As cities and states are closing down their restaurants and bars, and as shortages are widely reported at grocery store and box stores, it seems to be a time that would be good for meal-kit delivery services such as Blue Apron Inc. (NASDAQ: APRN). The stock has surged exponentially in recent days, but there are some fundamental issues that have to be considered after such a major move. First and foremost, a “sharp increase in consumer demand” might not translate into a sharp path to profitability. There are still employee health risks, hiring risks, and there are supply chain risks.
Blue Apron issued a statement on Thursday after the close confirming higher demand but also noting some of its challenges in these difficult times. The company is closely monitoring the developments of COVID-19 and its impact on customers, supply chain partners, and employees.
What is peculiar about Blue Apron is not just the 12-times normal trading volume for 24.5 million shares. This stock gapped up at $24.95 on Thursday’s opening bell, up 53.5% from its prior $16.25 prior close. Its shares also traded as high as $28.84 for a gain of more than 77% at the peak, only to close down almost 125 at $14.34. The big kicker is that this was still barely even a $2.00 stock last Friday.
Blue Apron CEO Linda Findley Kozlowski said:
Over the last week we have seen a sharp increase in consumer demand. We are increasing our capacity for future orders and expect to fulfill this increased demand by the next available weekly cycle, starting on 3/30. As a result, we have had to make changes to recipes and box orders for a small portion of volume next week. We are grateful for our customers’ patience during this unusual time.
We are hiring for temporary and permanent positions in our Linden, NJ and Richmond, CA fulfillment centers and hope to create employment opportunities for individuals who may have been displaced by the restaurant or foodservice industry.
The company did note that it is monitoring its supply chain and that the team is in contact suppliers for its ingredients. It has stressed safety of food delivery and there are some considerations about whether it can serve customers under the circumstances.
Kozlowski further said:
We are not aware of any significant disruption to our supply chain to date as a result of coronavirus. As a food facility regulated by the FDA, we have a comprehensive food safety program in place including Good Manufacturing Practices (GMPs) at every step of our operation. In addition to adhering to FDA’s Food Safety Modernization Act, we have also achieved third party certification to the Safe Quality Food (SQF) Food Safety Code two years in a row, widely considered one of the most rigorous and comprehensive food safety standards in the world. The most recent FDA guidance states that there currently is no evidence of food or food packaging being associated with transmission of COVID-19. We continue to closely monitor guidance from the FDA, the Centers for Disease Control and Prevention (CDC), and state and local health agencies in the communities in which we operate.
Like other companies, we are operating with imperfect information around COVID-19 and its impact on our business. Nothing in this statement should be viewed as guidance or a prediction about current or future performance of the company as the situation remains very fluid and various matters could affect our ability to serve our customers. We are doing our very best to manage through these unprecedented circumstances.
We believe we are positioned to support home cooks across the country during this time and we are doing everything we can to serve our customers. We believe home cooking is important now more than ever, and we intend to continue delivering our customers fresh, delicious Blue Apron meals right to their door.
Investors and speculators sometimes allow the trends of the moment to get the best of them. That does not mean that Blue Apron cannot see more sharp share price gains ahead, but it should be a reminder that as trends fade around national disasters or other fairly short-to-mid-term issues the reversion is often right back to where a company was beforehand.
Despite all the massive gains, this is still just a $190 million market cap stock. Blue Apron’s revenues peaked in 2017 at $881 million and fell to $667.6 million in 2018 and then down to $454.8 million last year. Of the two analysts who actually make forecasts, the estimates are $367 million and $415.9 million for this year and $398 million and $446.4 million for 2021. Both analysts expect wide losses this year and next.
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