Hey, everybody. Thanks for joining us. I'm Kaumil Gajrawala, Jefferies Pet and Wellness and Staples analyst, plus whatever else I suppose they'll give me at some point. I'm excited here to have Matt Meeker, founder, CEO of BarkBox, ticker BARK. Well, let's kick off maybe, Matt, with maybe a brief introduction of your business, including kind of how it started, where it started, and where we are today.
Sure, thanks. It started nearly 12 years ago now, where I started it for my dog, Hugo, a Great Dane, and he was a bit of an oddball in New York City. So wanted to make him happy and have products that were size-appropriate or breed-appropriate for him, and that led us into hopefully creating the best products for dogs across a lot of categories and improving the lives of them and their people in the process. We started in toys. Today we're a leading brand in toys and in consumables. Over $500 million of revenue, roughly two-thirds of that revenue in toys, the balance in consumables.
It again started as a direct-to-consumer business, and largely today is the same, 88%, but also with presence across 40,000 retail doors, and we're just trying to make the best products we can for people and their dogs, as personalized to those dogs as possible, and meet them where they want to shop. So if that's directly from us, that's great. If it's at Amazon or Chewy or Petco or Walmart or Target, that's great, too.
Right. How did new customers discover BARK?
Well, we, we've been fortunate over the years now to serve millions of dogs through our subscription product, BarkBox, and as a result, we have a lot of data on those dogs and what they like, what they don't.
Mm.
So that gives us the opportunity to cross-sell. But finding those new customers, historically, given my background, I had a background in digital advertising and sort of a leaning towards performance marketing.
Mm.
Historically, we've been very bottom of funnel, Facebook, Google, very impulsive, and a product that matched that with BarkBox.
Mm.
Now we're in the air and gained a lot of awareness through that, through our social media, which reaches several million people, 1.8 million followers on one account on Instagram, as an example.
Mm.
So a lot of awareness built through the digital channels, and then some real-world, awareness built through those retail partners. They're-
Mm
... they're a great business partner, and we get good sales from it, but we also get presence in 40,000 doors and meet customers and introduce our products there.
Mm.
Now we need to do more to open up new audiences, generate demand, create awareness for people who are not naturally finding that BarkBox and across those consumable categories.
Is that harder to do today than perhaps it would have been a few years ago?
I don't know that it's any harder. To me, the world of marketing or customer acquisition is always changing. I mean, it was very efficient and very easy if you were to Facebook or Instagram when they turn on the advertising programs-
Mm
... and then you usually get a runway of 18-24 months, where there's a lot of, a lot of easy customers to pick off for very low rates, and then-
Mm
... everyone learns that and runs in, and the rates go up, and you have to move on to the next thing.
Yeah.
So for us, we're at the beginning of that cycle in terms of creating awareness in new ways.
Mm-hmm
... so I think we've-
Mm
... got, like, those easy wins, and then it'll get harder from there.
You do have some pretty unique, new avenues. Do you want... Which you've talked about in the past, maybe you want to bring that up for anybody who hasn't heard about some of these, I don't know if I want to call them new tactics or, you know, kind of unorthodox, I suppose, new channels?
Is there a specific channel you have in mind? That's-
I guess not channel, but I was talking about, you know, the deal with the Girl Scouts and the Subaru and et cetera.
Oh, yeah, yeah, yeah, of course. Yeah, and it's something we've done for a while. You know, when we think of gaining awareness and gaining customers, it's not just about making a product like the ones behind me here.
Mm.
Those are awesome. Like, we've got this advent calendar that's on the selves of Costco and selling really, really well. That's pretty right down the middle.
Mm.
What's unconventional is doing a partnership with Dunkin' and creating products that are specific to Dunkin' and putting it across all 9,000 of their stores. You mentioned being in Subaru dealerships.
Mm.
It's 650 dealerships, and the latest, we've kicked off a partnership with the Girl Scouts, where all the troops are out there selling Bark products, and the goal for that is that, a bit down the line here, that all the girls are out there selling Bark treats, Bark and Girl Scout branded treats alongside their cookies... and introducing our products and also supporting their organization. So yeah, those are really fun.
