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SmileDirectClub (SDC) Up 10% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for SmileDirectClub (SDC - Free Report) . Shares have added about 10% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is SmileDirectClub due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

SmileDirectClub Q2 Loss Wider Than Expected, Margin Up

SmileDirectClub reported a loss of 14 cents for second-quarter 2021, narrower than the year-ago loss of 25 cents. The figure was however wider than the Zacks Consensus Estimate of a loss of 10 cents.

Revenues

Revenues in the second quarter totaled $174.2 million, lagging the Zacks Consensus Estimate by 12%. However, the top line improved 62.7% from the year-ago number. The company shipped roughly 90,006 unique aligner orders, down 15.9% sequentially. The quarter’s ASP came in at $1,885, up 1.3% on a sequential basis.

Net revenues (related to retainers, whitening, and other ancillary products) came in at $20 million, primarily driven by the continued expansion of oral care products. Financing revenues (interest associated with SmilePay program) in the reported quarter were $12 million, flat compared to the last-reported quarter.

Margins

Gross profit in the reported quarter was $128.3 million, up 120% from the prior-year quarter. Gross margin of 73.7% expanded 1923 basis points (bps).

Meanwhile, marketing and selling expenses rose 177.9% to $95.9 million. General and administrative expenses were $85 million, up 23.8% year over year. The company incurred adjusted operating loss of $52.7 million in the quarter. However, this was narrower than the year-ago operating loss of $44.9 million.

Financial Updates

SmileDirectClub exited the second quarter of 2021 with cash and cash equivalents of $376.6 million compared with $295.3 million at the end of the first quarter of 2021. Total debt (short and long-term) at the end of the second quarter was $744.1 million compared with $655.4 million at the end of first-quarter 2021.

Cumulative net cash flow used in operating activities at the end of the second quarter was $59.4 million compared with $85.8 million a year ago.

Guidance

SmileDirectClub has provided guidance for the year 2021.

For 2021, the company expects total revenues in the range of $750-$800 million. The Zacks Consensus Estimate for the same is pegged at $828.5 million.

Gross margin (as a percentage of total revenues) is expected in the mid-70% range through the second half of 2021.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -75% due to these changes.

VGM Scores

Currently, SmileDirectClub has a subpar Growth Score of D, though it is lagging a bit on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise SmileDirectClub has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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