Is Original BARK a Buy After Reporting Q2 Earnings Results?

The shares of New York City-based Omnichannel dog-centric company, the Original BARK Company (BARK) climbed in price after the company made its stock market debut on June 2, 2021. It had merged with a special purpose acquisition company (SPAC), Northern Star Acquisition Corp., to facilitate its IPO. And in July 2021, the Dunkin’ Joy in Childhood Foundation and BARK, the maker of BarkBox, announced a second collaboration featuring two “pawsome” new dog toys.

For its fiscal second quarter, ended September 30, 2021, BARK’s revenue came in at $120.16 million, up 39.1% year-over-year. However, the company’s adjusted net loss increased 711.2% year-over-year to $11.03 million. In comparison, its adjusted EBITDA was negative $8.78 million compared to a $1.07 million gain in the year-ago period. Its shares have declined 16.8% in price since the earnings release on November 10.

Furthermore, the stock has lost more than 14% over the past three months to close yesterday’s trading session at $6.20. According to a report from The Zebra, 38.4% of American households own a dog. Dog ownership has increased amid the pandemic, with people spending more time at home. However, with the gradual economic recovery and several offices reopening, dog ownership growth might slow in the coming months. Moreover, high shipping costs are expected to harm BARK’s business in the near term, so its prospects look bleak.

Here are the factors that could shape BARK’s performance in the upcoming months:

Increased Scrutiny on SPACs

SPACs have exploded in popularity, especially since last year. According to Statista, as of October 2021, SPACs had raised capital in 498 IPOs this year. However, SPACs are now getting hit by class-action lawsuits. According to data from Woodruff Sawyer, shareholder lawsuits against post-merger SPACs rose to 15 through the first half of 2021, tripling from just five in 2020.

Furthermore, in September 2021, a U.S. Securities and Exchange Commission (SEC) advisory committee endorsed rule changes to increase disclosure regulations for SPACs. So, this could impact BARK’s business too.

Unimpressive Management Guidance

BARK’s management expects the company’s revenue to be between $137 - $139 million for its fiscal third quarter. Also, due to uncertainty surrounding the macro freight and shipping environment, it anticipates a roughly 2% risk to $516 million revenue guidance it initially provided in December 2020 for fiscal 2022.

Moreover, BARK revised its fiscal 2022 adjusted EBITDA guidance to negative $38-$40 million, from approximately negative $31 million, due to greater-than-expected shipping and fulfillment costs.

Poor Profitability

In terms of trailing-12-month EBITDA margin, BARK’s negative 11.65% is lower than the 12.52% industry average. Likewise, the stock’s negative trailing-12-month net income margin and levered FCF margin are lower than the 6.40% and 6.47% respective industry averages. In addition, its trailing-12-month ROCE, ROTC, and ROTA are negative compared to the 17.64%, 7.65%, and 6.26% respective industry averages.

POWR Ratings Reflect Bleak Prospects

BARK has an overall F rating, which equates to a Strong Sell in our POWR Ratings system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree. 

Our proprietary rating system also evaluates each stock based on eight distinct categories. BARK has a D grade for Stability, consistent with its 1.04 beta.

The stock has a D grade for Quality, which is in sync with its lower-than-industry profitability ratios. BARK has a D grade for Growth, which is consistent with analysts’ expectation that its EPS will remain negative this year and next year.

Furthermore, BARK has an F grade for Value, which is in sync with its 1.73x and 2.12x respective forward EV/S and P/S, which are higher than the 1.49x and 1.30x industry averages.

BARK is ranked #42 out of 43 stocks in the Specialty Retailers industry. Click here to see the additional POWR Ratings for BARK (Momentum and Sentiment).

Bottom Line

BARK is currently trading below its 50-day and 200-day moving averages of $6.70 and $8.58, respectively, indicating a downtrend. Analysts expect its EPS to remain negative in the coming quarters. Furthermore, higher freight costs resulting from worldwide shipping congestion could lead to increased expenses for the company. So, we think the stock is best avoided now.

How Does Original BARK (BARK) Stack Up Against its Peers?

While BARK has an overall POWR Rating of F, one could check out these other stocks within the Specialty Retailers industry with an A (Strong Buy) rating: The Cato Corporation (CATO), Canadian Tire Corporation, Limited (CDNAF), and Conn's, Inc. (CONN).

BARK shares rose $0.06 (+0.97%) in premarket trading Thursday. Year-to-date, BARK has declined -56.73%, versus a 26.78% rise in the benchmark S&P 500 index during the same period.

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.

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