Q3 2020 Overstock.com Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by and welcome to the Q3 2020 Overstock Dot Com earnings conference call. At this time, all participants aren't a listen only mode. After the speakers presentation. There will be a question and answer session Jay.
Ask a question during the session you will need to press star one of your telephone. Please be advised that todays conference is being recorded if you acquire any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today Ms. Elecsys Callahan. Thank you. Please go ahead ma'am.
Thank you operator, good morning, and welcome to our third quarter 2020 earnings Conference call.
Joining me today are Jonathan Johnson, CEO of Overstock, and President of Medici Ventures, and Adrian Li CFO of Overstock evening.
Ill thing president of Overstock, retail and Saum Noursalehi CEO TV right now well be available for Q and please note that we are conducting today's call remotely.
Let me remind you that the following discussion and our responses to your questions reflect managements views as of today October 29, 2020 and May include forward looking statements.
Actual results may differ materially.
Additional information about factors that could potentially impact our financial results is included in our form 10-Q for Q2 2020 subsequent filings with the FCC and in our press release filed this morning for.
We have reviewed the forward looking statements disclosure and fly two of today's presentation.
During this call, we'll discuss certain non-GAAP financial measures the slides accompanying this webcast and our filings with the SEC each posted on our Investor Relations website contain additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures. Please note that today's presentation is available for download.
On our Investor Relations Web site and our summary slide contains instructions for asking questions during our Q and a session with that let me turn the call over to you Jonathan.
But you are not supposed to have good morning to all our.
Just to be sure.
In more discipline and focus into the organization.
All that work is paying off.
The operational improvements we've made have allowed us to take advantage of recent sector Tailwinds.
Weve made good progress.
But we still have plenty of work to do.
We're just getting started.
I've never felt confident about our ability to achieve.
What I said, we would sustainable profitable growth.
In fact, I'm, so confident I will add something to that goal.
From now on our mantra is sustainable.
Affordable market share growth.
Slide five please.
We continue to strategically strengthen the overstock team.
On October 4th we added a seven director to our board.
Ill pass Chief marketing officer at Walmart and trip advisor.
Barbara Messing is the cheap chief marketing officer, and roadblocks Youd user generated online gaming platform.
Our brands over two decades of experience in retail and E. Commerce and is known for implementing data driven innovations and leading profitable growth in companies just like ours.
Barbara is a fantastic fit for overstock and a highly strategic addition to our board, which now has six independent directors. She will represent our shareholders well and is already adding value.
We're currently looking to hire a new chief marketing officer.
Real area of opportunity for us.
Our current growth and momentum I'm confident we will continue to bring on top talent.
Slide six please.
Remain in high demand and are distributed partner supplier Dropship model.
Enable us to be nimble and efficient.
Sustained demand has has not come without its own set of challenges.
We've made a good recovery in areas, where we initially felt covid strain such as customer care fulfillment and inventory levels.
We're not fully back to pre covid levels, but we are making steady progress.
Carrier capacity constraints, which is an industry wide issue continue to cause delays and delivery something I'll discuss later in today's presentation.
And given that we expect <unk> will be staying home for the holidays, we're anticipating and already preparing for an early holiday shopping season.
Friday please.
How quick corporate update.
<unk> Opportunistically raise capital of August.
Upside the original offering due to an increased demand bankers fully executed their overallotment options.
We issued for 2.4 million shares.
$84.50 a share.
For net proceeds with just under $200 million.
We will use these proceeds to support our continued growth project right.
On the regulatory front.
There's nothing of substance to report.
We continue to cooperate fully and engage with regulators.
Intellectual property remains important to us we are on the cutting edge of technology, and we are making sure our technology is appropriately protected.
One year ago I reported on our patent portfolio. So I do so again today.
We continue to be active on the pattern front organization wide. Our patent activity is progressing and is up relative to last year. You can see that are patterns are moving through the process.
Five nine please.
Well now have our CFO Adrian Lee review, our third quarter financial results Andrea.
Thank you Jonathan next slide please.
As a reminder, we manage our business and report our financial results across three key segments Overstock retail appear play ecommerce home furnishings retailer Medici Adventures are blockchain focused incubator and two zero, our largest medici venture business focused on financial innovation and liquidity for by private companies Arkansas.
Alidade results aggregate. These three segments I will begin with a summary of Arkansas Native results followed by a more in depth review of Overstock retail third quarter performance.
Next slide.
On a consolidated basis, we delivered another strong quarter sales at overstock retail doubled for the second sequential quarter year over year trading volume on the T zero a T. S increased 20 times compared to a year ago, and we maintain discipline spending and investing across the organization in summary, we posted 111.
Per cent revenue growth year over year, adjusted EBITDA, a $40 million and diluted earnings per share of 50 cents.
We also ended the quarter with a healthy balance shape that included a cash balance of nearly $530 million.
