Blue Apron Holdings Inc. (APRN) Q2 2022 Earnings Call Transcript

Blue Apron Holdings Inc.  (NYSE: APRN) Q2 2022 earnings call dated Aug. 08, 2022

Corporate Participants:

Tip Fleming — Head of Investor Relations

Linda Findley — President & Chief Executive Officer

Randy Greben — Chief Financial Officer

Analysts:

Maria Ripps — Canaccord — Analyst

Dan Kurnos — Benchmark — Analyst

Mitra Ramgopal — Sidoti — Analyst

Sebastian Patulea — Jefferies — Analyst

Presentation:

Operator

Good morning, and welcome to the Blue Apron Holdings Second Quarter 2022 Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. As a reminder, this call is being recorded today Monday, August 8, 2022, for replay purposes. [Operator Instructions] After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions] Now I would like to turn the call to Tip Fleming, Head of Investor Relations at Blue Apron. Tip, please proceed.

Tip Fleming — Head of Investor Relations

Thank you, operator, and thank you, everyone, for joining us today. With me on the call are Linda Findley, President and Chief Executive Officer; and Randy Greben, Chief Financial Officer. Before I turn the call over to Linda, a few remarks. A slide presentation that accompanies today’s remarks can be accessed on our Investor Relations website. As the operator just mentioned, in addition to taking our normal questions over the phone, we will also be taking questions via the webcast. If you’re at your computer, please use the submitted question box in your webcast viewer. I’ll be moderating, so I’ll try to collect all the questions and ask them to our management team as they come in.

Moving on to our Safe Harbor. Various statements that we make during today’s call about our future expectations, plans, and prospects constitute forward-looking statements as defined in the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of risks and other factors, including those described in the company’s earnings release issued this morning and the company’s SEC filings.

In addition, any forward-looking statements represent the company’s views only as of today, and should not be relied upon as of any subsequent date. The company specifically disclaims any obligation to update these statements. During this call, we will be referring to certain non-GAAP measures, which are not prepared in accordance with Generally Accepted Accounting Principles. We encourage you to refer to our earnings release and SEC filings, where we have defined these measures, and to review the reconciliation of these non-GAAP financial measures to the most directly comparable GAAP results. With that, I’d like to turn the call over to our CEO, Linda Findley. Linda?

Linda Findley — President & Chief Executive Officer

Thank you, Tip, and good morning, everyone. We’re pleased to have you here today for an update on our second quarter performance and the strategic priorities we laid out during our Investor Day in May. To start, I will broadly address our Q2 results and strategic execution. Randy will then provide a deeper dive into our financials and report on several recent developments. During the second quarter, we continued to execute against our next core strategy.

As outlined at our May Investor Day, our focus over the next three years is on driving long-term sustainable growth, achieving adjusted EBITDA profitability in 2023, and positive operating cash flow in 2024. Although we’re only in the early stages, our hard work helped drive a slight increase in revenue versus the prior year in a seasonally slower second quarter and a 6% jump sequentially to $124 million, including a $10 million bulk enterprise sale. Throughout the quarter, our customer engagement metrics continued to perform well.

We achieved more than $67 in average order value, which is the highest level in the company’s history and average revenue per customer improved from last quarter to $328. While recent price increases contributed to some of the improvement, our ongoing commitment to introducing new menu options, along with additional variety and customization continues to be a key driver of these metrics. For those of you who are listening and our customers, you may have noticed that we recently increased our menu to 62 options. This is more than three times the number of options we had in 2019. Finally, orders per customer were roughly in line with last quarter, illustrating the strong engagement of our customer base with our product offerings.

This quarter, our total customers were 349,000, a slight decline from the first quarter of 2022. Similar to many other companies, we saw seasonal and macroeconomic pressures on purchasing patterns due to concerns over the inflationary environment. I would note that we have some subscribers who chose not to order during the quarter for budgetary and travel reasons and therefore, are not included in our customer count for the second quarter. The customer number also does not include enterprise or bulk sale customers, which is an exciting new part of our business. When we look at overall yearly trends, we get a more comprehensive sense of the scale of our business.

For example, the total number of active customers over the 12 months ending June 30, 2022, was approximately 682,000. This was down slightly from the equivalent peak pandemic period a year ago, though it represents a more complete view of the active customers in our business as it smooths out seasonality. We plan to continue reporting this rolling 12-month customer count in order to be more consistent with other e-commerce companies. In addition, we saw some encouraging traction from the New Brand campaign launched at the beginning of the second quarter.

In particular, the heightened awareness drove a tangible increase in traffic to our site, with total weekly unique site visits in the second quarter, increasing 14% from the first quarter and over 33% from the same quarter a year ago. We’re encouraged by the results of the more holistic approach to customer acquisition that we’re taking and we’re now shifting our focus to improve conversion once consumers arrive at our site. I’ll talk more about our various marketing initiatives in a few minutes.

More broadly, our team remains disciplined in managing the business as we navigate current market dynamics. In the month of June alone, the consumer price index rose 9.1% year-over-year, while prices for groceries and food away from home jumped 12.2% and 7.7%, respectively. During the second quarter, we introduced a small increase in our per serving pricing, bringing us in line with what our competitors charge, but still less than the increases generally seen in the market. For our most popular configuration two-servings, three times per week, we charge $9.99 per serving. This drops down to $7.99 for four serving four times per week.

