BARK, Inc. (BARK): Navigating Tariff Headwinds and Strategic Shifts

BARK, Inc., the pet-centric subscription and commerce company, has emerged as a case study in resilience amid macroeconomic turbulence. Despite facing headwinds from tariffs, shifting consumer preferences, and supply chain disruptions, the firm's focus on profitability, margin expansion, and strategic diversification has positioned it as a contrarian investment opportunity. Let's dissect how BARK is transforming its business model to thrive in a challenging environment.

Margin Improvements: The Foundation of Resilience

BARK's most striking achievement is its gross margin expansion to a record 63.0% in Q1 2025, up 248 basis points year-over-year. This milestone reflects disciplined cost management: supplier consolidation, better pricing, and reduced unit costs have offset the drag of declining subscription volumes. The company's Adjusted EBITDA improved by $5.6 million year-over-year to $(1.8) million, a stark turnaround from its prior-year loss. Crucially, BARK now projects its first full year of positive Adjusted EBITDA in 2025, a testament to its operational efficiency.

Commerce Segment Growth: A Diversified Revenue Play

While BARK's core Direct-to-Consumer (DTC) revenue dipped 4.3% year-over-year due to subscription declines, its Commerce segment surged 5.2% to $9.2 million. This segment, which includes partnerships with retailers like Chewy and Amazon, now accounts for 8% of total revenue—a figure poised to grow. By expanding its retail footprint, BARK is reducing reliance on volatile subscription models and tapping into broader consumer markets. The Commerce segment's 27% year-over-year growth in fiscal 2025 underscores its potential to become a steady revenue driver.

Supply Chain Diversification: Mitigating Tariff Risks

The company's most ambitious move is its manufacturing footprint shift, aimed at reducing reliance on Chinese imports. BARK plans to source half of its toy production from non-Chinese suppliers by 2026, a direct response to tariffs that spiked 145% on Chinese-made toys. While this transition carries upfront costs and execution risks, it aligns with a broader strategy to stabilize margins and insulate the business from geopolitical volatility. CFO Zahir Ibrahim acknowledged these challenges but emphasized that the move is “necessary to secure long-term profitability.”

Risks and Challenges

BARK is not without vulnerabilities. Its net loss of $10.0 million in Q1 2025, though narrower than prior periods, reflects ongoing operational headwinds. Tariffs and postal cost inflation remain threats, as does competition from legacy pet brands. Furthermore, the company's 85% dependency on DTC revenue—despite Commerce's growth—leaves it exposed to subscription churn. The Q2 2025 revenue guidance of $123–126 million, flat to 2.4% growth, underscores lingering demand uncertainties.

Investment Thesis: A Contrarian Opportunity

BARK's stock has underperformed in recent quarters, pressured by revenue declines and macroeconomic fears. Yet its $117.8 million cash reserve and improving free cash flow suggest it can weather near-term storms. The margin gains and diversification efforts—particularly the Commerce segment's momentum—signal a shift from a high-growth, subscription-driven model to a more sustainable, profit-focused enterprise.

For investors willing to look past short-term revenue pressures, BARK's valuation offers appeal. At current levels, the stock trades at a discount to its 2023 highs, even as its EBITDA turns positive. The Commerce segment's scalability, coupled with supply chain diversification, positions BARK to outperform if tariffs ease or consumer spending stabilizes.

Conclusion

BARK, Inc. is a company in transition. It is sacrificing top-line growth for margin discipline and strategic flexibility—a trade-off that, if executed well, could deliver outsized rewards. The stock's current valuation, combined with its improved profitability and diversified revenue streams, makes it a compelling contrarian play. Investors should monitor execution on its 2026 manufacturing shift and Commerce segment expansion, but the groundwork for long-term resilience is already in place.

Investment recommendation: Consider a gradual build in BARK shares at current levels, with a focus on margin trends and Commerce growth. Set a price target based on EBITDA multiples of peers, and use dips below $1.50 as entry points.

Data as of June 5, 2025.