Marley Spoon (ASX:MMM) share price on watch after mixed Q2 update

This meal kit company’s growth is slowing…

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The Marley Spoon AG (ASX: MMM) share price will be one to watch on Friday.

This follows the release of the meal kit delivery company’s second quarter update.

How did Marley Spoon perform in the second quarter?

Marley Spoon continued its growth during the second quarter of FY 2021, albeit at a slower rate than recent quarters following a normalisation in customer behaviour.

According to the release, the company reported second quarter revenue of EUR80.6 million, which was up 10% on the prior corresponding period. Management advised that this was driven by all regions, with Europe leading at 43% growth compared to the prior corresponding period.

This ultimately led to its first half revenue growing 36% year on year.

What about earnings?

Potentially weighing on the Marley Spoon share price tomorrow could be its operating result.

The update reveals that the company recorded an operating loss of EUR9 million during the period. This led to a half year operating loss of EUR15 million. Management advised that this was driven by its investment in growth and talent.

In addition, the company reported a Contribution Margin of 27% for the second quarter, down nearly 4 percentage points versus the same period last year. Management blamed this on an adverse operating environment in the US.

Outlook

One positive that may lend some support to the Marley Spoon share price on Friday was management reaffirming its revenue guidance for FY 2021.

Despite the slowdown in the second quarter, it expects to deliver year on year growth of 30% to 35%.

Though, this positive may be offset by a downgrade to its Contribution Margin guidance to 27%. This is down from its prior guidance of 28% and in line with FY 2020’s Contribution Margin.

Management commentary

Marley Spoon’s CEO, Fabian Siegel, commented: “We are pleased to report continued post-COVID growth for the past quarter. Net revenue grew 12% on a constant currency basis. More importantly, our Active Subscriber base, a leading indicator of true underlying growth, grew 37% year over year.”

“User behaviour across the regions has mostly normalized to its pre-COVID state with the 2021 holiday season being more pronounced than in pre-COVID years. Our business continues to show strong growth enabling us to re-affirm full year 2021 net revenue guidance.”

Mr Siegel then provided more colour on the aforementioned adverse operating conditions in the US.

He explained: “However, in Q2 our team continued to face operational headwinds, especially in our US business. These included unprecedented weather disruptions in Q1, which led to the temporary closure of our Texas site, and acute nationwide labour shortages which not only impacted our facilities directly, but also affected our inbound food supply and logistics partners. We are implementing a series of measures across the organisation and supply chain to improve productivity and quality. These improvements are mitigating the impact on our margins and customer satisfaction. Given the aforementioned we are revising our CM guidance for the year to be consistent with the 2020 margin.”

Nevertheless, the CEO remains positive on the future and expects strong revenue growth over the coming years.

He concluded: “Our investment in growth and strengthening our operational bench, paired with the lower than expected margin in H1 led to a negative Operating EBITDA margin of (9%) for the half year. At the same time, we controlled investments to deliver near to break-even cash from operating activities. We are also pleased to have secured additional funding in Q2 to further support our 2021/2022 growth investments and mid-term ambition of becoming a 1 billion Euro revenue business by 2025.”

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. owns shares of and has recommended Marley Spoon AG. The Motley Fool Australia owns shares of and has recommended Marley Spoon AG. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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