SmileDirectClub Stock Tumbles After Q2 Earnings: Is The Growth Story Broken?

SmileDirectClub Inc (NASDAQ: SDC) shares dropped 22.6% on Tuesday after the company reported disappointing second-quarter numbers following an April cyberattack.

On Monday, SmileDirectClub reported a second-quarter adjusted EPS loss of 14 cents on $174 million in revenue. Both numbers fell short of analyst expectations of a 10-cent loss on revenue of $198.5 million. Revenue was up 62.7% from a year ago.

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SmileDirectClub reported 90,006 unique aligner shipments in the quarter and an average aligner gross sales price of $1,885, up from $1,817 a year ago.

Management said SmileDirectClub is dealing with near-term headwinds from an April cyberattack and a lingering COVID-19 impact on the company’s target demographic of customers.

Looking ahead, SmileDirectClub guided for full-year revenue of between $750 million and $800 million. Management said sales and marketing costs as a percentage of total revenue will be between 50% and 55% through the second half of 2021.

Voices From The Street: Goldman Sachs analyst Nathan Rich said SmileDirectClub will likely continue to burn another $219 million in cash through the end of 2022 as it deals with competitive challenges that weighed on results in the second quarter.

“While SDC believes these impacts are near-term and reaffirmed its 5-year targets of 20-30% topline growth and 25-30% adj. EBITDA margins, we think the 2Q update demonstrates the challenges of driving revenue growth while expanding margins,” Rich wrote.

JPMorgan analyst Robbie Marcus said SmileDirectClub is facing structural headwinds and an unclear path to long-term profitability.

“Given the impaired near-term revenue trajectory, and what could be structurally higher costs, we see better opportunities in our coverage universe,” Marcus wrote.

Stephens analyst Chris Cooley said SmileDirectClub has plenty of brand value and market share, but recent missteps make the stock a show-me story for now.

“While we acknowledge the share's ~70% relative discount multiple and expect the shares to open lower on the news, we are stepping aside due to continued concern related to risks related to revised CY21 guidance and the perceived increasing fluidity of focus in the business model most likely resulting in the shares remaining range-bound until consistent execution of the business plan and corporate guidance is exhibited,” Cooley wrote.

Ratings And Price Targets:

• Goldman Sachs has a Sell rating and a $4 target.
• JPMorgan has an Underweight rating and a $6 target.
• Stephens has an Equal Weight rating and $11 target.

Photo: SmileDirectClub