Blue Apron's Growth Story Is Dead

Meal kit service Blue Apron (NYSE: APRN) managed to beat analyst expectations for revenue when it reported its second-quarter results, growing sales by 18% year over year. The good news ended there. Costs exploded, driven by the company's investment in a new facility in New Jersey to support its product expansion initiatives. Gross margin tumbled to 31.3%, down from 36.9% during the same period last year, and operating costs jumped 37% year over year.

Compared to the first quarter, revenue was down slightly, driven by a 9% decline in customers. Each customer placed more orders, but not enough to prevent a 5.6% decline in total orders placed. Seasonality hasn't been a major factor for the company in the past, so the main culprit behind the customer exodus appears to be Blue Apron's attempt to rein in marketing spending. The company slashed its marketing costs, spending $34.5 million compared to $60.6 million during the first quarter.

This lower marketing spending, still 14.5% of revenue, wasn't enough to draw in more customers than the company lost. If you're not gaining customers by spending a double-digit percentage of revenue on marketing, something's wrong.

Source: Fool.com