Kaspien Holdings Inc. (KSPN) on Q1 2021 Results - Earnings Call Transcript
Operator: Good afternoon. Welcome to Kaspien’s Fiscal First Quarter 2021 Earnings Conference Call. Joining us today are our company’s CEO, Kunal Chopra; COO, Mitchell Bailey; Kaspien Holdings Inc. CFO, Ed Sapienza; and Kaspien Inc. CFO, Brock Kowalchuk. Following their remarks, we will open the call for your questions. Then before we conclude, I’ll provide the necessary cautions regarding the forward-looking statements made by management during this call. I would like to remind everyone that this call will be recorded and made available for replay via a link available in the investor relations section of the company’s website. Now, I would like to turn the call over to Kaspien’s CEO, Kunal Chopra. Sir, please proceed.
Kunal Chopra: Welcome, everyone and thank you for joining us today on our first earnings call. After the market close, we issued a press release announcing our results for the fiscal first quarter ended May 1, 2021. A copy of the press release is available in the investor relations section of our website. I encourage all listeners to view our release for additional information on what we'll be discussing today. And with that, we'll get started. Recognizing that many of you listening might be new to the Kaspien story, I'd like to start with a brief overview of the business. Then I'll turn the call over to Kaspien Holding’s CFO, Ed Sapienza to discuss our financial results for the quarter. His remarks will be followed by comments from the CFO of our operating subsidiary Kaspien Inc, Brock Kowalchuk, who will provide some additional disclosures around our key performance indicators. Lastly, I'll come back on to provide more operational analysis and closing remarks before turning the call over to questions. But first, I'd like to provide a little bit of background on our company. Founded at Trans World Entertainment in 1972 our operations were historically divided between two business segments, retail and in recent years, e-commerce. Within retail, we operated a business called For Your Entertainment or FYE for short. FYE was a brick and mortar retailer for various legacy media products, including videos and CDs. As of 2019, the FYE’s segment operated 210 stores, totaling approximately 1.2 million square feet of real estate. As it relates to e-commerce, in 2016, we acquired e-tails a leading third-party online retailer. E-tails used a data driven approach to digital marketplace retailing, working with proprietary software and e-commerce insights to identify new distributors and wholesalers, isolate emerging product trends, and optimize price positioning and inventory purchase decisions. In February 2020, we fully committed to our e-commerce growth strategy. Sold our ownership position in FYE, and subsequently rebranded as Kaspien Holdings. Today, Kaspien has adopted, improved, and expanded on our legacy to build a leading e-commerce marketplace growth platform. We offer an expansive suite of software and services to help brands grow on major online marketplaces, including Amazon, Amazon International, Walmart, Target, eBay, and others. We have spent the last decade building and implementing proprietary technologies for brand protection, marketing optimization, and fulfillment efficiency to generate strong revenue growth for Kaspien customers who we call our partners. We are an integral part of the trillion dollar online marketplace landscape and are positioned to lead third party seller brand growth services for years to come.
Ed Sapienza: Thank you, Kunal. Turning now to our financial results for the fiscal first quarter ended May 1, 2021, our net revenue in the first quarter increased 29% to $40.6 million, up from $31.6 million in Q1 of last year. The increase in net revenue was primarily attributable to continued strength on the Amazon U.S. marketplace, Amazon International, Walmart, Target, and other marketplaces. During the period, we saw an increase in percentage of revenue contribution from our businesses outside of the Amazon U.S. business, which has historically been our largest contributor. While we continue to grow steadily within the channel on a $1 basis, the outperformance we saw within Amazon International and other new markets contributed to this spread. As we continue to increasingly diversify and expand our revenue streams, we expect this positive trend to continue. Moving on to gross profit, this quarter, we made a reclassification to move several line items that were historically booked under cost of goods sold to our selling general and administrative or SG&A expense segment. Among these expenses were Amazon related commissions, which we pay based on our sales volume. These changes do not have an impact on our operating or net income. It should be noted that our gross margin will show a material increase when compared to prior reporting. However, we believe this update provides a better reflection of both our gross profit and SG&A expenses. We have and will continue to update comparable year periods going forward to ensure comparisons are on a like for like basis. This quarter, gross profit increased 24% to $9.8 million or 24.1% of net revenue from $7.9 million or 25.1% of net revenue in the comparable year ago period. While gross margin decreased overall, our merchandised margin rate increased 50 basis points to 46.7%, compared to 46.2% in last year's period. The overall increase in gross profit was primarily attributable to the increase in both net revenue and merchandise margin rate. Today's press release includes a table that reconciles our merchandise gross profit to gross margin. I encourage listeners on the call to review our release for those additional details. Turning to our selling, general, and administrative expenses, for the first quarter of 2021, our SG&A expenses decreased 19% to $10.7 million from $13.1 million in fiscal Q1 of last year. The decrease in SG&A expenses was primarily driven by a $3.7 million decline in general administrative expenses, partially offset by a $1.3 million increase in selling expenses. The increase in selling expenses is attributable to an increase in marketplace fees due to the net revenue increase.
