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SmileDirectClub (SDC) Q4 Earnings Lag Estimates, Margin Falls

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SmileDirectClub, Inc. (SDC - Free Report) reported a loss of 25 cents for fourth-quarter 2021, wider than the year-ago loss of 9 cents. However, the figure was narrower than the Zacks Consensus Estimate of a loss of 28 cents.

Full-year loss of 87 cents per share was much wider than the loss of 72 cents. The metric was also wider than the Zacks Consensus Estimate of a loss of 82 cents.

Revenues

Revenues in the fourth quarter totaled $126.3 million, lagging the Zacks Consensus Estimate by 1.9%. The top line declined 31.6% from the year-ago number. The company shipped roughly 66,133 unique aligner orders, down 5.4% sequentially. The quarter’s average aligner gross sales price (ASP) came in at $1,899, down 4.6% on a sequential basis.

Net revenues (related to retainers, whitening, and other ancillary products) came in at $116.5 million, down 32.5% from the year-ago quarter. Financing revenues (interest associated with SmilePay program) in the reported quarter were $9.8 million, down 18.4% from the year-ago quarter.

SmileDirectClub, Inc. Price, Consensus and EPS Surprise

SmileDirectClub, Inc. Price, Consensus and EPS Surprise

SmileDirectClub, Inc. price-consensus-eps-surprise-chart | SmileDirectClub, Inc. Quote

Full-year revenues were $637.6 million, down 2.9% from the year-ago period. Again, the metric lagged the Zacks Consensus Estimate by 0.4%.

Margins

Gross profit in the reported quarter was $81.9 million, down 39.8% from the prior-year quarter. Gross margin of 64.9% contracted 883 basis points (bps).

Meanwhile, marketing and selling expenses rose 25% to $99.2 million. General and administrative expenses were $73.8 million, down 5.6% year over year. The company incurred adjusted operating loss of $91.1 million in the quarter, wider than the year-ago operating loss of $21.5 million.

Financial Updates

SmileDirectClub exited 2021 with cash and cash equivalents of $224.9 million compared with $316.7 million at the end of 2020. Total debt (short and long-term) at the end of 2021 was $740.9 million compared with $408.6 million at the end of 2020.

Cumulative net cash flow used in operating activities at the end of 2021 was $141.5 million compared with $83.6 million in the year-ago period.

Guidance

SmileDirectClub has issued its guidance for 2022.

The company now expects total revenues in the range of $600 million to $650 million. The Zacks Consensus Estimate for the same is pegged at $712.6 million.

Gross margin (as a percentage of total revenues) is expected in the range of 72.5-75.0% for full-year 2022.

Our Take

SmileDirectClub exited the fourth quarter of 2021 with lower-than-expected earnings and revenues. The company registered a year-over-year decline in revenues in the fourth quarter due to lower unique aligner shipments. The company also recorded decline in both net and financing revenues on a year-over-year basis. The contraction of gross margin does not bode well. Escalating operating costs are building pressure on the bottom line. Throughout the fourth quarter, the macroeconomic challenges continued to impact SmileDirectClub’s core demographic and business spending.

On a positive note, the company’s fourth-quarter adjusted loss was narrower than the Zacks Consensus Estimate. A series of cutting-edge innovation, strategic distribution and insurance partnerships are added positives. The company’s continued investments to influence consumer decision making and penetrate new demographics also seem strategic.

Zacks Rank and Key Picks

SmileDirectClub currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space that have announced their quarterly results are Henry Schein, Inc. (HSIC - Free Report) , McKesson Corporation (MCK - Free Report) and Bio-Rad Laboratories, Inc. (BIO - Free Report) .

Henry Schein, carrying a Zacks Rank #1 (Strong Buy), reported fourth-quarter 2021 adjusted earnings per share (EPS) of $1.07, which beat the Zacks Consensus Estimate by 18.9%. Revenues of $3.33 billion outpaced the consensus mark by 4.7%. You can see the complete list of today’s Zacks #1 Rank stocks here.

Henry Schein has an earnings yield of 5.6%, which compares favorably with the industry’s yield of 4.1%. HSIC has gained 37.3% versus the industry’s 10% growth in the past year.

McKesson, sporting a Zacks Rank #2 (Buy), reported third-quarter fiscal 2022 adjusted EPS of $6.15, which beat the Zacks Consensus Estimate of $5.38 by 14.3%. Revenues of $68.61 billion surpassed the Zacks Consensus Estimate by 3.2%.

McKesson has an earnings yield of 8.7%, which compares favorably with the industry’s yield of 4.1%. MCK has gained 58.3% versus the industry’s 10% growth in the past year.

Bio-Rad, currently carrying a Zacks Rank #2, reported fourth-quarter 2021 adjusted EPS of $3.21, which surpassed the Zacks Consensus Estimate by 11.9%. Revenues of $732.8 million outpaced the Zacks Consensus Estimate by 0.5%.

Bio-Rad has an earnings yield of 2.3%, which compares favorably with the industry’s negative yield. BIO has gained has gained 5.9% versus the industry’s 15.6% fall in the past year.