SmileDirectClub posts mixed quarter, sales slide

Yahoo Finance’s Brian Sozzi breaks down what SmileDirectClub CFO Kyle Wailes about the company’s latest quarter.

Video Transcript

ALEXIS CHRISTOFOROUS: Taking a look at SmileDirectClub's stock this morning, Brian. It's coming under some pressure. I know they had a mixed quarter. Their stock had been doing really quite nicely since April, but this is that clear aligner company, right, the orthodontia company. It racked up a $95 million net loss in the second quarter. Sales plunged 49%. And, Brian, I know that you spoke with the CFO recently. What did he have to say about business conditions?

BRIAN SOZZI: Yeah, Alexis, I want to get to why the stock is under pressure here. You know, their profit margins-- the gross profit margins down 1,500 basis points over quarter. That's not going to cut it on Wall Street for a stock that has been under pressure-- severe pressure coming into this report.

Also, on the conference call they got into lower average selling prices for the balance of the year for their clear aligners. Wall Street did not like to hear that too.

And lastly, there's concern about momentum coming out of July. They have started to see a little bit of a recovery in the aligner business in July. It's unclear if that momentum continued into August.

But to your point, I did catch up with SmileDirectClub CFO Kyle Wailes Did tell me the company is still on target to reach adjusted operating profits by the fourth quarter of this year. That's the target they put out early in the year. They say they will still be able to hit that, in large part because they cut a lot of costs.

ALEXIS CHRISTOFOROUS: Any word on-- I know they had to put a bunch of money aside for legal issues. They were being sued, a few class-action lawsuits. I know that they had been the subject of a big CBS "60 Minutes" exposé on their products. Any movement there on those lawsuits?

BRIAN SOZZI: Nothing doing. No update on there in my interview or on the conference call last night. I think these lawsuits and these issues will just be something that continues to hang over the company. But on the positive side, they did say they're now going to expand into dentists' office. So I think you're looking at the day where you may go to the dentist and be surrounded by a lot of SmileDirect marketing and products. So definitely a slight shift in business model for them.

ALEXIS CHRISTOFOROUS: Yeah. I think that could actually really help legitimize them, right? Interesting move there. And as you say, it's still on track for that profitable fourth quarter.