SmileDirectClub CFO Cuts Costs as Demand for Teeth Straighteners Falls

U.S. consumer prices rose 8.3% in August compared with a year earlier, hovering near four-decade highs, the U.S. Labor Department said last week. “We expected the economy at the beginning of this year to get a little better in the back half. It’s done worse,” SmileDirectClub Chief Financial Officer Troy Crawford said.

SmileDirect has identified $120 million in cost savings that will take effect in 2022, including by exiting international markets including Mexico, Spain and Germany. The company continues to operate in the U.S., Canada, the U.K., Ireland, France and Australia. General and administrative expenses during the second quarter fell 15%, to $72.3 million. Marketing and selling expenses declined 26%, to $71.2 million.

The company continues to identify potential savings but hasn’t set additional targets, said Mr. Crawford, who took over as CFO in June after serving as interim CFO since January. Among those steps is a review of SmileDirectClub’s stores to ensure they’re profitable and to identify opportunities to improve performance, he said. The company operated 188 permanent stores as of Dec. 31, according to its most recent annual report.

Despite the tough year, SmileDirect—which hasn’t earned a net profit since it went public in 2019—earlier this year set a goal of generating positive adjusted earnings before interest, taxes, amortization and depreciation in 2023. That figure stood at a $23.2 million loss as of June 30, compared with a $22.5 million adjusted Ebitda loss during the prior-year period. Its net loss was $20.3 million, compared with $16.9 million a year earlier.

The company is betting that new products will help generate additional demand. It plans to release a feature by the end of the year that will allow customers to scan their teeth on their mobile phones and receive preliminary treatment plans within minutes. Customers currently have to wait one to three weeks after they visit a store or send in an impression of their teeth through the mail.

SmileDirectClub also wants to reach more higher-income customers through a premium offering that will be provided through partnerships with dental offices. The offering, which will sell for around $3,900, will include the company’s teeth straighteners and additional access to clinicians.

“This next year, two years, you’re really going to want to see them show momentum in being a viable option for a consumer when they’re talking to their dentist,” said Dylan Carden, a research analyst at financial-services firm William Blair & Co. That’s a shift from its original emphasis on direct-to-consumer sales, Mr. Carden said.

The company expects both initiatives to drive a significant increase in sales in 2023, according to Mr. Crawford, who declined to provide sales targets. If those initiatives don’t pan out, “then we’ll obviously adjust our costs to reflect that,” he said.

SmileDirect’s shares have plunged over the past year, closing at $1.10 on Monday, compared with $6.49 a year earlier. The company is under pressure to show that customers that, even in an inflationary environment, it can still boost sales, Mr. Crawford said.

SmileDirect, which has spent heavily on marketing to drive sales, will also face pressure to show it can increase revenue even while it takes steps to cut marketing costs, Willliam Blair’s Mr. Carden said.

“We’ve got to execute on these initiatives that we’ve got the back half of this year to prove to the marketplace that there’s more value in the stock than where it is right now,” Mr. Crawford said.

Write to Kristin Broughton at [email protected]