Hundred and 93 million of which was the result of our successful and oversubscribed follow on equity offering in August overall, we remain focused on executing against Archean initiatives and our recent financial performance reflects this commitment.
Next side.
This site provides a summary of overstock retail exceptionally strong third quarter performance, new customers more than doubled supporting our revenue growth and profitability as measured by adjusted EBITDA improved by $51 million versus the same period last year Overstock business model is highly scalable are peer play E commerce and partner.
Supplier drop ship model naturally supports girls are recent results illustrate our ability to generate significant operating leverage within our business.
We remain focused on growing our top line at a faster pace in our operating expenses and for the second consecutive Carter, we achieve that total revenue doubled in the third quarter, while operating expenses increased by only 62%, which includes sales and marketing efforts.
<unk>.
And the third quarter, we recorded retail revenue of $718 million or an increase of 111% compared to the third quarter last year customers are increasingly finding our home furnishings products and coming back to make repeat purchases.
We are please the third quarter sales performance remains strong although it is difficult to predict future trends right. Now we believe that the shift to purchasing home furnishings online will continue and that this shift should serve as a tailwind for us recall that our goal is to gain market share in an expanding U S online home furnishings market.
Next slide.
Retail gross profit increased by $100 million year over year to $169 million in the third quarter retail gross margin came in at 23.5%, which is an improvement of nearly 350 basis points versus a year ago.
Improvements in gross profit and margin or driven in part by operational efficiencies, including the rollout of our successful marketing allowance program and leverage from our fixed costs warehouse infrastructure.
Operating results were also impacted by certain items unique to the third quarter similar to what we experienced during the second quarter of 2020. These unique items included lower discounting as we strategically balanced marketing efforts against product availability and customer acquisition marketing activity and fulfillment related charges per our.
Service level agreements in order to protect our customers experience.
We have already experienced improvements and adherence to R. S. L. As in addition, we expect fourthquarter discounting to be higher which is more in line with historic seasonal trends and traditional customer shopping experiences.
Next slide please.
This chart illustrates overstock overstock retails operating expenses and absolute dollars and as a percent of revenue.
As a reminder, overstock operating expenses includes sales and marketing general and administrative and technology expenses as a percent of revenue operating expenses improved by 530 basis points year over year, we were able to leverage our Janet and technology expenses to double sales.
Next slide.
Overstock retail posted $50 million and adjusted EBITDA during the quarter, an increase of $51 million you're over here, even in margin was 7% and improvement of over 700 basis point versus last year we.
We also delivered $43 million of net income, resulting in our second sequential quarter of profitability.
We continue to expect consistent EBIT margin performance in the mid single digits long-term as pandemic related expenses benefits normalized and revenue growth moderate on a higher base I should also note that margins in the fourth quarter generally tend to be lower driven mainly by increased holiday promotional offerings.
Next slide.
And that summarizes our third quarter 2020 financial results Jonathan Alright. Thank you Adrian Oh I'm. So pleased with these results.
<unk> disciplined focus of execution against our strategic initiatives I.
I think every wanted to be compensated for their hard work Buddy.
Buddy to please.
Well now I'll discuss how weird chewed these results starting with overstock retail 19.
Overstock pop round in the transferring home furnishings online market.
Margaret that is now more relevant forever and one we believe will remain relevant.
A few years, a major broken online penetration, we've seen a significant spiced this year in our estimate 35%.
Home furnishings or being purchased online.
I'd like to emphasize that we were able to keep growing at over 100% even is brick and mortar began bouncing back in queue through.
So I'm 20 please.
As I've discussed before we've carved our niche.
And I'll play in our own distinct position and stripes and the market a physician that is relevant.
Any more of your condition with a specially during challenging or certain economic times.
All brand vision, a dream arms for all different shades home, good expertise and smart value.
Our customers come to us to find quality home goods for great value.
We are not.
Where do we strive to be.
Everyday low price leader nor to be inspirational, we believe our value proposition.
Uniquely meets the needs of many customers in the market our customers to refocus on every day.
So I'm 21.
During two three our customer account grew 141% year over year.
Two thirds of these new customers.
Target customer segments, something which demonstrate success and our focus to marketing efforts.
It also gives confidence that we will be able to retain these customers.
A new customers and the last two quarters are making repeat purchases.
Higher rates and they have in the past 10 years.
They repeat rate is 19% year over year.
This tells us a new shoppers a model refunding us and the products they love.
Having a great experience.
Loads well for retention something we are a special refocused on with these new customers.
522 please.
We built a strong foundation and our core competency.
We are customer focused we know what our customers want and how to reach them 59 million average monthly visit cause.
Is a testament to that.
We are technology driven.
We've been building and integrating innovative technology. It online retail for 20 years, and we remain cutting edge are infrastructures ability to handle the extreme and what's proved to be steady growth we've experienced <unk> during the last two quarters.
Is a testament to that.