That's pretty cool, and hopefully they're just as delicious for dogs as actual Girl Scout cookies.
Hopefully as addictive.
Yeah. Yeah, exactly. One of the areas of focus as it relates to thinking about growth is the balance between growth and profitability, and we're talking about new customers and getting new customers. Can you maybe talk about where you are on that continuum and how you're balancing the two?
Yeah, I think we have a big opportunity still. You know, if I go back to the first nine years running the business, it was we got to nearly $400 million of revenue, raising only $57 million to get us there. So highly capital efficient. I maybe in a very short-term window, there's some tension between investing in growth and profitability, but over the long haul, I really view it as like profitability is an accelerant to growth. It opens up opportunities for us. So you've got to get your unit economics right, and we've done a lot of work in that over the last year and a half.
Mm.
I feel great about where it is and what's still in front of us.
Mm.
We have to get the right team around it, organized properly, operating very efficiently, and you've got to have that effective marketing spend. You can't, you can't overpay for a customer. So we look at the lifetime value of a customer versus what we acquired, or paid to acquire them. Right now, we sit in the neighborhood of about $60 to acquire a customer.
Mm.
Their first order or their average order value is around $31.
Mm.
So we're paying them back pretty quickly, and then it's just the volume. Our retention is strong.
Mm.
You've got all those efficiency metrics working well together, and now-
Mm
... we need to turn the dial up on the growth.
Got it. When you talk about that $60, based on your calculations, do you see as your LTV?
The typical, around $300.
Mm.
So we're always keeping our LTV to CAC somewhere in the, call it like 4.5:1 range.
Got it. Got it. Okay, great. One of them, obviously, this expansion into retail is one of the legs of the story. Why is now the right time? What is it about the BARK brand that you believe can, you know, can move beyond its sort of DTC world? And how has it, how has it gone?
Well, the move to retail isn't super new for us, but the focus and prioritization of it is... We first went into retail in 2017 with Target initially, and as I said, now we're in virtually every major retailer across 40,000 doors, selling only toys. It's gone really well. We started, frankly, in 2017, we had no idea what we were doing.
Right.
We were asked to come in and put our products on a shelf, and we learned.
Mm.
The advantage we have is, we're making so many products every year, putting them directly in the hands of consumers-
Mm
... and then we hear back from them how they felt about those products. We separate winners from losers. We get a lot of insight that allows us to make better product, and we take all those learnings and the best-performing products to our retail partners with great confidence this will sell.
Mm
... that's worked very, very well on the toy side of things.
Mm
... we're just taking the same playbook, and now our reputation and our relationship with those retail partners and saying-
Mm
... "Now we have treats, and soon we'll introduce food and our dental products to them," and run the same playbook. And again, we'll have to learn. Well, it won't, it won't be a, a perfect batting average out of the gate, but we will learn, and we'll grow, and, and we'll have better volume and better, like a, a more direct relationship with the customer to learn and-
Yeah
... and really pick up the pace there.
Got it. One of the things about being DTC is you have the benefit of all the data, the benefit you just explained. But in order to be able to analyze it and to have the infrastructure and the people, it's becoming, it feels like, more expensive by the second.
Mm.
So can you maybe talk about the, you know, what infrastructure you perhaps have in place, or what you would like or what you would need to be able to really exploit the opportunity?
Yeah. I hear you on the, on it becoming more expensive, and it's something we need to remind ourselves of, too. There's the opportunity to learn a lot or ask every question you possibly could ask or cut that data in every way you could. But even if you're able to cut it a million different ways, that doesn't mean you have the bandwidth to act on all of that. So I think more important than adding every new system and cutting your data in so many ways and adding all that infrastructure and cost, is more about really being focused on asking the right couple of questions and understanding the consumer.
I mean, no one else in this industry has millions of connections like we do and a monthly cadence to ask those questions. So if we simplify this and we say we get it down to there are two or three key questions we want answered, and maybe from there you dig in one or two more, we don't have to overcomplicate this thing. We'll already be much smarter than others who are going to retailers and selling similar products.
That makes sense. In that, in that regard, what sort of future innovations are you thinking about for BARK?
