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SmileDirectClub (SDC) Down 25.6% Since Last Earnings Report: Can It Rebound?

It has been about a month since the last earnings report for SmileDirectClub (SDC). Shares have lost about 25.6% in that time frame, underperforming the S&P 500.

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

SmileDirectClub Q4 Earnings Beat Estimates, Gross Margin Dips

SmileDirectClub reported a loss of 18 cents in the fourth quarter of 2022, narrower than the year-ago loss of 25 cents. The reported figure was also narrower than the Zacks Consensus Estimate of a loss of 21 cents.

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For the full year, the loss per diluted share was 71 cents compared with the year-ago loss of 87 cents. This was narrower than the Zacks Consensus Estimate of a loss of 72 cents per share for 2022.

Revenues

Total revenues in the fourth quarter totaled $86.5 million, down 31.5% year over year. The figure missed the Zacks Consensus Estimate by 2.8%.

Full-year total revenues were $470.7 million, down 26.2% from the year-ago period. The reported figure missed the Zacks Consensus Estimate by 0.1%.

In the fourth quarter, the company shipped 41462 unique aligner orders, down 20.8% sequentially. The quarter’s average aligner gross sales price came in at $1960, up 3% on a sequential basis.

Net revenues (related to retainers, whitening, and other ancillary products) came in at $79.1 million, down 32.1% from the year-ago quarter. Financing revenues (interests associated with the SmilePay program) in the reported quarter were $7.4 million, down 24.3% from the year-ago quarter.

Margins

The gross profit in the reported quarter was $52.8 million, down 35.5% from the prior-year quarter. The gross margin of 60.9% contracted 388 basis points (bps). The decrease was due to the deleveraging of fixed costs on lower sales volumes and high-impression kit volumes, which have lower margins and higher holiday shipping costs.

Meanwhile, marketing and selling expenses decreased 35% to $64 million. General and administrative expenses were $60.1 million, down 18.5% year over year. The company incurred an adjusted operating loss of $71.5 million in the quarter compared with the operating loss of $113.02 million in the year-ago quarter.

Financial Updates

SmileDirectClub exited 2022 with cash and cash equivalents of $93.1 million compared with $224.7 million at the end of 2021. Total debt (short and long-term) at the end of 2022 was $849.4 million compared with $740.9 million at the end of 2021.

The cumulative net cash flow used in operating activities at the end of 2022 was $158.2 million compared with $141.5 million in the year-ago period.

2023 Guidance

SmileDirectClub provided its guidance for 2023, with a focus on strategic actions to reduce costs and meet critical business needs.

SDC expects total revenues from the core business in the range of $400-$450 million, excluding anticipated revenue from the rollout of the SmileMaker Platform in the United States or the launch of the CarePlus program. The Zacks Consensus Estimate for the same is pegged at $423.51 million.

The gross margin (as a percentage of total revenues) is expected in the range of 72-75% for the full year.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

The consensus estimate has shifted -16.19% due to these changes.

VGM Scores

At this time, SmileDirectClub has an average Growth Score of C, a grade with the same score on the momentum front. 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions has been net zero. Notably, SmileDirectClub has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

SmileDirectClub belongs to the Zacks Medical - Dental Supplies industry. Another stock from the same industry, Merit Medical (MMSI), has gained 4.8% over the past month. More than a month has passed since the company reported results for the quarter ended December 2022.

Merit Medical reported revenues of $293.42 million in the last reported quarter, representing a year-over-year change of +5.4%. EPS of $0.79 for the same period compares with $0.71 a year ago.

Merit Medical is expected to post earnings of $0.55 per share for the current quarter, representing a year-over-year change of +3.8%. Over the last 30 days, the Zacks Consensus Estimate remained unchanged.

The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Merit Medical. Also, the stock has a VGM Score of B.

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