Can I have a business model, which utilizes thousands of Parker suppliers and fulfillment centers is a fisher and highly scalable.
Our sales in our margins are a testament to that.
12 23 please.
Now to our focus retail strategy.
<unk> mission is to create dream homes for all making beautiful comfortable and well appointed homes accessible by helping customers easily and confidently fine just what they want for less.
We've consolidated this vision and focus on a single page.
Everyone and overstock retail lives by.
In order to achieve sustainable profitable market share Grove, we must focus on survey.
Our customers highest needs.
Kind of ran pillars to our customers needs.
<unk> <unk>.
<unk> value.
Easy delivery and support these.
These brand pillars provide a longterm guardrails and focus.
Innovation, So we're only working on the things that improve the experience our customers want.
524 please.
As we've mentioned we've got a great deal of customer research and our findings have driven our focus.
Two customer segments, particularly fit our strength.
Having shoppers and reluctant refreshes together, they represent 40% of the home furnishing markets or about.
$120 billion.
All other pierpoint home goods retailers focus more on inspiration we've we do move a white space of the two customer segments, who already have a higher propensity to shop with us.
These customers are deal driven.
Want to feel great about their purchases and want a low hassle shopping experience.
Well that's overstock.
We continue to leverage analytics and machine learning to ensure we provide the shop for you experienced these customers our customers desire.
Excellent I'd please.
Or 2020th initiatives align two or three brand pillars.
Initiatives have not changed during the pandemic and will remain a focus through completion.
We've made recent notable progress.
Mobile by improving the customer experience.
And the pre positioning of inventory with the opening of our southern California distribution centers and.
And customer care by increasing self service options.
Arrived and do a little more detail on each slide 26. Please.
[noise] marble has always had good traffic, but lagged and conversion.
I want to improve the customer experience has resulted in a significant increase in conversion, which is up 15% in queue thread.
Sales for mobile exceeding 50% of our revenue for the second quarter of them in a row, we've made good progress and as customers naturally Margaret to mobile we know we must continue to improve our mobile experience.
527.
What's new and existing customers are finding up and liking us for our primary focus in core competency home furnishings, which again represented more than 92% of sales in Q3.
Home furnishings roommate and demand.
Our sales mixes for products that are historic strong sellers, giving us real confidence and sustain demand.
528 please.
The health of SCO remains strong.
As shown by continued growth and pop three keyword rankings and increased organic marketshare.
Yeah, we did experienced a slight decline in fewer ranking grove.
At the end of September, but we have been able to quickly reverse that trend and are now at a two year high.
The industry has experienced a similar drop off and organic search businesses seen in the home and garden category data.
Some of this trap mouses seasonal.
529th please.
Our value proposition is smart value.
Shipping and promotions.
Are two key components that proposition.
We know free shipping is a top purchase driver. So we know permanently give free shipping on all items.
Our customers are recognizing this value and radar says, 10% favorable relative to competitors for shipping charges.
Promotions matter too and we've been ready or is 6% favorable compared to competitors and promotional competitiveness.
We are not an everyday low price leader, but we do strive to win a prize after factoring in promotions.
It's nice to see this is resonating with our customers. So.
530 please.
As I mentioned earlier.
The current environment is strained fulfillment capabilities.
We're not alone in that challenge, while we have made progress in reducing tilman fulfillment times carrier capacity constraints continue to cause lagging deliberate.
There's only so much carrier capacity in the U S and with more people shopping online yeah, perhaps an earlier than usual holiday shopping season, we don't anticipate full recovery on delivery speed until next year.
Given this environment. Some are predicting ship again this holiday season, with an even greater present pressure being placed on terrier capacity and delivery capabilities.
We have been and are being as proactive as possible. For example on logistics team has been sharing our forecast with our primary carrier for months in an effort to ensure adequate trailers and trucks and our fulfillment centers.
Because our higher demand began to quarters ago, we believe we have carrier commitments others do not.
Well speed does and always will matter, we've found that in the current environment, the accuracy and delivery time matters more right now, particularly for large personal items.
Customers want to know their couch will be delivered at noon on Saturday. So they can make sure their home to take delivery an instructor delivery person replace it in a specific place.
We are always working to improve delivery estimate accuracy and I've been giving more automated and enhanced delivery communications to our customers.
Slide 31 please.
Customer contact volume remained high in Q3, driven by our increase sales spot was 20 per cent lower than last year as a percentage of orders.
A slight uptick road into the queue to is primarily because we didn't have all our customer service channels open at the beginning of two Q2 was we were understaffed just like many of our peers.
Holy Staff now all lines are open and we continue to make progress and automation initiatives.
In fact shelf service cases are up three six times over the last year, which means customers can quickly and conveniently help himself avoiding the time to make a phone call and the cost of an agent.
Our customer service satisfaction scores, which <unk> during the height of our sales increased have markedly increased because we make technology improvements.