We selected a salmon[phonetic] dish from our menu and compared the price of $9.99 per serving to what the ingredients would cost at a grocery store in two-key markets. Our pricing continues to represent a better value. In this inflationary environment, based on an internal study, we continue to believe that our pricing compares favorably. And with Blue Apron, you minimize spoilage and don’t[phonetic] end up with extra ingredients. Our meal kits can also be more cost-effective in a similar meal at a restaurant.

I should add that the price of a meal at a restaurant you see here does not include taxes, tips, or delivery fees. We are able to drive value for a number of reasons. First, we have insight into demand because of our direct-to-consumer platform. Combined with our machine learning algorithms that help us forecast ingredient needs, this allows us to minimize food waste that is inherent in the broader food system. Second, because we source approximately 80% of our raw materials directly from the producer, we can keep our quality standards high, while mitigating some pricing pressure.

We also see a real additional value when you factor in the overall experience. We help customers ease the stresses and decision anxiety around grocery shopping and menu planning, and we give them an amazing cook at home experience with a broad variety of chef-designed recipes. We continue to focus on translating our purchasing power into creating value and a joyful experience at home for our customers as they navigate a very challenging economy. As referenced earlier this morning, we unveiled the next phase of our turnaround strategy appropriately called The Next Course at our May Investor Day.

Our goal for Blue Apron is to be the first choice for consumers, who see curated food experiences that meet the needs of their households and enhance their lives. As a business, we plan to expand beyond traditional meal kits and subscriptions, including building an ecosystem of partners that creates better living through better food. The Next Course strategy is focused on achieving long-term sustainable growth and reaching profitability and the adjusted EBITDA level in 2023.

Given the current economic environment, we believe our focus on reaching profitability is even more important. The strategy is centered around three key objectives. One, building curated customer experiences to support growth and expand market share in target segments. Two, creating a scalable platform by optimizing our technology and operational infrastructure to deliver a seamless and scalable e-commerce experience. And three, driving sustainable profit by executing against our ESG initiatives. We believe that these three points are mutually exclusive, and we are working on each one at the same time over the next three years.

In fact, we’ve already started implementing these initiatives across the organization. Let me start with building curated customer experiences. As a business, we are committed to driving market share growth and growth within our key four customer segments through targeted marketing, new partnerships, and product launches. In the current economic environment, consumers are becoming more cost conscious. As I mentioned earlier, we are pleased to see that our new brand campaign was successful in driving solid traffic to our site and app.

The initial program ran for the first six weeks of the quarter, and we plan to launch the second tranche of the campaign in September for the back-to-school season. While we’re driving new traffic to the site, we are also working to improve conversion rates by testing, learning, and iterating on the customer journey. For example, over the last few weeks, we launched a newly configured blueapron.com homepage and also updated and streamlined our pricing and plans page. These changes are designed not only to make it easier for customers to navigate through the site, but also to provide the opportunity to share their preferences, which allows us to personalize their experience even further. This is all part of our strategy to invest in our technology and organization to provide a seamless customer experience.

As we continue to roll out our brand campaign and improve our sign-up experience, we believe that we should be able to drive elevated awareness and conversion moving forward. Another key focus area is partnerships. On the distribution partnership side, in June, we launched a non-subscription offering on walmart.com. We continue to ramp-up as we’re still in the process of establishing consistent SKUs, ratings, and reviews. We are excited that this partnership has allowed us to extend our e-commerce presence to a wider pool of potential customers outside of the Blue Apron ecosystem.

In addition, we’ve been able to transform our fulfillment capabilities, so that we can pack and ship a box for our channel partners within one business day. These are capabilities that we’re extending to other potential partners. As we shared in May, we are focused on securing more enterprise sales, which, for us, refers to corporate portals, bulk gift card sales, sweepstake programs, and the curation of custom boxes and experiences. We believe these efforts help expand brand awareness and drive revenue and customer growth.

This quarter, we worked with Feeding America, Snappy [phonetic] and Blue Cross Blue Shield companies participating in the Blue’s 365 program among others. Brand and media integration partnerships are another important area that we have been focusing on. This past quarter, we extended our Wellness 360 program to include Planet Fitness. We also renewed our collaboration with Calm, a leading app for sleep, meditation, and relaxation. These collaborations help make our media dollars work harder for us with larger reach, custom integrations, and retargeting tools that amplify priority messaging for both companies.

We are continuing to push forward with this work since these partnerships have helped us attract new customers, often with lower customer acquisition costs. We also continue to expand our gift card program to help attract new customers to our products. We are excited to share that we are now the first and only meal kit company to date that is part of the not registry store. This collaboration comes in time for what is expected to be the biggest wedding season in recent history and is coupled with to include more personalized gift experiences as part of their wedding registry. We launched a number of exciting new products over the last several months, especially offerings designed for families; a category we see as the biggest opportunity for us.

We recently expanded our weekly four-serving menu to 12 recipes, which includes a variety of vegetarian, wellness, craft, and premium options. In our testing on this product expansion during the quarter, we saw increases in net revenue per customer, order rate, and average order value for existing subscribers and reduced churn. We also saw a solid improvement in subscriber conversion. We also recently introduced ready-to-cook, the newest addition to our lineup of quick prep meal offerings. These can help our customers create delicious meals in less time, without compromising on ingredient, quality, and flavor.

