Shipment company

SmileDirectClub (SDC) faces low aligner delivery and margin issues

SmileDirectClubSDC’s continued operating loss, leveraged balance sheet and tough competitive landscape remain overhangs. The stock currently carries a Zacks rank of No. 4 (sell).

Over the past year, shares of SmileDirectClub have underperformed overall industry. The stock fell 80.1% compared to the industry’s 14.8% plunge. SmileDirectClub ended the second quarter of 2022 with earnings below expectations. The company reported lower year-over-year revenue in the quarter due to lower shipments of unique aligners. The company also saw lower net and funding revenue year-over-year.

Throughout the second quarter, macroeconomic challenges continued to impact SmileDirectClub’s core demographic and business spend. According to the company, consumer spending challenges accelerated faster than expected during the quarter. These, combined with reduced stimulus, sustained high inflation and a shift from discretionary spending to services, will result in less predictable demand curves and lower expected aggregate demand for the rest of the world. the year. As a result, SmileDirectClub has reduced its 2022 guidance.

The contraction in the gross margin does not bode well. Escalating operating costs put pressure on bottom line. SmileDirectClub’s marketing and sales expenses in the second quarter decreased by 25.7%. General and administrative expenses decreased by 14.9% year over year. The company posted an adjusted operating loss of $51.8 million in the quarter, slightly lower than the adjusted operating loss of $52.7 million a year ago.

Awards from SmileDirectClub, Inc.

SmileDirectClub, Inc. Awards | Submission by SmileDirectClub, Inc.

A huge debt balance, as well as a tough competitive landscape remain an overhang.

On a positive note, SmileDirectClub’s average gross selling price for aligners (ASP) in the second quarter was 1917, an increase of $27 from the first quarter. This development is mainly explained by a price increase implemented in the United States in May and in the United Kingdom at the end of June. According to the company, additional geographies are targeted for increases in the second half of 2022.

Implicit price concessions as a percentage of Aligner gross revenue are expected to return to company historical levels of between 9% and 10%. Meanwhile, SmileDirectClub plans to hold its Investor Day at its Nashville manufacturing facility later this year or in the first quarter of 2023.

SmileDirectClub is currently focused on product development to further differentiate its offerings in the oral care industry. In May 2022, the company announced the expansion of its best oral care product offerings with its new Premium Cordless Teeth Whitening Kit. In February 2022, it expanded its award-winning oral care product offering with the new Stain Barrier. SmileDirectClub’s latest whitening innovation, Stain Barrier, protects teeth with an invisible shield against common staining beverages, including coffee, tea, red wine and soda.

Key Choices

A few higher ranked stocks in the broader medical space that investors can consider are AMN Healthcare Services, Inc. AMN, ShockWave Medical, Inc. SWAVs and McKesson Corporation MCK.

AMN Healthcare has a long-term earnings growth rate of 3.2%. The company has beaten earnings estimates in the past four quarters, delivering an average 15.7% surprise. It currently sports a Zacks rank #1 (Strong Buy). You can see the full list of today’s Zacks #1 Rank stocks here.

AMN Healthcare has outperformed its industry over the past year. The AMN lost 12.8% against a drop of 38.3% for the industry.

ShockWave Medical, currently No. 1 Zacks, has an estimated growth rate of 33.1% for 2023. The company’s earnings have exceeded estimates for the past four quarters, averaging 180.1%.

ShockWave Medical has outperformed its industry over the past year. SWAV gained 31.1% against an industry decline of 32.6%.

McKesson has an estimated long-term growth rate of 9.9%. The company has exceeded earnings estimates in the past three quarters and missed one, delivering a 13% surprise on average. He currently wears a Zacks Rank #2 (Buy).

McKesson has outperformed its industry over the past year. MCK gained 76% against an industry decline of 14.5%.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.