Right now, the focus is very heavily on the consumable category, and when I say that, it's treats, where we do a lot of volume directly, toppers, an emerging fast-growing category, food or kibble, and our dental product. Most of those are very retail-ready. Those that aren't, we're running to get them ready for pitches in March. But really enthusiastic about treats, because it's our first sort of push into consumables and into retail.
Mm.
We love the reception we've had from our key partners there.
Yeah.
We expect really good news there very soon.
When you say March, is that because it's aligned with April shelf resets, where it's a March pitch to get on shelves in April? Is that-
Uh, typically-
-clear-
... like the following spring. So-
Mm
... we're pitching, and then right now we're in the process of getting the feedback and taking the orders, if you will, from the retailers who we pitched last March to set again this March. So we're-
I see.
It's a long cycle. It takes some time, but it also gives us good visibility as to what's coming up.
Oh, great. Got it. Maybe to dig into that just a tiny bit, you mentioned the size of discretionary versus consumables. Maybe just what... Have you given any details on the growth of consumables within that portfolio?
We break out consumables versus toys or discretionary every quarter. And what we aim to do is take our consumables, which is right now roughly a third, 30% of our revenue, over time, over the next few years, take that up to north of 50%, and mainly through this retail expansion.
Uh.
So that's part of it. I think what you're probably alluding to is on discretionary. You've certainly heard from other companies you cover in the space, like, it's challenging. The headwinds are strong. We're definitely feeling that. We've been feeling it probably for six months. It might be that pets are on the leading side of an overall consumer slowdown, I don't know, but we've been feeling it for six months. I'd say the positive thing for us is we're executing better today than we were six months ago. So-
Mm
... we keep improving on our execution, and therefore, every month has gotten sequentially better, including September here. We're kind of raising the bar a little too high, and October is gonna be tough, but we'll try to keep the trend going.
I understand. Got it. Can you talk just a bit about how you price in the DTC channel? I'm looking over here. We have some incoming questions, but variable pricing, different size boxes and such. Maybe just talk a bit about how you manage the price, perhaps price per product versus price per box.
Well, on the box side, we're always running price tests and trying to balance that with the margins that we see-
Mm
... and what it takes to fulfill that box.
Mm.
Over the past 18 months, what we've been able to do is improve on the cost side significantly. And then we start to drift into a place where the gross margin for me becomes uncomfortably high, and I think we're probably leaving some growth and customers that are available on the table.
Mm.
So we run constant price testing across those boxes to find out if there are unlocks in terms of conversion, lowering our cost of acquisition. Those are pretty much always in motion. We're thinking about and trying something and trying to settle into the right place. We'll shut down here for the holidays and sort of lock in on what the best is, but the consumer is always changing too, so we need to sometimes the price might seem reasonable, sometimes we might be too high for them.
Mm.
We're taking all those signals and running constant tests against it.
Got it. Uncomfortably high, the margin is not a phrase you're hearing that much in 2023, but we'll take it. You mentioned some of the pressure on the discretionary side, does it feel like it is stabilizing, continues to be weak? Do you see the light on the other side of the tunnel? Where do you feel like we are?
Frankly, it does not seem to be slowing, maybe stabilizing, but it definitely seems that the headwind there picks up month after month. Like I said, the only saving grace for us is, I was really unhappy with the way we were executing on our sales and marketing six months ago. I personally jumped into it and rolled up the sleeves, worked on it, and we keep improving every month. I'm not giving ourselves an A+ on this today. It's better, but we have a lot more room for improvement. So, even with those headwinds, I think we can continue to grow through it, but it'd be nice to have the wind at your back, too, but I don't think we're there.
I mean, we went through the pandemic. We had strong tailwinds. That's awesome, and now we're here, and it's in our face, and it'll be there for a while, but again, it'll swing. It'll change again, and, and then we'll enjoy that when it happens.
Right. Got it. We're coming up on five minutes left, so I want to move to some financial things, and why don't we start with if you put it all together, what should investors be looking at as a long-term algorithm?
In a word, profitability. So you and I talked about this.
Yeah.
You shared a quote with me that I love and continue to hang on to. You can share it if you want. I don't want to steal it from you.
No, you can use it. You can go ahead.
Uh-
It'll make me feel good. It means you might have actually been listening.