Each recipe comes with pre-proportion, pre-chopped ingredients and recyclable aluminum tray, allowing people to simply combine, bake and serve. Our other quick meal options include our microwavable heat meat meals and fast and easy, a series of recipes that are designed to be ready in under 30 minutes. Lastly, we expanded our add-on options from six to nine. The options now include a weekly breakfast, a variety of salads, appetizers, and desserts, as well as the selection of “A la carte proteins”. This past quarter, we also introduced a new limited time seasonal meal kit created in response to customer demand for offerings that can help celebrate special moments.

These meal kits provide our customers with everything they need to make entertaining easier with minimal effort. We kicked off the new category with our first ever summer lobster box, which has been a hit with customers. The next iteration of the offering will be a tailgating box that includes simple and elevated versions of Game Day classics. Turning to the second objective of our strategy. We are focused on optimizing our technology and operational infrastructure to deliver an agile, scalable, and seamless e-commerce experience with subscription at its core.

This work is expected to allow us to cross-sell our own products more effectively and to more easily integrate third-party products and partners into our broader ecosystem. In addition, we plan to enhance our speed-to-market, drive stronger customer engagement, and unlock revenue enhancing opportunities. As an example, we recently moved to a more customer-friendly structure, removing it’s limitations, so they can order as many recipes or add-ons as they want. A key part of our platform advantage is how we plan to scale our operations with minimal capital investment, underpinned by our physical asset base.

We are making almost every aspect of our operations more flexible from receiving to kitting, to our customer facing logistics. As we continue to expand our product set, our key priorities are to maintain productivity and drive long-term margin improvements. The third and final objective of the next core strategy is centered around driving sustainable profit by executing on our ESG initiatives. First, we purchased 248,000 metric tons of carbon offsets from a related party vendor to meet our 2023 and 2024 carbon-neutral goals based on our 2021 estimated carbon footprint. We are paying for these carbon offsets over the next 24 months. We’re happy to report that we were able to lock in the rate we paid for our 2022 offsets in what has become an inflationary environment for carbon offsets.

We view these offsets as an important interim tool as we continue to implement more practices on our path to net-zero. Second, we continue to work on including ingredients in our pantry that meet our strict quality standards and animal welfare guidelines. In recognition of this work, we were pleased to be named a Progress Leader in Mercy For Animals 2022 Count Your Chickens Report, which looks at improving broiler welfare at corporate supply chains.

We were included in a group of companies that are leading the industry and reporting measurable progress towards broiler welfare goals. It’s a further example of the importance we place on responsible sourcing, and we think that our customers look to us and value us for it. It’s been a busy few weeks and months for the business and we remain energized and excited about our path forward. The next core strategy is setting us up for long-term growth and success even with a challenging macroeconomic environment. We look forward to providing updates on our progress in the coming quarters. With that, I will turn things over to Randy for a review of the numbers.

Randy Greben — Chief Financial Officer

Thank you, Linda, and good morning, everyone. It’s great to be speaking with you today. I’ll begin with some highlights for the quarter and then provide details and context around how our results fit into our broader strategy. We are seeing strong evidence that our data-driven approach to prioritizing marketing expenditures is paying off. Second quarter net revenue was $124.2 million, up about 6% sequentially and up slightly year-over-year. The growth was supported by a $10 million bulk enterprise sale. Average order value at an all-time high of $67.14, up 7.1% year-over-year and 6.6% sequentially.

This increase was primarily driven by the pricing increases that we introduced in the second quarter, as well as several new revenue initiatives that we launched in the second half of 2021, including new add-ons and other features that allow users to customize their recipes. Average orders per customer was 4.9%, roughly flat versus last quarter. Within this, our orders per customer for our best customers, which we define as our highest paying customers over the past 13 weeks was actually up quarter-over-quarter and year-over-year. Average revenue per customer was $328, up 2% from last quarter and down slightly from the prior year as the increase in average order value was offset by a slight decrease in order frequency, which we largely attribute to the continued post-pandemic acceleration of travel that we’re seeing around the country.

Customer count declined sequentially, as Linda noted to 349,000 due to a few contributing factors. When we reported our first quarter results, we saw very early signs that we might buck the typical seasonal trends that we tend to see in the second quarter. However, as the quarter moved along, it became clear that our customers started to increase their travel fairly substantially, while they also coped with surging inflation. We have continued the process of enhancing and strengthening our balance sheet. During the quarter, we successfully refinanced $30 million in debt, extending our debt maturity five years to 2027.

Our new debt comes with a lower cost of capital as its interest only for the first three years of the term with our coupon set at 8.89%, which is 160 basis points lower than our previous loan facility. Importantly, it also removes the warrant coverage that was present in our prior term loan. In addition to the refinancing in April, we entered into an agreement with RJB partners, a related party which included an aggregate $40 million private placement at $12 per share, with $20 million completed upon signing and the remaining $20 million expected to close on May 30 or such other date as the parties agreed.

Following ongoing discussions over the last few months about various avenues to increase shareholder value, we are excited that we entered into an amendment to the April agreement with RJB partners on August 7, 2022, pursuant to which RJB Partners agreed to upsize the private placement. Under the terms of the larger investment, RJB Partners will purchase from the company approximately 1.7 million shares of Class A common stock under the April purchase agreement at a price of $5 per share instead of $12 per share and an additional 8.3 million shares of Class A common stock at a price of $5 per share for an aggregate investment of $50 million for 10 million shares of Class A common stock at $5 per share.

We anticipate the closing of this private placement to occur on or before August 31. We expect to invest the proceeds from this private placement in our long-term growth plan or for general corporate purposes, with $25 million expected to be used for strategic purposes aimed at enhancing shareholder value, including exploring share buybacks. Overall, in a particularly challenging market environment with the backdrop of rising inflation and interest rates, we view these recent transactions as strategically significant to enable us to execute on our path towards long-term, sustainable and profitable growth.

