21 Public P&Ls inside.

TLDR:

Your 21 Public companies P&L download

The 5 Takeaways from all 21 Companies.

Your 21 eCommerce P&Ls

If you want direct access to the spreadsheet of 19 public companies here you go.

As I have been undertaking this awesome journey I’ve stored all the data I’ve captured for each week’s email in this spreadsheet. You’ll find the summary-level P&Ls of 21 eCommerce public companies. Some should be very familiar as we’ve covered them on the newsletter already. Other’s you’re getting a sneak peak of what’s coming.

A Quick Guide on how to read the spreadsheet:

The Master Sheet (Tab 1) will have all of the companies’ key financials listed and the eCommerce platform the company is on.

• Revenue

• Cost of Goods Sold (COGS)

• Gross Margin (GM $)

• Sales General & Administrative (SG&A)

• Operating Expenses (OPEX)

• Net Income

• Earnings Per Share (EPS)

For some public companies they have different platforms for different regions/product catalogs.

You will also find each metric as a % of Rev to provide a comparison to how each company is performing across size.

All the performance metrics are the last full year (2022) compared to the previous time period to see how they are performing.

If you’d like to dive deeper each company has its own tab with the numbers further broken out with YoY percentages.

• Green indicated the store is on Shopify.

• Blue means the company is using another eCommerce backend for to power their store.

After analyzing all of these businesses I’ve got 5 Takeaways for you on some trends in the ecosystem.

Here are the 5 trends across the 21 companies.

These are not meant to operate as benchmarks, but since everyone love some benchmarks here are some interesting trends I found across the 19 business included here.

1. Gross Margin % are >50%

2. Winning Brands: SG&A as a % of Rev is <40%

3. Rough year for brands with the winners having Net Income < 10%

4. DTC Purists have higher SG&A but don’t offset with higher GM %.

5. Too many heading for bankruptcy court.

Let’s dive in!

1) Virtually every brand on the list has 50% Gross Margins

This is old insider knowledge in physical consumer goods. To really scale a brand you have to have Gross Margins > 50%. This is very high level ‘back of the napkin math, and there’s real nuance to this, but to win and hit the scale of a public company a pre-requisite is having 50% at or above Gross Margins.

Only 4 brands violated this rule:

1. Honest Company - 29%

2. Peloton 34%

3. Oatley - 11%

4. Steve Madden -41%

Other than Steve Madden that isn’t a list I want to be a part of. Honest, Peloton, and Oatley were all unprofitable and collectively lost -$1.46B in 2022.

The reason you need 50%+ Gross margins…

Running a physical products business is expensive and requires a lot of capital. You need high gross margins to throw off enough cash at a unit level to ensure you can cover the costs down the P&L and more inventory.

As you scale, GM % is eroded from additional product costs, running promotions to move inventory, and buying more inventory. Starting with the strongest cash positions as high as you can gives you a buffer to protect you margins over time.

Takeaway: Fight and scrap daily to improve your Gross Margins. Target >50%+.

2) Profitable Brands keep SG&A < 40% of Revenue

This is the silent trend I don’t see anyone talking about this but it will be the widow-maker of a lot of brands. SG&A over 40% of Revenue will break your brand.

And what set apart the winners from the losers.

Inflation permanently increased raw materials and salaries for most brands causing SG&A to surge across the board. That surge broke most brands’ business models. Their razor thin margins that used to fall to the bottom line is now being swallowed by rising SG&A costs.

But the brands that did profitably grow in such a tough year. Kept their SG&A <40% of Topline. They had the operational discipline to keep SG&A growth in line with topline growth.

The best examples are Olaplex who decreased their SG&A as a % of Rev from 17% → 16% and Steve Madden who saw SG&A increase 16% YoY in lockstep with Rev and Gross Margins.

The brands who weren’t able to were punished and saw their stocks drop precipitously. AKA Brands (83%, Grove 66%, Warby Parker 77%). Collectively their Net Income was -$408m.

There are other factors that go into OPEX, but to oversimplify this since the majority of our business spend is in inventory and people. Let’s review the high level Net Income Calculation:

Takeaway: Stay operationally disciplined and keep SG&A < 40% of Rev.

3) Net Incomes were 5-10%.

Think of Net Income as the bottom line. In this analysis I’m using it similar to how a private business would use EBITDA.

Typically eCom companies target Net Income % at 10-20%. This is another old rule of thumb and not a hard and fast rule, but a good one to use as a starting point for your business.

In 2022, the best of the best were putting up ~10% Net Incomes

• Crocs - 15%

• LuluLemon - 11%

• Kraft Heinz - 9%

• Steve Madden - 10%

• with 1 standout Olaplex - 35%!

Which is truly astounding considering how tough a year everyone faced. Rev didn’t meaningfully explode while costs crept up from every angle (COGS, SG&A, Marketing). It shouldn’t be a surprise, but really crystallizes the pain consumer brands felt in the past 18 months.

Basically for every $100 these companies made in Rev, they kept $10. When looking at the quality of revenue (how much is the dollar worth) look at how many dollars the company retains vs. makes becomes an important equation.

