Blue Apron shares plummet as new facility start-up costs slash marketing spending

Blue Apron shares plummet 15% as new facility start-up costs slash marketing spending
Blue Apron shares plummet 15% as new facility start-up costs slash marketing spending

Shares of Blue Apron plummeted Thursday after the company said it was encountering unexpected costs tied to the start up of a new plant in New Jersey.

The stock opened trading Thursday down 17 percent.

As a result, the meal kit-delivery company said it plans to offset these expenses by reining in marketing spending. Blue Apron said it will spend 15 percent to 16 percent of its second half net revenue on marketing. Spending will be higher in the third quarter and ratchet down in the fourth.

The company expects net revenue to be between $380 million and $400 million in the second half of the year.

Blue Apron said it is seeing higher-than-expected wage and labor costs and encountered issues transferring volume to its new location in Linden, New Jersey, from its facility in Jersey City, which was set to close in October.

Since Blue Apron's IPO in June, analysts have questioned if the company can cut its marketing spending and still retain customers. In 2016, Blue Apron had spent about 18 percent of its $795.4 million revenue on marketing.

In the latest quarter, Blue Apron spent 14.5 percent of its net revenue on marketing expenses.

Meanwhile, the company said its average revenue per customer increased to $251 for the second quarter, up from $236 in the previous quarter, but below $264 in the year prior. This helped boost the company's revenue up 18 percent to $238.1 million for the quarter, beating analysts exceptions.

Although the number of customers rose 23 percent year over year, the company said the client base shrank by 9 percent from the first to the second quarter due to a planned $26.1 million reduction in marketing expenses.

Further slashes to marketing spending could continue to lower Blue Apron's customer base.