Turning to expenses. Variable margin improved to 34.7%, up 220 basis points from 32.5% in Q1, but down from 37.4% in Q2 2021. You’ll note that last year’s margin had a 100 basis point benefit due to the recovery of proceeds associated with an onion recall in Q3 of 2020. Results for this quarter reflect continued cost management improvements and pricing increases. Most notably, we reduced our reliance on higher cost and less efficient temporary labor, which was needed in Q1 due to the Omicron variant. As we’ve discussed in the past, when we increased our starting hourly wages to $18 per hour, we viewed it not only as an investment in our ESG initiatives, but also simply a wise business decision.

For example, although, it’s not visible in our external financials because it lies between the gross and net revenue lines, we were pleased to see that our customer credits and refunds have been steadily decreasing since the fourth quarter of last year. We’ve been working very hard to roll out various packing, shipping and what we call corporate quality box initiatives at our fulfillment centers. We believe the improved performance is very much enabled by a more stable, longer-tenured group of full-time associates at our fulfillment centers, which we think is partly a result of the higher wages we’re paying.

Product, technology, general and administrative costs were $38.5 million for the second quarter, compared with $36.8 million in the same quarter last year. Given the current macroeconomic environment, I’d like to take a moment to discuss how we position Blue Apron to control costs, while we continue to offer great value to customers. As Linda said, we believe we are partially insulated from rising food costs due to the unique nature of our supply chain with approximately 80% of our ingredients sourced directly from the producer. To illustrate this, our total food cost per box increased about 6% year-over-year and rose just slightly from the first quarter of this year. This is significantly better than the inflation that we are seeing in some of the broader producer price indices that roughly correspond to our ingredient categories.

In addition to our direct sourcing model, we are also proactively — we also proactively manage our menu around rising ingredient costs, all while continuing to provide our customers with great recipes that they expect. That said, we are certainly not immune to inflationary pressures. As a result, we implemented the modest per serving pricing increases on our meal kits and wine products back in May. We were thoughtful about how we pass-through these price increases in order to continue offering the best possible value to customers. We have no immediate plans to implement additional price increases, but we continue to closely monitor the overall environment and customer sentiment.

Turning next to marketing expenses. Our Q2 marketing spend increased $5.5 million over last year but decreased 22% sequentially to $21.8 million. Linda and I have shared our company’s disciplined approach to marketing investment and corresponding paybacks. In Q2, we continue to optimize our spend and strategically pursue opportunities to put our marketing dollars to work, where they could be most effective. Online media continues to represent the largest share of total marketing though we significantly ramped up our offline spend as we saw promising results from direct mail and TV.

In particular, we started rolling out our new national brand campaign at the start of the quarter with a goal of improving our brand recognition and raising broader awareness of the meal kit category. As Linda mentioned earlier, we’ve seen encouraging early results. Looking forward, we have the benefit of being able to adapt and scale up or down our marketing based on where we see the greatest efficiencies. Broadly speaking, we continue to expect any marketing investments to be shaped like an inverse bell curve with Q1 and Q4 representing higher quarterly spend than Q2 and Q3.

Other income on a net basis was $387,000, driven by a non-cash fair value adjustment on our prior warrant obligations, as well as a gain[phonetic] recognized upon fully repaying our previous term loan. As a reminder, after completing our debt refinancing in May, we are no longer required to provide our lender with warrant coverage. Turning to the bottom line, we reported a net loss of $23.1 million and adjusted EBITDA loss was $15.5 million. Operating cash flow was negative $18.3 million compared with our prior expectation of positive operating cash flow this quarter. This was primarily impacted by the timing of a $20 million related party marketing receivable.

At the end of the second quarter, we had cash and cash equivalents of $54 million, this excludes the $50 million we expect to receive from RJB by August 31st and a $20 million related party marketing receivable that we expect to receive concurrently with the closing of the $50 million private placement. Subsequent to the quarter, we received $10 million in proceeds from the bulk[phonetic] enterprise sale, Linda mentioned in her earlier remarks.

Before I turn things over for Q&A, let me touch briefly on our outlook. Our guidance and targets reflect assumptions regarding our business. These assumptions include the anticipated benefit to our business from the execution of our strategic growth initiatives, including the impact of the equity capital raises that we have announced. Our guidance also includes the impact of the gift card transaction also discussed earlier. These transactions should allow us to increase investments in marketing and technology initiatives and infrastructure as well as continued operational improvements.

The following guidance also assumes certain gift card redemption rates and the expansion of our enterprise sales and marketplace sales channels, including the anticipation of additional bulk sales from a planned directed donation to an enterprise customer from a company-related party. The following guidance also assumes that the company will not experience any unforeseen significant disruptions in its fulfillment operations or supply chain or any increased impacts from macroeconomic trends such as inflation. As we have said over the last three quarters, following the expected close of the private placement and the receipt of the related party marketing receivables, we are pleased that our strengthened balance sheet will give us the ability to continue investing in marketing, marketing technology and other initiatives to drive growth.

However, in today’s fluid and in many ways, unprecedented macroeconomic environment, we believe it is prudent to adjust our revenue growth for this year and focus on driving its profitability. We now expect 2022 revenue growth of 7% to 13% over 2021. Even with this change, we continue to believe we are on track to achieve our first full year of adjusted EBITDA profitability in fiscal 2023 and positive operating cash flow in fiscal 2024. We continue to expect to have materially lower cash utilization in the second half of 2022 versus what we have experienced year-to-date. With that, we will now open up the call for Q&A. Operator?