Our technology Rude show as we innovate through automation.
Slide 32 place.
As previously announced Overstock was one three vendors awarded a contract for a three year proof of concept pilot with U S. Federal government General services administration.
The top down where I live is planned in August we remain guardedly excited about this potentially large opportunity.
We were focused on premium on board, which is a more involved process and you might suspect.
We continue to add features and functionality to the platform as requested by the GSA to improve the purchasing experience.
The pilot is ramping up slowly at least what feels to us like government speed, but we are making progress.
Will provide updates as trends emerge.
533 please.
In summary, overstock retail remains well positioned for continued growth a.
Ah revenue growth continues to I think the industry driven by our technology our customer focus.
Our business model.
We have maintained our normalized gross marches.
Oh, that's right continues to go slower and revenue driving operational luggage all this luxury to produce longterm adjusted EBITDA margins in the mid single digits, we're driving sustainable profitable market share growth for overstock retail by envisioning.
By enabling our vision a dream homes for all.
534 please.
Let's turn to our men and she's answers business.
The slideshows murdered she ventures areas of focus.
Where each of our b'ak'tun companies bed.
Into our vision.
I've talked a lot about focus discipline and strategy introduced drawing understock retail business.
That doesn't mean, we are any less enthusiastic or commit a drawback to businesses.
We remain highly supportive of them.
Bullish blotchy and technology more broadly.
It is difficult to say, what we think is businesses are ultimately worth but I can say, we certainly think we've made some great pets with that Oh first discuss 205.
535 please.
For those who might be newer to the two zero story, two zero is a leading liquidity provider for private companies.
It offers institutional great technology and trading solutions for issuers looking to digitize their cat table and trade on a regulated platform.
This gives issuers valuable liquidity optionality, while simultaneously democratizing upset access.
Awesome.
I'm pleased the two zero has had a lot of recent momentum.
It's first third party security can minutes trading <unk>.
Delivered record a T S volume and it launched its retail broker dealer can name a few of its momentum items will touch on each of these it more in a moment.
36 please.
Two zero continues to lead the digital security space.
Quarter to zero recorded nearly $40 million in transactions on the two zero a T S to put that in perspective C. A T. S recorded $2 million in the same period last year roughly $3 million in the second quarter of 2020.
How's the result, two zero was responsible for for roughly 99% of all security token volume last quarter and the security is trading on its platform represent roughly 85%.
The value of all security tokens trading today.
P zero is winning and this new market.
537 place.
I want to spend some additional time illustrating the record.
Two zero recently recorded.
This is important for a couple of reasons first this volume is a key revenue driver given the commissions the T zero generates on to smile.
Second we expect perspective issuers to take note of these figures volume is a key consideration for that.
During the third quarter over 4 billion shares were traded on the two zero platform.
This is more volume.
Then in all previous quarters combined.
The state is encouraging.
We look forward to the tail ran the trading additional assets should have on these figures.
538 place.
In addition to the record trading volumes two zero also experienced healthy growth and it's crypto app users.
It added over 2200 users last quarter, bringing the total userbase to over 11000.
Two zero plans to migrate to users into its newly launched two zero markets, which would allow them to also invest in the digital security the trade on the two zero a T S.
539 please.
As I mentioned earlier T zero hit several milestones last quarter.
I've discuss I've already and will highlight a few more beginning with the approval of P. Zero markets two zero markets, which was approved by FINRA in September officially lost the last week.
It is important for several reasons.
Two zero to control the entire user experience rather than relying a third party broker dealers.
It allows two zero to control everything from industrial Onboarding and trading ongoing customer support.
And it provides additional monetization opportunities down the road such as revenue drive for data and cash balances.
Two zero also wants to third party broker dealers on the a T. F. This month as of this call six broker dealers alive and Friday on the T Zero Ikea.
Two zero just signed a new subscriber agreement with the seventh.
As noted earlier, John Jacobs recently joined the two zero Board I'm thrilled to have him on the team.
540 place.
I'd like to reiterate two zeroes priorities.
Moorhouse F.
Enhance liquidity on the T zero, a T S and.
Can improve the investor experience.
Please the T zero main meaningful progress against each of these objected last quarter.
The fourth quarters off to a strong start to.
541 please.
Now to two other Medici adventures companies with notable news and progress.
542.
That is R. Barbados based financial services company focused on developing blockchain based digital payment solutions and developing countries just yesterday, we announced Medici adventures purchased an additional $8 million in equity, which will allow <unk> to pursue market opportunity that accelerate.
The adoption of Central Bank digital currency.
Pioneering work in the C. B D C space promote social inclusion financial empowerment and economic growth we.
We are strong believers in bed and this additional equity purchase demonstrates our commitment to this area.
<unk>.
This is an exciting announcement in a win win for all parties Overstock now that you ventures and <unk>.
Todd forty-three place.
