Blue Apron (APRN) reported fourth quarter results: sales fell 33% from a year ago and Adjusted EBITDA fell 7% to a loss of $(8.3 million). While meal kits as a product class are here to stay, to succeed in the aggressively competitive market (against other stand-alone meal kit companies and well-funded grocery-based competitors, Amazon, and others) Blue Apron needs to significantly increase its marketing spending from its currently depressed levels. Unfortunately, its operations can’t produce the needed funds - it appears to have reached the limits of its ability to improve on its own, yet free cash flow remains negative. The company said it will be ramping up spending and posting a $22-26 million loss in the first quarter, so the clock is ticking as they can’t lose that much for any more than 2-3 quarters.
The leadership has approved plans to find additional resources through either a dilutive equity raise, a company sale or some other combination. We believe there are several potential buyers, especially given the company’s strong brand name, capable operating processes and innovative products. However, given its weak negotiating position, any deal would likely not be financially appealing to current shareholders.
While a sale could bring a higher price given the sharp sell-off over the past two days, to recommend APRN as a Buy would mean we think that a purchase, at a much higher price, is a high-probably outcome. We have no way of knowing, other than through pure speculation, when/what price/if a sale would occur.
Not every turnaround attempt is successful. Thus, we are moving our rating to SELL.
Disclosure Note: One or more employees of the Publisher own shares of all Turnaround Letter recommended stocks, including the stocks mentioned in this note.