Questions and Answers:

Operator

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Maria Ripps with Canaccord. Please, go ahead.

Maria Ripps — Canaccord — Analyst

Thanks, so much, and good morning everyone. So, your revised revenue outlook still implies a pretty healthy acceleration in the second half. Can you maybe just talk about, what’s embedded in that outlook? Do you anticipate sort of customer base to return to growth? And what’s embedded from additional enterprise sales in your full year guidance?

Linda Findley — President & Chief Executive Officer

Thank you, so much for the question, Maria. So a couple of things are included in that. So, yes, we are starting to see very good success with some of the consumer campaigns that we’re doing as we get back into our back-to-school season, and some of the big priorities that we have for the rest of the year. So that’s a big part of what you’re seeing there. We are also seeing significant traction; not only with enterprise sales, but also those gift card sales and we’ll have more to report soon on that. In addition to that, we are continuing to leverage what we’ve learned around the other sort of Walmart sales channel, as far as new distribution opportunities for new potential partners going forward. So probably, what you’re going to see is, you’re going to see a bit more leaning towards the revenue side than necessarily the customer number side, as we start to introduce more and more of those full card sales and other sort of enterprise sales opportunities into the rest of the year that continue to be really effective for us.

Randy Greben — Chief Financial Officer

The only thing that I’d add is that, Maria, you’re absolutely right. We are expecting acceleration in the second half of the year. A big function of that, of course, is the lap. The comps from prior year are softer than the business has been trending. So we do see a good route to accelerated growth in the second half.

Maria Ripps — Canaccord — Analyst

Got it. That’s very helpful. And then — so you talked — you said that you’re seeing pretty good traction with brand marketing spend here. How is the softening sort of consumer environment impacting your approach to marketing spend? Are you still committed to doubling your marketing spend versus 2019, I believe you said. And sort of, if the consumer spending gets softer here in the near term, how quickly can you sort of pull back on marketing spend if needed?

Linda Findley — President & Chief Executive Officer

It’s a great question, Maria. And actually, we are making strong adjustments in our marketing spend as we look towards what’s happening with consumer behavior. For us, it’s thinking about, how do we focus both on consumer acquisition and the conversion piece that I talked about in the script, but also thinking about retention and engagement activities as people become challenged with budgetary constraints. And so, a big part of what we’re doing is making sure that we’re demonstrating the value in the box and the fact that we are cheaper than the grocery store. And we’ve actually metered out some of our brand spend to be most effectively used throughout the year. So as we mentioned in the script, we had a big push at the beginning of Q2 that really did a lot for our traffic, and we’re going to introduce a new brand marketing push later into the year. So, what we’ve done is, we’ve gotten a lot smarter about thinking about how we managed costs to stay efficient during this time and focus heavily on conversion and customer engagement as some of our strongest levers throughout that entire process. I’ll let Randy talk a little bit more about the spend itself.

Randy Greben — Chief Financial Officer

Yes. Maria, you asked about the previous communication with the company that indicated a directional doubling of marketing spend over a couple of years ago. Our marketing spend, of course, will be significantly higher than it was in 2021 or in 2020, but we will monitor the situation as it’s fluid, and we’re governing our spend by paybacks. To the extent that paybacks look like they are accelerating, we would increase our marketing spend. If paybacks stay around where we’ve been seeing them, I think you can expect a slight pullback in marketing from where we previously suggested we’d be. But again, the increase in spend on a year-over-year basis will be material.

Linda Findley — President & Chief Executive Officer

And the only other thing I’ll just add, not to pile on the third answer to the same question. But the only other thing I’ll add is, of course, as we look at some of these enterprise and bulk sales that adds a new marketing dynamic that’s very efficient for us as we continue to think about marketing spend opportunities.

Maria Ripps — Canaccord — Analyst

Got it. Thank you so much for the call. I’ll get back in the queue.

Operator

The next question comes from Dan Kurnos with Benchmark. Please go ahead.

Dan Kurnos — Benchmark — Analyst

Great. Thanks. Good morning. First of all, I appreciate the incremental color on the trailing 12 customer accounts that’s a much better view of what’s going on. Can we just start here a little bit, though, now that you guys have had a little bit more time to digest the reaction to the price hike? Can you just maybe talk about either feedback or impact on churn since that time? And obviously, we’ve seen your competitors largely follow suit. So, it’s not unusual in the industry right now and the value is obviously still there, but any initial learnings just from what you’ve had would be helpful? Thanks.

Randy Greben — Chief Financial Officer

Yeah, absolutely, Dan. We — like everything we do at Blue Apron, we deploy very much a test and learn philosophy. We were able to learn a lot from the pricing changes that we implemented about a year ago. So, we had an anticipation of what customer behavior would look like. In summary, we saw almost no incremental churn or change to order frequency from pricing last year. Our expectation was that we’d see similar trends this year and we’re quite pleased to report that the incremental or small amount of churn that we would have expected actually hasn’t come through to fruition. What we can tell from our customer numbers is, generally speaking, they’re accepting of our price increases, because they still recognize how much value we give them. And I’ll add one more point before I turn it back to Linda, which as you mentioned competitors. We actually moved our pricing up to be in line with competitors. We were actually below them, which we think is an opportunity for us given the quality of our product and the value that we give to our customers. Linda, what would you add?