I would be remiss, if I didn't mention votes the week before the presidential election.
Based in Boston votes has developed a mobile voting app that utilizes the built in security smart phone technology and the M. U the ability of the block Jane to enable safe and secure voting.
Just two weeks ago.
Both App was used to cast the first presidential vote using blocked yet.
<unk>.
It is now conducted 70 successful elections in 29 counties across five U S States and is three in progress three in the queue for later this year.
I hope everyone in the U S as voting or at least trying to.
If it doesn't work as well as it should.
Next week take about how votes for the salt that.
544 please.
Briefly recap before we moved to Q&A.
545.
We have made a lot of progress thus far in 2020 across all our businesses.
We are executing against the focused and disciplined strategy.
Efforts show.
Financial results.
We've reacted quickly.
To adapt to changing market conditions and consumer demand.
Our business model and our employees have demonstrated remarkable resilience.
The growth Overstock is experiencing has taken and continues to take a lot of work and mental effort to produce and maintain it is not just covid produced.
Our team has done a wonderful job meeting and maximizing the opportunity we are stronger than ever well positioned to continue our growth trajectory.
Now, let's take some questions.
As a reminder to ask you a question you would need to press star one on your telephone to withdraw your question. Please first the pound key please limit yourself to one question and one follow up please stand by while we compiled the Q&A roster.
Your first question comes from the line of Tom Forte with da Davidson.
Congratulations on the leather outstanding quarter. So my one question and one follow up is how should we think about your ability now that you have the aspen token to add additional token to your a T S where are we on the box.
Furniture, and then my father workers Uhm very curious why are you decided to make incremental investment than that.
What did you see in their results.
You think it was worth.
Making incremental investment thank you very much.
Thank you thanks for the congratulations weird certainly excited about our third quarter results.
So I'll I'll, let you talk about where we are.
Adding additional pumpkins and the status of the box JV, then I'll address to that question.
Sure. Thank you Jonathan.
Saddam our top priority is finding more access.
And have you heard so we got Aspen lives. This quarter, that's probably one of the top quality digital security that exists today, we also just yesterday and now too.
At where we've got token as Asian agreement too with the with a fine call Tinton capital there well respected fund raising 300 million.
We also have passed announcements like River Plaza, which are now doing their raise and we hope to trade you know probably early next year. So.
<unk> announced several asset there are several more in the works, but just to be kind of Frank is most of the assets that exist today don't pass our diligence and we don't want to launch assets out there that aren't the quality that meet our standards. So.
We're being quite selective about what we're willing to trade.
But the new assets that we're getting we feel very good about like Tinton capital.
I'd also note we are shifting our strategy a bit to direct listing rather than these offerings, which have the lead time of having to build offering memorandums have a successful Reyes and and then sometimes lockup periods before they trade. So we're we're shifting to direct lifting where we feel.
We can get access up and running much faster.
On the J V question with D. S T X, our our joint venture with box digital.
The the rule book was filed as you know there's been very positive back and forth with regulators and we're optimistic we'll get a positive answer as far as moving forward with the exchange in late November.
They're deadline D. S. T sees deadline to get back to US is late at the end of January.
But we're hopeful receive something positive maybe late November.
But one way or another will will hear and answer by the end of January.
Jonathan Thanks, Yeah.
I'll bet.
The market opportunity for Central Bank digital currency your C. B D C is enormous.
And it is a focus almost.
The central bank around the world.
The pandemic of increased.
Can accelerate the focus so I'm Gonna review the market opportunity is right in bits crosshairs and this additional investment enables bet to pursue the market opportunities today with the pilot and the eastern Caribbean launches.
When it goes live next month and it was the late slightly because testing during the covid user testing or the covered period was was slowed but when it goes live like next month.
Central Bank guys from around the world will be watching it.
Uhm, we believe in bits, Michigan.
<unk> C V D C and we think it's only a matter of time.
Until digital currency will be the norm because central banks around the world are exploring your right now so I have a controlling interest in a company that allows for that just seemed like an easy decision for us.
Great. Thank you Jonathan take your time.
Your next question comes from the line of fifth segment with Credit Suisse.
Good morning, everybody. Thanks for taking the question and congrats on the quarter I wanted to focus a little bit on the retail business very good performances quarter. Despite some industry constraints that we heard about right inventories seemed tight and maybe worse in the second quarter for the industry. They're also incremental supply chain and shipping costs. So I was hoping you could just.
Those two factors how are you able to manage that so well in the third quarter and then what do you see as you move into the fourth quarter, whether those headwinds are better or worse. Thanks.
Yeah, Great questions gave I'll, let you.
Address was initially I'm out I'm out on that.
Okay. Thanks, Jonathan.
Thanks, Brad Yeah regarding both inventory and carriers and the challenges we face.
I'll I'll touch on inventory first from an inventory standpoint, you know.
Our our business model is very resilient with over 8 million products on our website.