Takeaway: Track Net Incomes to 10-20% as a rough benchmark.

4) High Margin DTC purists didn’t live up to the hype. And cost more to run.

The original DTC narrative on higher margin, lower operating cost businesses than the traditional retail-lead brands didn’t hold true. Combined with the fact that these DTC purists didn’t have the promised Gross Margin increases we’re seeing the fallout of a hypothesis that didn’t provide true.

DTC purists have the same or higher SG&A % of Rev (AKA Brands - 83%, Grove 66%, Barkbox - 57%) than their Retail heavy counterparts (Mattel - 25%, Crocs - 28%, LuluLemon - 34%).

But their Gross Margins are equal if not worse than the Retail heavy brands (AKA Brands - 55%, Grove 47%, Barkbox - 58%) vs. Retailers (Mattel - 46%, Crocs - 52%, LuluLemon - 55%).

SG&A as a % of Revenue has a real meaningful difference vs. no real difference in Gross Margin %. This point has already been belabored in the ecosystem so I won’t spend too much time on it, but interesting to see it confirmed here.

DTC or die is dead. Long live omni-channel!

Retail is still where 80% of purchases happen. Scale at DTC gets expensive quickly.

• Is Retail hard? Yes.

• Does Retail require a lot of capital? Yes.

• Do you have less of a relationship with the customer? Yes.

• Is it necessary at a certain scale? Yes.

Most of us got into this game because of the horror stories we heard from other founders who used to be Retail heavy. Well coming out of this bubble there will be plenty of DTC founders who will have similar horror stories.

There’s no magic bullet in the consumer game. There are arbitrages, sound business models, and patient builders who want to shift the culture. Everyone needs to decide what business they want to build. The next generations of brands will figure out how to sell everywhere.

Takeaway: You’ve got to sell your product wherever your customers are.

5) 1/4 of these brands are 🏎️🏎️🏎️ Bankruptcy court.

Too many brands sacrificed Profits for Growth last year and we’ll see who on the Bankruptcy Watchlist pays the price. The problem is investors won’t fund moderate growth.

The Bankruptcy Watchlist:

These companies all fall into 1 of 2 buckets.

1. Falling Rev Death spiral

2. Over-investing in Growth.

1) For the companies like Tupperware, Honest, Grove and Peloton they’re all going to be punished by the ruthless reality that public investors obliterate stocks with negative Rev growth. Especially when they’re unprofitable.

Tupperware will be the first to fall, already letting investors know they won’t be able to meet their debt obligations (aka file for bankruptcy).

Public stock investors will drive these prices into the ground until a takeover firm swoops in and privatizes the company. They’ll be ruthless and operate as home flippers taking care of the necessary remodeling these companies need to be viable public companies.

2) The second camp (Warby, Allbirds, Barkbox, Oatley and AKA Brands) all fall into the over-invested in growth bucket. None of them had astronomical growth, Oatley was the most impressive at +12% YoY, but those all fall into the “Need to get profitable bucket”. In tough times these companies still grew but at too great of a cost for most investors.

The nice thing is these companies still have the time to be saved. They can adjust their spending habits (instead of their EBITDA) to get to Net Income positive, and control their own destiny.

All of the brands in bucket 2 IPO’d during the COVID bonanza so their stock prices have been taken to the woodshed. But if they have the patience and gumption to build in slower growth more profitable mode over years they can create the time for themselves to grow into household names. It might come with less headlines and more painful. But great consumer businesses take time to build.

Takeaway: The Bankruptcy tidal wave is just beginning. Who will turn the ship around in time?

Final Thoughts

Everyone has their own goals in this game, but at the end of the day there is some hard truths about what goes into building an era-defining business. I have my fair share of opinions on these businesses, but they all accomplished an incredible feat we all dream about. Taking a business public.

They’re legally required to do what none of us want to… Open up the kimono and share our deepest darkest numbers with the world.

In aggregate their learnings and mistakes are incredible lessons for the rest of us. These aren’t hard rules every business has to follow to a tee, but if you’ve ever asked what does the Net Income for a business look like. Here are examples.

The most important thing to keep in mind… These ratios are all related. If your Gross Margins go up you can afford to have higher SG&As. If it reduces get tight on SG&A. Knowing yours numbers and how their changing is crucial to succeed.

It isn’t perfect but the back of the napkin math Net Income = Rev - GM - SG&A will give you the ‘in meeting’ formula you need to understand how the business is doing.

🧠 The Takeaways

Take a look through the public companies P&Ls to see how others are doing it.

1. GM% > 50% and SG&A % < 40%.

2. Net Income 10% last year was a good year.

3. The DTC hypothesis didn’t hold. We’re back to Omnichannel.

👷 What can you do about this?

1. Get your margins up and operate with more discipline. Always.

2. Stop over investing in growth. Really analyze the incremental dollar spent and what it’s worth to your business.

3. Unofficial Net Income: Rev - GM % - SG&A %. Then pay a professional to calculate the actuals.

The best ideas in business are usually approaching your same problems with a different approach.

Aspiring Acquirer

P.S. If you’d like to learn more check out some of our other resources:

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