Blue Apron shows signs of recovery amid business model concerns

Blue Apron Holdings (NYSE: APRN) stock is showing signs of recovery after experiencing the record low in June end. The shares have risen over 33% in the past three months and over 28% in the past month, after falling over 59% in the past year. The stock has responded to the 1-for-15 reverse stock split and the offering of plant-based products from Beyond Meat (NASDAQ: BYND) on its menus.

The market analysts were unimpressed by the Blue Apron actions and considered it as nothing more than a halo effect. The company has been struggling to attract new customers or retain existing ones as the business model turned out to be both expensive and inefficient. The market analysts were earlier concerned about the company’s future as there appeared to be very little optimism.

The New York-based meal-kit company has been facing stiff competition from retail giants like Walmart (NYSE: WMT), Kroger (NYSE: KR), and other delivery services. The company’s business has been significantly hurt by the lower-priced meal kits offered by the competitors.

Blue Apron was striving for the sales of meals to customers through 2‑Serving and Family Plans as well as Blue Apron Wine and Blue Apron Market. However, due to its seasonality, the business tends to turn lower in the rest of the quarters in any given year excluding the first quarter, which was generally the strongest in terms of customer engagement.

For the second quarter, Blue Apron reported losses that were narrower than what the street anticipated, driven by a reduction in the marketing spend. The top line, which decreased by 34% year-over-year, missed the analysts’ expectations. Orders declined quarter-over-quarter, despite a slight increase in average revenue per customer.

Read: Chipotle stock nears record high on new menu servings

As of June 30, 2019, the company had $95.6 million of cash and cash equivalents while the total debt stood at $154.5 million. Despite a shortfall, the company is expected to manage its debt after the reverse stock split. The company is using a lot of debt to finance growth and this would be reflected in the upcoming earnings growth.

The stock has remained grounded as the cost of debt financing outweighs the higher income generated. The market analysts expect the company to recover from the shortfall. However, the time constraint is likely to put pressure on Blue Apron, hence it could announce additional recovery plans in the third quarter.

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