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01/11 03:08
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Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
The earnings call presents a mixed picture: a positive Q2 with revenue exceeding guidance and strong international growth, but cautious guidance for Q3 and 2025. The Q&A highlights concerns over tariffs, pricing, and reduced promotions impacting growth. The company prioritizes growth initiatives over share repurchases, indicating a conservative approach. Overall, the sentiment is neutral as positive elements are balanced by uncertainties and conservative guidance.
Net Revenues Increased 6% year-over-year to $152.6 million. This growth was supported by improved trends in the scrubwear category, strong growth in the U.S. business, and a more intentional pullback in promotional strategies.
Scrubwear Revenue Grew 8% year-over-year, representing 83% of net revenues. This growth was driven by effective product merchandising efforts, including new colors, styles, and fit updates.
Non-Scrubwear Revenue Decreased 3% year-over-year, representing 17% of net revenues. The decline was attributed to a higher negative impact from the pullback in promotional strategies and a shift in marketing focus to core scrubwear.
U.S. Sales Increased 4% year-over-year to $129.9 million, supported by balanced growth from both new and repeat customers.
International Net Revenues Increased 20% year-over-year, driven by strong new and existing customer growth and great performance during baseline days.
Gross Margin Contracted 40 basis points to 67%. This was impacted by higher inventory reserves and modest tariff impacts, partially offset by a higher duty drawback and lower return rates.
Adjusted EBITDA Margin Improved 390 basis points year-over-year to 12.9%, driven by disciplined expense management and top-line gains.
Net Income Increased to $7.1 million, or diluted EPS of $0.04, compared to $1.1 million, or diluted EPS of $0.01, last year.
Active Customers Increased 4% year-over-year to 2.7 million, supported by improving acquisition trends and reengaging returning customers.
Average Order Value (AOV) Increased 4% year-over-year to $117, driven by higher average unit retail due to product mix and lower return rates.
Scrubwear Growth: Scrubwear posted an 8% gain, the highest growth in the past 7 quarters, driven by integrated merchandising efforts including newness, fabric, color, and fit.
Non-Scrubwear Performance: Non-scrubwear decreased 3%, impacted by promotional strategy pullback and marketing focus on core scrubwear.
Community Hubs Expansion: Planned openings of new hubs in Houston, New York City, and Chicago to enhance engagement with health care professionals.
International Expansion: Impressive gains in Mexico, Europe, Latin America, and the Middle East. Launched in Japan and planning to launch in South Korea in Q3.
Regional Market Strategy: Opened 12 new markets in Latin America leveraging regional commonalities like purchase behavior and language.
Logistics Optimization: Rightsized logistics footprint and optimized carrier mix, driving significant cost savings without sacrificing service.
Promotional Strategy: Deliberate reduction in promotional days to drive long-term productivity and intentionality.
Advocacy Efforts: Focused on health care policy issues including financial strain, mental health, and administrative burdens through lobbying and public campaigns.
Supplier Relationships: Strengthened supplier relationships to mitigate tariff impacts and drive future innovation.
Tariff Uncertainty: The company faces uncertainty regarding tariffs, with added tariffs of 20% in Vietnam, 15% in Jordan, and 30% in China. This creates a significant headwind for gross margins, particularly in Q4 and into 2026.
Promotional Strategy Changes: The ongoing reduction in promotional days is expected to create headwinds in the second half of the year, potentially impacting customer acquisition and revenue growth.
Macroeconomic Consumer Behavior: Uncertainty around macroeconomic conditions and consumer behavior, including potential pricing impacts, could limit performance in the second half of the year.
Supply Chain and Logistics: Higher inventory reserves and modest tariff impacts have affected gross margins. The company is also working to optimize its logistics footprint and carrier mix to mitigate costs.
International Market Challenges: Softness in the Canadian market due to reduced promotional activity and the need for localized strategies to spur demand. Additionally, the company is taking a measured approach to entering new markets like South Korea and Japan, which could pose execution risks.
Stock-Based Compensation and G&A Costs: Higher people costs and depreciation related to asset purchases are partially offset by lower stock-based compensation, but these factors still impact overall G&A expenses.
Tariff Impact on Inventory: Inventory growth is expected to accelerate due to higher tariff goods being brought in, which could strain financials.
Revenue Growth: Full year 2025 net revenues are expected to grow low single digits year-over-year, improving from the prior outlook of down low single digits. Q3 net revenues are planned in a range of flat to up 2% growth year-over-year.
Adjusted EBITDA Margin: Full year adjusted EBITDA margin is now expected to range from 8.5% to 9%, ahead of the prior outlook of 7.5% to 8.5%. Q3 adjusted EBITDA margin is expected to be 9% to 9.5%, up significantly from 3.4% last year.
Gross Margin: Gross margins are expected to face approximately 150 basis points of total pressure for the year due to tariffs. Q3 gross margin contraction is planned to be approximately 50 basis points, with a higher margin drag expected in Q4.
Tariff Impact: The company is planning for added tariffs of 20% in Vietnam, 15% in Jordan, and 30% in China. The tariff impact is expected to build in Q3 and Q4, with mitigation efforts planned for 2026.
Promotional Strategy: The company plans more aggressive reductions of promotional days in Q3 and Q4, which is expected to create headwinds but support long-term success.
International Expansion: The company launched in Japan in Q2 and plans to launch in South Korea in Q3. Additionally, 12 new markets were opened in Latin America, with further investments in Canada, the U.K., and Mexico.
Community Hubs: Planned openings of new community hubs in Houston, New York City, and Chicago to enhance engagement with health care professionals.
Capital Expenditures: Capital expenditures for the full year are expected to be approximately $6 million.
Share Repurchase Program: On the capital allocation side, we did not repurchase shares this period and have $52 million available for future repurchases under our current share repurchase program. In the near term, we plan to focus on prioritizing investments in our business and preserving our balance sheet strength as trade dynamics stabilize.
The earnings call presents a mixed outlook. Positive factors include revenue growth projections, international expansion, and community hubs. However, tariff pressures, reduced promotions, and unclear management responses on key metrics offset these positives. The Q&A section reveals concerns about margins and inventory. Overall, the sentiment is balanced, leading to a neutral stock price prediction.
The earnings call presents a mixed picture: a positive Q2 with revenue exceeding guidance and strong international growth, but cautious guidance for Q3 and 2025. The Q&A highlights concerns over tariffs, pricing, and reduced promotions impacting growth. The company prioritizes growth initiatives over share repurchases, indicating a conservative approach. Overall, the sentiment is neutral as positive elements are balanced by uncertainties and conservative guidance.
The earnings call presents a mixed picture: a slight revenue increase and active customer growth are positive, but declining margins, a flat gross margin outlook, and a net loss raise concerns. The Q&A reveals management's cautious approach to pricing amid tariff impacts and supply chain issues, suggesting limited short-term growth. The share repurchase program provides some support. Overall, the sentiment is neutral, as positive elements are offset by financial challenges and cautious guidance.
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