Operations Woes Interrupt Momentum at Blue Apron

Blue Apron, the scuffling meal-kit company whose turnaround effort showed promising signals including a rare quarterly profit earlier this year, dipped back into the red in its fiscal third quarter, citing among other things, operations issues that constrained capacity, cost customers and cast a pall over other improving metrics.

Net revenue of $11.2 million in the period ending Sept. 30 was up by 12.3% from last year’s third quarter but accompanied a $15.3 million loss. Those figures were each down sequentially from the second quarter when pandemic-related demand pushed sales to $131 million and Blue Apron eked out a small profit.

Blue Apron

Officials in a conference call said some of the sequential declines related to seasonal slowness, but Blue Apron was also beset by labor capacity issues in its warehouses, which caused the service to curtail some menu selections and cancel or delay some orders, and subsequently pull back on acquisition strategies. That all resulted in a 7% decline in customers—or what one analyst estimated was about 235,000 fewer orders and 40,000 fewer customers—than in the second quarter.

“As it has for other companies, adequately staffing our facilities remains a challenge and, as such, we did not lean into marketing in the third quarter to drive higher growth, as much as we otherwise would have,” Linda Findley Kozlowski, Blue Apron’s CEO, said in a conference call discussing the results, according to a Sentieo transcript. “To be clear, while we believe we have the infrastructure and place to support significantly higher levels of demand, we have experienced labor shortages throughout the pandemic.”

Kozlowski said Blue Apron was addressing its warehouse issues behind new operating practices designed to improve productivity. So far, these practices have decreased the labor required to pack per line by approximately 18% and labor minutes per box was lowered by nearly 22%, she said.

Blue Apron’s sales were further dinged by about $2 million related to a supplier recall of onions used in some recipes. The company issued credits to affected customers.

These issues helped to obscure what officials noted were better base metrics for the business, including a 20% increase in orders per customer and a higher average value order—$59 vs. $58—than last year. Orders per customer in the period of 5.4 was the same as second quarter. The average order size dropped from nearly $61 in the second quarter.

And while reported sales and quarterly losses were also within the range the company had forecast, its results contrast with rival Hello Fresh Group, which signaled earlier this month that it expected financial results to exceed its previous guidance, also due in part to pandemic-related demand.

Blue Apron at the end of the quarter appointed four new board members. The board also completed a review of strategic alternatives but no immediate action has been taken.

Blue Apron stock was trading down by more than 27% on Oct. 29, just about wiping out all gains it had made in the calendar year.