So we recognize that we missed out on some opportunity to.
To really make a with some of our top performing products that were out of stock.
But with the tradeoff cells and the incremental.
Inventory assortment that we have customers were trading off and we had an increased percentage of our breath of assortment selling we also sold more units per item with that so so the business model is resilient regarding the carrier challenges.
<unk> Jonathan mentioned it earlier shipping getting this coming we've really been through that for the last six months working to to understand how to get trailers and trucks in place with with 100 plus per cent growth in the last six months and those.
Trucks, no other way to our warehouses, we've been working very closely with our carriers, we provided them forecast and we continue to work on that we're in good shape their confident that we have our commitments in place with our carriers and looking forward to a solid two four.
Yeah, I I would just just add onto what David said.
Because our.
Growth App started happening six months ago.
We've <unk> the carriers have adjusted they know our needs with giving them our forecast.
We have commitments for from them for what we think will need.
Hey, chip again, it's gonna affect people that are more holiday focus that haven't had.
The huge increase in sales we've had park past six seven months.
Okay. That's really helpful. I appreciate that and then I I think you suggested early on that holiday sales. They could come early and we've heard that from a lot of companies as well can you talk a little bit more about what you are seeing early here in October and whether some of the momentum from Q3 has continued and then just related you did mention higher.
Discounting in queue for I, just want to clarify that's higher versus Q3, but is it also higher year over year versus the fourth quarter or if you could just sort of elaborate on that too that would be helpful. Thank you.
Okay, I'll I'll I'll start with the question about you know what Q for it looks like that's far and then turn it over to Dave or where you are Adrian to discuss the.
The rest of the question.
We have been hesitant and do not give guidance on.
What we see in queue for I will say that thus far in queue for sales remain strong demand.
Demand is high so.
Okay, very good and you want to talk about the discount.
Sure I'll I'll talk about discounting and some of the promotions, where we're looking at being pulled forward a Brad mentioned.
Uhm, so Brad what what we've seen is a lot of talk.
And a lot of.
Articles from probably driven.
Frankly by the carriers to encourage everyone to release brought Black Friday deals in October and pushed promotions up you know we've been we're not the market dictator in this case and so we wanted to make sure that we were ready to go where nimble we've got our content set but we're not seeing.
A large uptick in holiday early from our competitive set either we're seeing some and.
And continue to monitor that on a daily basis in terms of our promotional discounting in the fourth quarter, we do not anticipate that'd be a greater levels than last year.
But we do anticipate it being.
You know as we get into the fourth quarter into our doorbuster deals in our in our daily deals you know, we're going to be become more promotional with that because you you have to be in the fourth quarter, but.
I hope that answers your question there.
Yeah, that's great. Thanks, so much and good luck in the holiday.
Thank you.
Thank you.
Your next question comes from Rick Hotel with Needham and company.
Thank you good morning, and I'll add my congrats Armstrong execution as well can you provide additional color on the repeat business it looks like it it up 19% in the third quarter, which is an acceleration what do you attribute that to and how should we think about the runway you have to continue driving that higher.
Thank you wreck and that's a great question we are.
Extremely focused on the repeat rate yeah in the second quarter is your customers.
Tripled in is this quarter third quarter is there more than doubled we'd need to be able to take advantage of this new set up.
Overstock, more overstock customers and make them overstock Loyola.
What do we attribute it to I think it is are several things it's our focus.
Marketing, we know who our customers are we.
Yeah, we've provided the the market into six different customer segments, we focus on two okay.
Those who would call savvy shoppers and those who recovered lucky refresher say represent 40% of the market. They are predisposed to shop at overstock, when they come and find US we're working hard to delight.
And so I think it's.
Knowing we have to increase our repeat ray and knowing who are marketing to that's what I attribute to grow to in this room, we're gonna be looking at the next corner and all next year gave what would you add to that.
The word personalization to add to that Jonathan It really is about knowing our customers knowing what they want and when they want it and using machine learning in our marketing models are emails and are different campaigns is is super important for us as we think about how to get that customer to re engage.
And you talked about two thirds of your new customers being within your target base. So that implies a pretty material increase in customers that could be considered outside of your umbrella. So to speak so what's your confidence and being able to retain those new customers that perhaps aren't <unk> savvy shopper to really.
To refresh yours and that your canvas, perhaps wider than the 120 million.
Maybe you Wanna take your first kind of that and then all of that.
Sure. Thanks, Jonathan you know <unk>, what gives me confidence is that repeat rate increase in 28, a new customer repeat when you see that that that we have a statistic internally that we look out with with our deliveries and when a delivery goes well cut.
Customer has a high likelihood of repeating when that experience is as solid and that's why you'll hear us talking so much about our operations in our customer experience because when the customer how's it great experience, regardless of whether they're one of our target customer segments or any customer if they have a good experience and they like what they see we have a <unk>.