Linda Findley — President & Chief Executive Officer

Yeah, I think that really summarizes it quite well. We’re very careful to test, but we’re also very careful to speak to our customers on an ongoing basis through focus groups, through surveys, and through really detailed data analysis, when someone does choose not to order with us. And so we’re very clear on the difference between the pricing change and macroeconomic factors which helps us think about our communications and our marketing programs, and our pricing really effectively. And we do know that a big part of what we’re seeing is macroeconomic as opposed to being directly related to the pricing change based on those same tests that Randy was talking about.

Dan Kurnos — Benchmark — Analyst

Got it. That’s super helpful. And then I want to dig a little bit more into kind of the e-com shift. Obviously, with subscription at a core, as you said, the ready-to-cook seems really interesting. I know you guys have always tried to solve for the problem, right? At home had a reason to order, can you just talk — you also talked in the prepared remarks, you reiterated just how much expansion you’ve seen in the product set. So, maybe just how do we think about — if we use ready-to-go cook as the primary or most recent example, the expansion of that line, obviously, it’s early, it has got a few options. The economics compared to sort of that the base and ultimately, how you introduce that into sort of a broader marketing message so that people understand that there’s a solution for everyone?

Linda Findley — President & Chief Executive Officer

Yeah, it’s a good question. It actually ties a lot to your previous question. One of the other points that I wanted to make about the pricing change and some of these new product varieties that we have introduced is the AOV. So as you saw, we had record AOV this quarter, and that’s been a really strong signal for us that in addition to the fact that we continue to provide value in the box, we continue to provide additional products that allow people to meet the needs of their particular lifestyle or needs. And one of the things we also talked about in the prepared remarks was, again, removing the one box limit so that people can actually order as many recipes as they want, and we can handle the logistics piece on the backend. So, we continue to do a lot of that expansion, and it is really, really important for our customer base. When we think about things like ready-to-cook and our fast and easy prep options, part of the Blue Apron’s DNA is really about the quality of the experience and the quality of the meal. And so a big part of what we’re constantly trying to do is think about how to meet the needs of people who are time starts, who are incredibly busy and particularly the segment that we continue to lean into and see the biggest opportunity in families who are really looking for help at home, but still want a high-quality experience.

And so things like ready-to-cook really take all of our DNA on really fresh, high-quality ingredients and just make it a lot easier for families to come in. From a marketing perspective, we’re actually taking multiple approaches. So first of all, we’re actually looking at how do we address multiple needs per household, because what we found is households who buy Blue Apron are actually looking for something of all of these different product sets. So they’re looking for maybe a ready-to-cook as a complement to their regular meal kit, and then maybe some Heat & Eat meals that they can actually have for lunch. And they — so when[phonetic] all these things together and so we continue to educate them not only as they’re coming in, but also after they’ve come into the service. We do a lot of direct marketing to them to make sure they understand all the different choices they have with Blue Apron. Then we’re also doing a lot more segmentation. So, also in Q2, we started launching our first targeted campaigns at families, specifically addressing some of those needs that might be more specific to families who are looking for assistance. So the marketing spend is both going deeper and deeper into the customer relationship, but also we’re starting to target out some of these product offerings to individual segments as we grow our marketing campaigns.

Dan Kurnos — Benchmark — Analyst

And if I could just press my luck a little bit on that one, Linda, because the last part of my question, I guess they are all tied with related to marketing, you talked a lot about, and I think Randy mentioned mix shift to off-line, which by the way makes sense. Apparently, everybody’s figured out that secret, I guess, local broadcast, the only thing that’s growing this year. Maybe just a sense of in — market that’s been very disrupted right now on understanding that performance channels are really messy and the ROAS maybe isn’t as expected in some of the more traditional performance channels. We’ve seen kind of a floodlighting in some show[phonetic] Is there any kind of other tactical, digital spend that you guys are testing now. I’m waiting for the big kick top campaign, right, that might be out there beyond sort of your traditional brand spend, knowing that you guys still have a good push and a lot of traction and effective of recognition growth from the marketing campaigns you’re running?

Linda Findley — President & Chief Executive Officer

We have actually seen a lot of success with things like TikTok and so we’ve already been leveraging that. I think what’s actually become more and more interesting for us is the combination of things. So for example, TikTok and affiliate together is a pretty powerful channel for us as one example. So, I think what you’re seeing with performance and some of the other media opportunities that are out there is, it isn’t just about one, there’s a few magic moments that come together when you, combine various things. So social on its own, correct, is not necessarily one of the top places to go. But when you can combine social with affiliate, for example, or when you combine direct mail with couponing, those are some of the more interesting combinations we’ve seen. But more to come.

Dan Kurnos — Benchmark — Analyst

Got it. That’s super helpful. Thanks very much. And a good start to the year with the nice environment out there.

Linda Findley — President & Chief Executive Officer

Thank you.

Operator

The next question comes from Mitra Ramgopal with Sidoti. Please go ahead.

Mitra Ramgopal — Sidoti — Analyst

Yes. Hi, good morning. Thanks for taking the questions. First, just coming back to the revenue growth outlook for the remainder of the year. I was wondering if you expect any material contributions from the new menu options, whether it’s seasonal or breakfast and even the ready-to-cook or is it just a little too early there? And also, potential additional partnerships like when you announced the Knot for example, if you have more in the pipeline that you’re already expecting?

