Blue Apron hit with avalanche of shareholder lawsuits

By Elaine Watson contact

- Last updated on GMT

Blue Apron hit with avalanche of stock-drop lawsuits

Related tags: Revenue, Stock

Meal kit market leader Blue Apron has been hit with an avalanche of ‘stock drop’ lawsuits from a series of law firms alleging that shareholders were duped into paying over the odds to buy the firm’s stock – which has lost almost half of its value since the June 29 IPO - based on misleading information.

In one such suit* filed in New Jersey on August 21, attorney James E. Cecchi argued that Blue Apron’s registration statement (filed ahead of the IPO) “contained untrue statements of material fact or omitted to state other facts necessary to make the statements made not misleading.”

Specifically, alleged Cecchi, Blue Apron failed to disclose the fact that it was experiencing delays at its new factory in Linden, New Jersey, which would force it to delay new product roll-outs; that it had already decided to reduce ad spending  in Q2, which would depress sales in future quarters; that it was aware of Amazon’s efforts to enter the meal-delivery business and that Amazon was looking to acquire assets to help it in this regard; and that it was “experiencing issues delivering meals to customers on time and with of the all ingredients, which was hurting customer retention rates.”

These facts were only revealed publicly on August 10, when the company hosted its Q2 earnings call​, he said: “The IPO was successful for the Company and the Underwriter Defendants who sold 30 million shares of Blue Apron Class A common stock to the public at $10 per share, raising $300 million in gross proceeds for the Company…

"At the time of the filing of this action, Blue Apron stock was trading at $5.31 per share, a 47% decline from the IPO price.”

Analyst: Visibility is low

On August 18, brokerage and investment banking firm Stifel lowered its rating for Blue Apron shares to hold from buy, with analyst Scott Devitt telling clients that Blue Apron was “facing challenges with the transition of order volume to its new fulfillment center in Linden, NJ, and is also in the middle of addressing operational challenges with its broader product expansion.”

While fixes were being implemented to correct both issues, said Devitt, “We view current visibility as low into the timing and path of a course correction and will await further information on the company's progress."

Blue Apron share price- Nasdaq

blue apron strip

In its prospectus​, filed with the SEC on June 1, Blue Apron noted that its fulfilment operations "will become increasingly complex and challenging,"​ and that difficulties in automating fulfilment processes could​ adversely affect the business, but did not say that it had experienced any issues with the transition to its new facility in Linden. NJ.

'Flexible, diverse, and personalized...'

Blue Apron has not responded to requests for comment on the lawsuits.

Speaking on the firm’s Q2 earnings call on August 10, CEO Matt Salzberg said: “During this ramp phase, Linden will be operating at a significantly worse margin than our other centers; however, we still believe that Linden will ultimately become our most efficient center when fully scaled."

Asked about volumes going through the new facility, he said: "On the Linden facility...​ [volume] was minimal in Q2, about 3% ​[of overall company order volumes]. Now it’s somewhere in the 20% to 25% range of volume, and we expect it to be more than 50% of the volume when it’s fully ramped up and we transition fully from Jersey City."

He added: “Nobody is more disappointed by the unexpected delay and increased cost of this rollout than I am, and we are focusing our attention on solving these challenges as rapidly as possible. The good news is that we believe we understand the problem and are landing additional systems and fixes to improve our margins and OTIF​ [on time in full delivery of customer orders] rates​.”

When OTIF rates are down, this impacts the customer experience, he added, "And so, one of the reasons that we are choosing to pull back on marketing in the back half of the year is because we are focused on only generating incredible returns on our marketing.”

But he added: “We do not believe there is any change to our longer-term view of customer economics as a result of these near-term challenges.”

Blue Apron posted a net loss of $31.6m on net revenues up 18% year-over-year to $238m in the second quarter, while the company predicted it would post a net loss of $121-128m in the second half on revenues of $380-400m.

*Chaudhry et al v Blue Apron Holdings Inc and multiple named executives 2:17-cv-06295, filed in the US district court in New Jersey

Multiple other law firms have issued press releases this week to announce that they have filed similar suits against the company (although most are not yet visible on the Pacer court records site), including Faruqi & Faruqi, LLP, while lodged a complaint on August 17 (1:17-cv-04846 Nurlybayev v. Blue Apron Holdings, Inc. et al). 

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