Lot of customer shopping on our website everyday that or not or target customers that need a sofa or need a coffee table.
Yeah, I I I think there's there's three matrix that we look at <unk>.
Every day and if any one of them is dipping for your email and activity as soon as one is a fulfillment score then we monitor another as a customer.
Her response score and then the third as a customer posted incident M. P. S score.
<unk> those those are off broken out by a customer segments listed for all of our customers and our goal is to delight anybody who shops on our site not just the Saturday shop, or not just a reluctant or for furniture, but everyone and I think that that.
Operations aspect of days mentioned is why we think anyone that comes to shop, if I was gonna have a great experience.
Thank you all the best this holiday.
Thank you wrecked.
Thanks, Rick.
Your next question comes from the line of Peter Keith with Piper Sadler.
Hey, good morning, it's Bobby free neuron for theater congratulations on the continued success.
First I want to ask about your recent announcements offer premium free shipping on all orders can you discuss what went into this decision making have you been seeing nobody higher conversion since implementing this in March and also going forward should we expect any adverse impact on gross margin as a result of the decision S.
Bobby Thanks for the question I will give a brief answer have day provide more detail lot of a lot of analysis went into it it's something we've talked about for.
Months and even years before we did it the pandemic.
Was a nice catalyst to do it.
It has it is you know the worrying was would cost us money because <unk> in the past and the free shipping for items over $45.
That has proved not to be the case, because incremental sales of <unk> made up for.
Get up on shipping costs on those lower cost items.
What else they've or Adrian what else would you out.
Yeah, Thanks, Jonathan I would add that.
Shipping is identified by our customers as the number one customer benefit that they wanted.
And.
As we survey our customers frequently.
That she free shipping awareness has grown nine percentage points in just a mere six months with one of the quickest moving metrics of awareness topics that we had so our customers. It really has resonated with them and given us the confidence to move forward.
Thank you.
Great I appreciate the do go there just just definitely wants to ask around gross margin uhm. So contingency strength there Q3 at 23, 3% above two two at 23%.
<unk> T three b, a little bit lower as you reach that the customer support center among other things what lesson uptight and Keith reversed earlier expectations and Ah you're rethinking you're near term gross margin potential gonna be operational improvements you're saying.
Well we wanted.
Ooh I think is Adrian noted and they'll have Adrian address this long ago. We we do thank you three probably a little higher than people should expect in queue for.
Adrian wanted to talk about gross margins, what we're doing on on that problem.
Yeah, certainly things Jonathan.
In the queue, three and I I had said there's a bit in my prepared remarks, you know there was a couple of unique items that continued to prevail from two two notably we did do less discounting, we discussed that and and and you'll see when we file are cute you know or.
<unk> advertising costs and retail we're up 70 basis point. So we were opportunistic with advertising and didn't do last discounting uhm, which is a kind of a similar phenomenon that we did in queue too and then the other items. We did continue to see a bit of a S. L. A charges in the third quarter similar to Q3.
So I'd say the two takeaways are you know we don't expect our discounting to remain at the levels. We saw in Q2 and Q3 and we're already seeing a lot of improvements within kind of R. S. L. A C. As I mentioned so those are the two cute things that persisted into Q3 from Q too that we really don't expect to continue.
Alright, Thank you and good luck with your <unk>.
That's probably.
Your next question comes from the line of <unk> with Bank of America.
Yeah, Hey, good morning, everybody. Thanks for taking the question. So I'm trying to get a sense for what you know two Q in three Q, when you're doubling sales year over year and in an unprecedented manner environment me at all for 2021 and your business going forward. So can you just take an opportunity to talk about.
Your confidence in and growing the business next year capitalizing on this you know awareness and overstock and then as a follow up to that look product or site enhancements should we be looking for the rest of this year, maybe into next year and what kind of sustain K P.
Those you're seeing them today is there some improvements to the site or the customer experiences that we should be aware of things.
Thank you I appreciate the question then in the interest.
Let me <unk>.
First say.
As I've said in the past.
I think the focus there we began bringing your business in the fourth quarter of last year paid off in the first quarter and.
And I think there was a lot of operational strengthen muscles. It with bill that we were able to take advantage of when the pandemic.
Tailwind kicked him some of the gross like in mobile I think is.
More operationally derived pandemic tarata.
And so yes, we will rock against significant.
Thompson, starting in Q2 of 2021, but I think the operational focus.
And the initiatives, we've been working on and that we've got slated for 2021.
Should help continues to drive drive growth and that's why you know I've added two words too.
Companies mantra, which is sustainable profitable market Sharecrop. We see this is a big market, we'd like to white space. We're in we're we're competing with others, but in a different space. So we think we can with the 20th.
2021 does have market share <unk>.
Possibilities that we can achieve day, what would you add to that.
I would just tagged onto your comment on the unique white space we're in I.
I think that we have focused on differentiating ourselves from those talk competitors and.