Brock Kowalchuk: Thanks, Ed. Turning now to our KPI results for the fiscal first quarter ended May 1, 2021. Starting with Gross Merchandise Value or GMV, in fiscal Q1 GMV across our platform increased 48% to 63.4 million from $42.9 million in the comparable year ago period, included in that number is retail GMV, as well as subscription GMV. Retail GMV was up 30% to $42.6 million, compared to $32.8 million in the comparable year ago period. Subscription GMV increased 105% to $20.9 million or 33% of total GMV, compared to $10.2 million or 23.7% of total GMV and the comparable year ago period. When compared with Q4 of last year GMV decreased over both the retail and subscription segments by 10% and 22%, respectively. It should be noted that fiscal Q4 historically represents our strongest sales performance, owing to increases in retail sales during the holiday season. The quarter-over-quarter reflects this seasonality. Going forward, we generally expect to continue reliably growing GMV, both in retail and subscription on a year-over-year basis.
Kunal Chopra: Thanks, Brock. As you just heard, and further to my comments from earlier, the fiscal first quarter was a strong performance from Kaspien and a continuation of the consistent results we've delivered over the past few quarters, but beyond these strong financial metrics, we've also continued to drive our business forward in a lot of other ways, which I'd like to take some time outlining here. Right now we have a number of major operational initiatives that work, including new product launches, sales and marketing programs, partnerships, marketplace thought leadership content, and a new brand acquisition strategy. I'll now take a minute to go through these areas more fully beginning with product.
Operator: Thank you. And our first question is from . Please proceed with your question.
Unidentified Analyst: Good afternoon. Thanks for taking my question. Congratulations on the quarter. So, Kunal you referred to some changes in the marketplace overall, as the world is kind of getting back to normal, whatever that new normal will be defined as, but I wonder if you could talk about how that affects, you know certainly appreciate your commentary on how that affects your core business? How does that affect your marketing to new potential customers, you know, with new strategic partners that you've just recently signed on such as Target, such as Kroger, and how do you see that evolving over the next few months and quarters? Thank you.
Kunal Chopra: Thank you, . Yeah, great question. I mean, big picture, our strategy doesn't change. I mean, our goal is to continue to serve brands, across all the different distribution channels that they are shopping at, that their brand customers are shopping at, whether that's on Amazon, whether that's on Kroger, whether that’s on Target, Walmart, etcetera. So our big picture strategy isn't going to change. We're going to continue to serve our brands across these different channels. What we are generally seeing is that, you know, there is some general softness as a whole across the industry right now. And but big picture, there's a lot of supply chain issues that we're seeing across the board. And so that's where the issues come into play as to, you know, how do we make sure that we can get inventory appropriately to the channels where our customers are actually shopping at. So, the challenges are more on the back end? I think as opposed to really on that front end, we're still seeing demand pretty high with a little bit of softness, in general. So our strategy, big picture is not going to change, we're going to continue to push forward with everything that we're doing marketing, advertisements, across all these different channels in an omnichannel like manner, with a core focus now on that supply chain side, which is a big effort for us.
Unidentified Analyst: That's very helpful. Thanks very much.
Kunal Chopra: You're welcome.
Operator: Our next question is from . Please proceed with your question.