Randy Greben — Chief Financial Officer

I’ll take the first part, Mitra, and then I’ll hand over to Linda around partnerships. With respect to revenue growth, it’s going to be driven by basically three main buckets. First is going to be the continued annualization of the pricing increases that we’ve had, that did contribute some of our AOV growth in the second quarter and we’ll likely continue to drive both AOV and therefore, total revenue in the second half of the year. Beyond that, we of course, are excited about the newest part of our business, which are enterprise sales. The enterprise sales piece will also play into our overall revenue growth. And then finally, it’s the partnership piece, which is the greatest — it was a perfect opportunity for me to turn it over to Linda to talk more about what we’re seeing there. So, it’s nice for us because we see multiple paths to achieve revenue growth. We are of course, subscription remains at our core, but we’re quite excited about the expansion of the business and the ability to tap new revenue channels, making us far less dependent on any one set of situations to drive top line growth.

Linda Findley — President & Chief Executive Officer

Yeah. And I can just take it from there. Thanks so much for the question, Mitra. Yes, we do actually anticipate a lot more partners and we have several already in the pipeline that you’ll hear about in the coming two months. And as part of that keep in mind, we really think about these enterprise sales concepts as the inclusion in say, corporate portals, bulk gift card sales. We have sweet stakes programs and the curation of custom boxes and experiences. So, something that we found to be very successful is, being able to sell gift cards because that’s something that customers are really, really excited to be able to share as gifts and/or use as corporate incentives. And then in addition to that, you’ll also see a lot more engagement with the corporate portals piece, which is a really nice distribution process for it. The Knot, is an example of one of the gift card programs, so stay tuned for more there. And then custom boxes and experiences, we’ve also done some enterprise programs where we provide boxes to employees and a cook along experience where they can engage with employees all over the country.

Randy Greben — Chief Financial Officer

Just for complete — complete this, Mitra, I wanted to come back to part of your question, which is with respect to the contribution of new products to our overall revenue growth. We continue to expect revenue growth through the expansion of add-ons for some of our newest programs, like ready-to-cook, which is one that Linda mentioned in her prepared remarks, that one is just a bit too early for us to see exactly how it will move the needle.

But there certainly is contemplation in our forward-looking revenue number from the continued take-up from our customers on more add-on options, other dayparts like breakfast that you mentioned. So that certainly does factor into the increase in revenue as well.

Mitra Ramgopal — Sidoti — Analyst

Okay. No — that’s great. Thanks. Just switching a little in terms of — this is obviously still a very tight labor environment, and I know you incurred some additional costs relating to personal additions as you focus on building out the growth strategy. Just curious how aggressive you intend to be on that front given the labor conditions right now?

Randy Greben — Chief Financial Officer

There — so labor obviously hits our P&L in two big places. First and foremost, in the variable margin where our fulfillment center associates are expensed. And then secondarily, in product technology, general and administrative, what looks like G&A in most companies. On the first piece, variable margin, we’re really excited about what we’ve seen as we increased our starting hourly wage rate. We are experiencing strong levels of associate engagement. We have the right complement at this point of full-time Blue Apron Badge Associates and Temporary Associates, which we use to flex up or down as volume moves. What you should continue to expect is ongoing efficiencies from the investments that we’ve made in our variable labor force. With respect to G&A, I expect over time that number to actually come down. We shared externally, when we began making a number of our capital raises and balance sheet moves late last summer that we were going to use those proceeds to invest in marketing, marketing technology and infrastructure. Those last pieces are important because it does take both time and human capital to stand up a lot of the new marketing infrastructure and other types of customer facing services that we offer. But as those get built and begin to scale, we should be able to pull back, because we built these to persist, they’re programmatic. Linda, do you have anything to add?

Linda Findley — President & Chief Executive Officer

No, I think that’s really the most important piece. Again, I’ll go back to the same thing we’ve said before. We feel that it’s important to invest in our labor when it comes to compensation and really engaging the best quality labor. But what we have been able to do is leverage what we have in our facilities to continue to expand the complexity of our product, while not adding significant burden from a labor perspective long-term.

Mitra Ramgopal — Sidoti — Analyst

Okay. That’s great. And then finally, as we look at the ability to leverage the model, as you continue to build out the infrastructure platform, could you remind us, as we look at the just core distribution centers, your available capacity and ability to lever new business?

Linda Findley — President & Chief Executive Officer

Yeah. So that’s actually, again, one of our strong advantages. As we said multiple times, there was an overinvestment in capacity early in the company’s life cycle. And while we’ve mitigated that pretty effectively across the network, we have two state-of-the-art facilities that actually have a decent amount of capacity where we could scale for say, two to three years pretty effectively, including what we set forward as our long-term vision without much capital infrastructure investment. So, that continues to be an advantage for us where we can scale the business without having to deploy significant additional resources and I would say, again, at least two to three years, if not more.

Mitra Ramgopal — Sidoti — Analyst

Thanks again for taking the question.

Operator

The next question comes from Sebastian Patulea with Jefferies. Please go ahead.

Sebastian Patulea — Jefferies — Analyst

Hello. Thank you, Linda and Randy for the presentation. As you pointed out, ordering from Blue Apron can be cheaper than recreating the same recipe at grocery stores. But I believe the customer perception is that Blue Apron or any other meal kit company in that aspect is actually more expensive than buying food from the grocery stores. And at the end of the day, it’s the customer perception that matters. What are some of the things that you’re doing to educate a customer that you’re really cheaper than supermarkets, please, if you’re doing anything? Cheers. Thank you.