As the market moves forward, it's a large U S home furnishings market, we expect to to continue to grab and grab more than our fair share of <unk> of our of that market and.
With a focus team and I focused strategy, we're confident in our abilities to do that.
Now you know as far as what you can expect to see improvements on the website and all right in our operations. We're just gone through a pretty rigorous decision cycle.
What we expect to work be focused on with initiatives next year I think <unk> you will see that our website V comes easier to navigate finding products will become much easier.
Yeah. The byproducts you have on your site easier you have to make it so people to find them. So.
There's always a longer to do less than things, we can do what part of what we're doing is picking the most important and moving forward on does.
Okay, Okay, and if I could just squeeze in a follow up you know for a trend I. Appreciate the margin commentary on on four Q I was just curious you know from a revenue perspective could you compare what new overstock looks like I end up for Q holiday period should we just rely on.
Next darkle seasonal trends or.
Is there something we should be aware of whether or not revenue is flat down.
Sequentially in this new this new overstock do we have thanks.
Sure. Thanks, I think you know Jonathan mentioned in a previous Q&A.
Sales remain strong I think one of the things. We've said is Q4 will be seasonally.
More holiday and Dave mentioned Doorbuster, then promotion all so I would say you know some of the similar activities, we've experienced and queue for the past will prevail and then as Jonathan noted Yeah, I think sales remained strong.
I appreciate it.
And that's fine.
Thank you Sir your next question comes amount of Mark Chahal does with older Lane.
Well well well, there's a lot of ways I can go on this but I think I want to hit on Medici.
And I always say, there's no greater motivator than disrespect and the fact that the followers all value Medici collectively at zero.
It was a little a little bit of a slap in the face may I suggest that instead of and analysts meeting going forward, maybe you have a Medici day.
That brings in top management from your portfolio companies to discuss in greater detail.
First of all the size of their markets their initiatives and how close they are to be coming soon.
Standalone investable companies, because I think the opportunities are very large.
And and my real question is.
People seem to think that you're limited to home furnishings and that's your only vertical what what prevents you from expanding especially with the G S a business and.
Into into other verticals and when could we may be expect to see something along those lines.
Mark.
Thanks for the questions and for the suggestion, we do no as I mentioned in the prepared remarks, we can do a better job telling.
The amount of two story, we did hold him out of today in second quarter, but I think it's high time for another and so that's something we can work on.
<unk>.
Yeah.
We we are bullish on so many of these and these companies are Mad at you you know which ones are the ones that are the Lotto tickets first is the supermodel versus the powerball so.
Needs to be seen but but there's some there's some great companies in there alright as far as other lines of business.
I really think that's.
Resting question and one that I think we are folk forest and focus first to think about it or focused on given the GSA pilot and that may be a chance to grow up in jobs. <unk> did you want to comment on additional business lines and you know what.
We're thinking we have we are and I think rightly so focused on home you know where do you think where do you think things could go.
Yeah, Thanks, Jonathan and thanks, Mark I.
Yeah, I I would break it into two two components.
Completely new businesses that we're we're not necessarily in and then expansion of some product categories. So.
As we think about it for overstock, probably would make probably make some sense to add you know medical and lab Tech commercial.
Commercial grade safety supplies those areas.
<unk>.
Seem a relevance in the G S. A world of of our customers that we could be servicing their what's that contract and then I think expanding into.
More more into commercial great office furniture, and office supplies janitorial, even office electronics.
Now things things along the lines of the Chargers, and and monitors and monitor stands and more professional grade and some of that so so it is on our minds and we're thinking about it and.
As Jonathan mentioned, where guardedly excited about this opportunity, but but trying to take advantage of every capability. We can from the award this contract.
And.
Back in the day.
It was sort of explained to me that your architecture can support something close to 10 billion and.
And revenue is that.
Is that still the case.
Well, we're always working on the architecture <unk> you know it's just.
I will tell you. This the fact that we.
Had this a tsunami of sales come in the <unk>.
Early mid March early April.
And didn't Miss a beat on it tells me that our architecture is today strong and you know ready for growth.
I don't know that the numbers town I don't know if this is the numbers not 20th but I do know that the technology team is always upgrading always building cause it we're ready for the next surge the next big thing and for growth grow so.
Just stay focused guys well done well done fighting through the adversity of the past years and.
I'm counting on you just keep it going and and have that Medici day at some point that would be very helpful to people.
Alright that thanks, Mark <unk> hippie hours, we wrap this up.
Yeah.
Yes, we have reached our time for a lot of questions.
Do you have any closing remarks here.
Thank you Mark is gonna make a quick closing remark I want to thank everyone for participating on today's call I.
I appreciate your interests and ownership of overstock.
Well, we talked again.
Save staying healthy and rest assured we will be working to deliver a great fourthquarter and they'll give you. The first you wish you to view a happy holidays. Thanks, so much.
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