Unidentified Analyst: Thanks for taking my question. My question applies for the new Amazon storage limitations put in place for FBA sellers. I'm wondering if Kaspien has random issues as a result of new stores limitations or if there's any changes to the business model, perhaps in signing new category such as grocery to increase those limitations and not impact current FBA limits with the brands they’re working with today? Thank you.
Kunal Chopra: Great. So, I will start here with our general approach and then I'd like to hand it over to Mitch, our COO to give us more specifics on the FBA side of things. Big picture, our strategy is to take a diversified approach. We're taking a diversified approach on the front-end. We're taking a diversified approach on the back-end. On the front end, we don't want to put all our eggs in one basket, which is Amazon. We want to expand to multiple international marketplaces. We want to expand to Walmart, Target, Kroger, etcetera, etcetera. The same principle applies to the back end as well. We don't want to put all our eggs in the FBA basket. So, we have our own warehouse in Spokane. We are working with multiple third-party logistics providers like MyFBAPrep with deliver, and these are all part of our entire ecosystem of distribution on the back-end. And so our general approach is to not put our eggs in that one basket, but to try to diversify as much as possible. That being said, you know, of course, the Amazon limitations have, you know, affected us. And what we are doing is, we are transferring a lot of that inventory now to third parties, logistics providers, and our own warehouse as well. But, Mitch, if you can just add some more detail to that, I would appreciate it.
Mitchell Bailey: Yeah, thanks Kunal. Happy to and thank you for the question. Yeah, Kunal was spot on with the approach of diversification from a supply chain standpoint. What we've observed, and what we're noticing is, some of these limitations or restrictions that Amazon is putting in place, from an inventory standpoint, continue to be moving targets, and I believe that those in consistencies may persist. So, the focus across Kaspien and what has allowed us to be agile through this is having that diversified approach already in our infrastructure. So, one thing that has been a key focus for us is, really creating a curated strategy with our partners. And that strategy can be different, whether it's by category or by size type of the merchandise that we're working with to come up with the most optimal solution for how we're housing this inventory to make sure we're maximizing the coverage across all the different channels that we're selling through. So, yeah, it's a testament to the agility in the partnership that we have with a lot of our partners.
Unidentified Analyst: Excellent, thank you.
Operator: And at this time, this concludes our question-and-answer session. I would now like to turn the call back over to Mr. Chopra for his closing remarks.
Kunal Chopra: Excellent. Thank you today for joining us on the call. I especially want to thank our employees, partners and investors for their continued support. I appreciate everyone's time today. Operator, back to you.
Operator: Before we conclude today's call, I'd like to provide Kaspien’s safe harbor statement that includes important cautions regarding forward-looking statements made during this call. During today's call, there were forward-looking statements made regarding future events within the meaning of the Private Securities Litigation Reform Act of 1995. Certain statements in this communication are forward-looking statements. The statements contained herein that are not statements of historical fact may include forward-looking statements that involve a number of risks and uncertainties. We have used the words ‘anticipate’, ‘believe’, ‘could’, ‘estimate’, ‘expect’, ‘intend’, ‘may’, ‘plan’, ‘predict’, ‘project’, and similar terms and phrases, including references to assumptions, in this call to identify forward-looking statements. These forward-looking statements are made based on management’s expectations and beliefs concerning future events and are subject to uncertainties and factors that could cause actual results to differ materially from the results expressed in the statements. The following factors are among those that may cause actual results to differ materially from the company’s forward-looking statements: Risk of disruption of current plans and operations of Kaspien and the potential difficulties in customer, supplier, and employee retention; the outcome of any legal proceedings that may be instituted against the company; the company’s level of debt and related restrictions and limitations, unexpected costs, charges, expenses, or liabilities; the company’s ability to operate as a going-concern; deteriorating economic conditions and macroeconomic factors; the impact of the COVID-19 pandemic; and other risks described in the company’s filings with the SEC, such as its Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K. The listeners should keep in mind that any forward-looking statement made by us on this document, or elsewhere, pertains only as of the date on which we make it. New risks and uncertainties come up from time-to-time and it’s impossible for us to predict these events or how they may affect us. In light of these risks and uncertainties, you should keep in mind that any forward-looking statements made on this call or elsewhere might not occur. Thank you for joining us today for Kaspien’s fiscal first quarter 2021 earnings conference call. You may now disconnect.