Linda Findley — President & Chief Executive Officer

Thanks so much, Sebastian. Yes, correct. And I think it’s a perception in general that we continue to battle across meal kits as an industry. Honestly, a big part of this has been really educating customers both on the combination of the quality of ingredients and our pricing compared to say, the either a consumer pricing index or the producer pricing index and where we come out ahead on both of those, when it comes to our ability to drive value. So, a lot of our marketing campaigns are focusing on this now. You may also know that this is our 10th anniversary this month. And so, our customer letter focuses on how we actually drive value in those comparisons and we’re continuing to tell the story through media and other channels as we discussed further. It’s interesting as you think about the consumer buying behavior and how they perceive a price when things are consolidated into a single price versus broken out into separate pieces and parts. And so, we’re testing different messaging and understanding so that people can start to see the value that we actually provide. The best part of this though is, when we do look at the consumer price index. We do know that we come in lower from — compared to what people are seeing in the stores for the same quality ingredients. And also, when you look at the producer price index because of our delivery model, we know that we’re able to moderate our price increases compared to what people are seeing in the market. And again, we see this coming to fruition and as people are purchasing from Blue Apron, we continue to see the strong AOV that’s not just driven by pricing. It’s also driven by people adding additional products to their cart, which tells us that they are starting to see more and more of the value in and it’s really now a big marketing push that we focus on at this stage.

Sebastian Patulea — Jefferies — Analyst

Thank you very much. If I may follow up, please. Does the — switching the subject a bit actually, does the revenue from the enterprise customer come at a similar margin as the one for the rest of the group or is it higher, as I’m assuming there might be less marketing investments needed? Thank you.

Randy Greben — Chief Financial Officer

They’re all unique, Sebastian. It really will be agreement-by-agreement, as it relates to these enterprise sales because these are larger in nature. They require a little bit more direct dialogue with each particular enterprise partner solving for their needs. What I can share with you is the enterprise sales that were in our Q2 results were slightly favorable to our core meal kit margin, although, I would describe them as directionally similar. That being said, as we explore other enterprise sales, there are likely to be occasions where the margin profile will be significantly stronger than our core business because to your point of the lower reliance on marketing expenditures and the ability to ship in bulk. We get benefits from an outbound freight perspective as we fill our trailers. So, it will be dependent on the actual agreement.

Sebastian Patulea — Jefferies — Analyst

That’s all for me. Thank you very much.

Randy Greben — Chief Financial Officer

Thank you, Sebastian.

Tip Fleming — Head of Investor Relations

We’re going to hop over to some questions coming in through the webcast. We’re getting some great questions coming in there. Thank you very much for — thank you very much to everyone for jumping with these questions. We are excited to open-up the questions to a broader audience than we’ve typically done in the past. The first question, we actually just answered about the margin in terms of enterprise sales. So, we’re going to skip to the next question in the interest of time. Next question is, how are Walmart and other channel partners performing? Is it plan to break it out under revenues in the longer term?

Linda Findley — President & Chief Executive Officer

Sure. I can start on that and then Randy can jump in on the rest of the question. So, we’re still ramping up our Walmart partnership and as we mentioned in the prepared remarks, we’re still building out new SKUs and the reviews process, which takes time on a retail channel. But we’re happy with both the infrastructure that’s been built for the Walmart project that we can scale to other partners, and we are happy with the traction that we’re starting to see. But it will be a longer-term partnership where we expect to see more results over time.

Randy Greben — Chief Financial Officer

With respect to breaking out that component, we have no immediate plan to do so, to the extent that we find any new category, whether it’s enterprise sales or some other form of partnerships becomes an overly material portion of our net revenue. We’ll certainly contemplate it, but at this point, we can’t commit to any plans to break those revenue numbers out.

Tip Fleming — Head of Investor Relations

All right. The next question, are there further related party promotions or sales currently expected?

Linda Findley — President & Chief Executive Officer

So actually, at this point, we’re still pursuing different opportunities for the business. I’m not sure if — since the $30 million is actually the pipe coming in. I’m not sure if you’re talking about promotions going out or pipes coming in. But we are looking at a variety of opportunities for the business, both on the enterprise sales standpoint and then also, again, continuing to build shareholder value.

Tip Fleming — Head of Investor Relations

All right. We’ve had some questions come in that are — that we’ve already been — have already been asked, so I’ll skip those. We have a question from our good friend, Mickey. He would like to know if partnerships with Major League Baseball or the NFL or NHL for the use of — on stadiums for brand name advertisement. He’d like to know if we’ve considered that and whether we could sell our frozen-ready cook meals in their concession stands?

Linda Findley — President & Chief Executive Officer

Thanks so much for the question. We have actually explored affiliations with sports teams and stadiums in the past, and continue to look at those as potential opportunities for the future. Of course, anything that we do on that front would actually be determined on whether or not we can get the return on the actual investment from a cash perspective. We do continue, however, to drive deeper and deeper product integrations when it comes to related items like big game days. We’re about to launch our tailgate box. And so I think the audience is certainly the right audience, but we’re always going to make sure that we can get the return on investment with anything we put forward. I’m glad you like our ready-to-eat meal offerings. We think they have lots of uses in a variety of different environment.

Tip Fleming — Head of Investor Relations

All right. In the interest of time, we’re going to have to close the call today. Thank you very much everyone for joining us today. If you have any additional questions, please don’t hesitate to reach out to us directly.

Operator

[Operator Closing Remarks]