I definitely listened. I think my team's probably upset that you said it, but you-
Yeah
... you shared a quote with me that was, "Growth without profit is a waste of time. Profit without growth is just a matter of time." And I, I think, like, that could have been written for BARK. So, my focus since coming back to the business 21 months ago, has been about returning us to profitability. I mentioned when I ran the business for the first 9 years, we raised less than $60 million to grow to $378 million.
Mm.
So highly efficient. The year prior to me returning, we had an EBITDA loss of $58 million. I knew-
Mm
... it was not an overnight fix, so in my mind, I set a goal of let's get a $100 million swing in that over the next 4, 4 years or, like, $25 million a year.
Mm.
I'll caveat that by saying it's a personal goal. It's a challenge I set for myself. I'm not giving you formal guidance here, but I like our-
Mm
... progress in that direction. So-
Right
... last year, we chipped away at that $27 million improvement. This year, we're kind of on pace to reach that halfway point or, or better. So we're right on track.
Right.
We've come a long way by running a more efficient business. There's still opportunities, but you also don't get that kind of turn without revenue growth contributing in some way, and, and now that's underway, and as I said, my focus is there. This year, we guided, our revenue down, and, and we continue to see the headwinds we talked about, but, but still see that room, that, that same trajectory for improvement on the profitability line. Next year, we expect a return to the growth with that healthier cost structure, bring us hopefully that, a similar leap once again, and then be able to do it again as we pick up momentum, and, and maybe somewhere over the next two and a half years, we, we pick up a tailwind as well.
I see. How much visibility do you feel you have on growth for next year?
Pretty good visibility. Again, we talked about the lead times and the sales cycles on the retail side of it, and we've-
Mm
... become good at forecasting or projecting against that, with the caveat of you never know what the macro environment's going to be or, what's happened in terms of the discretionary this year is definitely. It affects the retailers, and then that affects the orders within the year, but pretty-
Right
... solid visibility there, and then so much of our business is subscription, where we have 12 years of retention and consumer behavior data that is very steady, very predictable.
Mm.
So, you know, I want to knock on wood, but that gives us a lot of confidence and visibility. Then, it's really just about how many new customers can we introduce to Bark and put them into that same environment. And that's been the most difficult part of forecasting for us, especially as the macro economy has changed the way it has.
I see. And how about the cash needs to be able to execute some of these plans?
Cash, we're, we're in a very good spot. As of the end of last quarter, fiscal Q1 for us, we were over $160 million of cash on the balance sheet. We've said we expect healthy free cash flow improvements compared to last year, and even last year, we saw them throughout the year.
Mm-hmm.
We're in the back half of the year, we are free cash flow positive.
Mm-hmm.
We're expecting again to get to first a EBITDA positive quarter, then-
Mm
... an EBITDA positive year, generate free cash flow, and with $160 million of cash on the balance sheet, it's encouraging because we're in a position to ride out and thrive through these macro headwinds.
Mm.
We don't have major needs or step-ups in CapEx from here either.
Mm-hmm.
So our cash position is very, very good for us, and I think we-
Mm
... we exhibited that by initiating our first buyback, stock buyback, after our last quarterly earnings. Felt the st-
Yeah
... the shares were too low. Still feel they're too low. It's a great buy.
Mm.
So, I think that sends one signal of how do we feel about the cash we have.
Yeah, great. Well, we have one minute left, actually less than one minute left. I will let you say anything you want to close it out, and if there's nothing that you want to say, maybe you want to respond to what you believe is the biggest value driver for the business in the coming years.
The biggest value driver. It's... I think it continues to be, and always has been, the relationship with the customer, that we have those direct relationships. We have the capability of listening to them, being very responsive, being responsive quickly, and that our brand is so strong and so universal that we're covering all these different categories. So that our customers has given us permission to play, not just as a food brand or not just a toy brand, but across all of dog-
Mm
... and that opens up, endless opportunities for us. So, I, I think the brand and the, and that relationship with the customer and what it means to them, that's, that's really, that's the answer for you.
Got it. Good answer. Thank you very much for participating. It's been fun. We'll be in touch.
Thank you so much.
All right. Thanks, Matt.