it for me. Thank you.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Ezra Dabah for any closing remarks.

Thank you, operator. Thank you all for joining us today. We remain optimistic about our growth potential. Thank you for your continued support and interest in Kidpik. If you have any additional questions, please contact us at ir@kidpik.com. Wishing everybody a great day and an inspiring and healthy fall season. It's amazing that we don't talk about summer anymore. It came and left so quickly. Have a great season ahead and thank you again for your interest. All the best.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.