Greetings. Welcome to the Kidpik First Quarter 2023 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] I would now turn the conference over to your host, Ezra Dabah. You may begin..

Thank you, operator. We are pleased to welcome everyone to today's call, where we will review Q1 2023 results and provide an update on the business. We will begin with a review of our financial and business highlights, followed by a financial review, which Adir, our CFO, will take us through. Then we will open the call to Q&A.

I'd like to start by sharing that we have continued executing our plan to reduce inventory and generate cash flow. We have substantially reduced purchases of new inventory and are focused on increasing sales, utilizing our existing inventory, which we believe will support our cash flow needs in the short-term.

As a result, during the first quarter, our inventory was reduced by $1.5 million from $12.6 million to $11.1 million, while maintaining a consistent gross margin of about 60%. In addition, we are taking action to reduce our go-forward operating costs and improve efficiency.

We continually upgrade our proprietary technology platform with the goal of enhancing our customer experience, retention and to grow our sales. As we look ahead, our focus is on several key areas.

We are focused on improving our conversion rate across three key channels, enhancing our brand awareness, implementing efficiency initiatives, and increasing the average dollar sale per subscription box.

We are strategically migrating our affiliate program to a new platform in order to enhance our dual focus on both our subscription service and e-commerce shop, while expanding our affiliate network. These strategies we believe will further strengthen our foundation for long-term growth.

Additionally, we remain focused on acquiring new customers through performance-based digital channels, including affiliate content and social media marketing.

The strength of our complimentary styling service is rooted in its affordability, convenience, and ability to deliver personalized outfits from head to toe, continually attracting long-term members. This appeals to parents and grandparents seeking convenience and style support when getting their kids dressed.

Our service evolves with their children's style as they grow, while providing the excitement of a fun unboxing experience. Owning our unique Kidpik brand enables us to expand beyond the box. We are focused on increasing sales and brand exposure through our e-commerce website and collaboration with third-party channels like Amazon and Walmart.

Notably, our direct online e-commerce sales increased by 112% compared to last year's first quarter. We witnessed the joy and happiness we bring to children every day. We look forward to more parents discovering the benefits of our service. Thank you for your interest and support.

With that, I will turn over the call to Adir to detail the quarter's financial highlights.

Adir?.

Thank you, Ezra. Q1 revenue was $4 million, a decrease of 6.9% year-over-year. The decrease in revenue during the first quarter was mainly due to a decrease in subscription box sales. Looking at Q1 revenue by channel. Subscription sales were approximately $3 million, a decrease of 14.7% year-over-year.

Third-party website sales decreased by 20.6% to $436,000. Online website sales increased by 112.4% to $622,000. Moving to revenue by subscription for the quarter. Active subscription for recurring boxes decreased by 23.5% to $2.4 million. New subscriptions of first box increased by 64.3% to $571,000. Total subscription decreased by 14.7% to $3 million.

That represents 74% of total revenue. Turning to gross margin. Gross margin for the quarter was 59.8% compared to 59.9% last year. Shipped items for the first quarter decreased by 8.4% to $340,000 compared to $371,000 last year. Keep rate for the first quarter was 68.1% compared to 70.4% last year.

On the bottom line, net loss for the quarter was approximately $1.95 million, or a loss of $0.25 per share compared to a net loss of $1.8 million or a loss of $0.24 per share last year. Speaking to non-GAAP adjusted EBITDA for the quarter was a net loss of $1.7 million compared to a net loss of $1.5 million last year.

Now to the balance sheet, cash flow. Cash at the end of the quarter was approximately $265,000 compared to $601,000 at the end of the fiscal year 2022. We used $261,000 in operating activities during the first quarter compared to $2.2 million cash used in the first quarter last year.

To improve our cash position, we have reduced purchases of new inventory and may enter into a debt financing arrangement. As of April 2023, we had $12.5 million in total current assets, $5.9 million in total current liabilities and a working capital of a $6.6 million. With that, I will turn the call back to the operator for Q&A.

Operator?.

Thank you. At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Edward Reilly with EF Hutton. Please proceed with your question..

Hey guys. Thanks for my question.

Other than raising price, wondering if there's any other strategies on how you plan on increasing the average dollar sale per subscription box?.

Yes. We have introduced a 12 piece box, which we are going forward, we are going to market it as a deluxe box whereby we are going to give the members somewhat of a higher percentage of in order to keep the whole box. We are potentially thinking about just increasing the number of units that we have in our starter box, which is eight pieces today.

We also looking forward to reengage our add-on technology that we have had to entice customers to add on an item or two to the box that they're just about to receive. At this moment, we are not looking to increase the prices per item, but that's a possibility as well.

But we are very, very focused going forward on increasing the average transaction size. We are really happy to see that our average transaction size for the box increased during Q1 by approximately 12% to 13%. We are finding that customers as they come in are actually opting for the 12-piece box at approximately 50/50 rate.

And this is without prompting them. So it's clear that customer – some many customers prefer more units. We are not seeing resistance to the price increases that we put through last year.

And as you know, it's very difficult to increase an average dollar sale, but we are finding it somewhat more easy here on the subscription end and with our current members. So we look forward to push the buttons slowly, but as high as we can get them..

Got it.

And then I was wondering if you guys are doing anything on the active subscription side to maybe incentivize current customers to keep or elongate their subscriptions?.

Well, we have recently just about this week are instituting an additional benefit to members, whereby they can shop on our e-commerce site and get an additional 10% off. We are finding that quite a large percentage of our e-commerce business comes from our own members.

And we are using different kind of retention strategies that are being worked on right now, specifically customer service and other vehicles to keep customers in the service on a longer term..

Okay. Great. That’s it for me. Thanks..

Thank you..

And we have reached the end of the question-and-answer session. And I'll now turn the call back over to Ezra Dabah, for closing remarks..

Thank you, operator. Thank you all for joining us today. Thank you for your continued support and interest in Kidpik. If you have any additional questions, please contact us at ir@kidpik.com. Wishing everyone a great day and a wonderful upcoming summer season. Thank you..

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation..

Thank you..