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Blue Apron's customer base is shrinking, but those who are staying are spending more.
The number of customers Blue Apron served in the third quarter shrank 6 percent from a year earlier and 9 percent from the previous quarter. Average revenue per customer increased to $245 from $227 from the same time last year, but was down from $251 last quarter.
Blue Apron attributed the dips to seasonal trends of the meal kit business and purposeful cuts to its marketing budget.
The company again decreased its marketing expenses to rein in costs. In the third quarter, marketing expenses totaled $32.4 million, or 16.3 percent of revenue, down from $49.6 million, or 24.2 percent of revenue a year earlier.
Here's how Blue Apron did compared with what Wall Street expected:
Blue Apron's shares have fallen 53 percent since its highly anticipated IPO in June. They were down nearly 7 percent on Thursday.
Blue Apron will continue to shrink its marketing spending in the fourth quarter, which will likely lead to less revenue, Chief Financial Officer Brad Dickerson said on a call with investors.
The cuts come as the already-crowded meal kit space becomes even more pressured with Albertsons' purchase of Plated in September and HelloFresh going public in Germany on Thursday. Blue Apron CEO Matt Salzberg insists the category has always been competitive and that the company's marketing budget is based on internal factors.
"We're very focused, as we mentioned, on driving growth — and profitable growth. And so we don't spend marketing at any cost in order to drive growth. We look at generating attractive returns, and we're focused also on having a strong balance sheet," Salzberg said Thursday on a call with investors.
Salzberg foresees more people buying groceries online, but he said he does not anticipate that happening overnight. Selling Blue Apron meal kits in places other than its website isn't entirely off the table. The company is always looking for ways to reach more customers, and that includes looking at potential partnerships, Salzberg said.
"I think that's something that certainly does have a different cost structure, has a different inventory model, has a potentially different kind of segments and product design that it serves, but is an interesting expansion and business opportunity for our business and the like," Salzberg said.
Keeping existing customers loyal is becoming more expensive. Blue Apron's cost of goods sold increased 13 percent to $164.4 million year over year. The company attributed the increase to launching a new distribution facility in Linden, New Jersey, expanding its product offerings and adding more premium ingredients.
Blue Apron has tried to give customers more flexibility with their plans and the recipes they can make. It has introduced meals that could be made within 30 minutes and brought back customers' favorite recipes.
The key is serving Blue Apron's range of customers, Salzberg said, from those who are cooking enthusiasts eager to try new recipes to others who view food as more functional.
"That's part of what we're doing by offering more choices and more flexibility, allowing us to serve those diverse segments better," he said.
Product, technology, general and administrative costs increased 44 percent to $65.7 million year over year because of increased personnel costs and increased facility costs. Last month, Blue Apron laid off 6 percent of its workforce, or 300 people. The company expects the move to save it $23.5 million annually in the beginning of next year.
The meal kit company generated $210.6 million in revenue, beating analysts' expectations of $191.5 million. That's up 3 percent from the year-ago quarter, but down from the $238.1 million posted last quarter.
Blue Apron lost 47 cents per share in the quarter. Analysts polled by Thomson Reuters had expected a loss of 42 cents per share.
The company posted a third quarter loss of $87.2 million, or 47 cents per share. In the year-ago quarter, the company lost $37.4 million or 56 cents per share.
Blue Apron maintained its net revenue expectation to be in the range of $380 million to $400 million for the second half of the year. It increased the expected net loss to range from $131 million to $138 million, up from $121 million to $128 million. Blue Apron attributed the increase to recent layoffs and a recently completed review of its facilities.
The transition from the company's Jersey City facility to Linden is complete. The most automated of Blue Apron's distribution centers, Linden now services approximately 50 percent of volume, Dickerson said. However, he said there's still work ahead to lower the facility's margin.