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Comment by black6 | Hacker News Reader

How, as a consumer goods manufacturer, do you continue to lose money? My background is in a different manufacturing sector, beer, but even as a journeyman brewer I was doing COGS analyses and knew exactly how much each bottle/keg cost us for each brew so that we could be profitable.

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From their S-1, 2020 revenue was $219m. From that, $106m was cost of revenue, $87m went out to SG&A, and $55m for marketing. Presumably if they wanted to hit pure profitability, they could take their foot off the gas on the admin expenses and marketing, but since they're still seeing good growth and seem to be having an easy enough time getting capital, they may as well keep spending on additional growth.

Haven't read the S-1, but their gross margins appear pretty solid, so they're probably spending aggressively in SG&A and capex-heavy depreciated assets that will hit COGS over time.

Eg growing from 3 stores to 22 in two years probably requires a lot of big upfront expenditures.

It's important to look at cashflow statements, P&L, and balance sheet in concert rather than isolation -- especially for larger fast-growing companies.

Out of fairness, their gross margin is 51%, so they're covering their COGS comfortably.

They're spending a lot on operating stores and advertising, where the input-output math is less clear/predictable. You could also believe that those stores stores will scale up in efficiency as people know that they're there and leave their house post-COVID.

Building a business to such scale that it can be a public company is an extremely expensive endeavour, continuing that growth till a time such that the business can sustain "market weather" while in the public is even more so. As crazy as it may seem, the bar for a public market business to be considered a "stable" or "safe" investment is very very very high and takes years in the public to build the platform that holds your market share. In near all instances, you have to continue to spend a lot into that sustainability.

For eCommerce ad-driven sales, I would think that ad expenses should be a part of COGS. It's easy to attribute sales to each ad dollar spent, and the impact of reduced ad spending will likely impact revenue, not just growth.

Losing money isn't always due to a company charging less for a product than the direct cost to make it.

In the case of startups like this, the loss is often due to the large costs of things like expanding number of stores, expanding manufacturing capacity (it's not always as simple as sending orders to China to make), expanding their logistics system to handle shipping more and more shoes, etc.

I haven’t looked at the filing in detail yet, but I would guess expanding their physical store footprint is burning money and the source of loss. They are in the expansion/growth phase so I would not expect profitability until either runway runs out or growth slows.

VC backed company try to grow revenue at all cost, they don't care about profit.

Because it's not their money.

It's a VC money, and the VCs will let this go on as long as an exit is in sight because they can then extract their money + a hefty premium.

Then at that point the money faucet is re-plumbed to the public's money via institutional investors and from there they're free to do the slow decline to penny stock at their own pace

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