Q4 2020 Overstock.com Inc Earnings Call
Well, ladies and gentlemen, thank you for standing by and welcome to the fourth quarter 2020, Overstock Dot Com earnings conference call. At this time, all participants on a listen only mode.
After the Speakers' presentation, there'll be a question and answer session.
I asked the question during the session you'll need the press Star then one on your telephone.
Please be advised on today's call is being recorded.
You've acquired the school system and we press Star then the road switched and operator I would now like to hand, the call over to Alexis Callahan. Please go ahead.
Thank you operator, and good morning, and welcome to Overstock fourth quarter, and full year, 'twenty and 'twenty earnings Conference call.
And me today are Jonathan Johnson, CEO, and Adrian Lee CFO, Dave Nielsen President of Overstock will be available for Q&A.
He is now and we are conducting today's call remotely.
Let me remind you that the following discussion on and our responses to your questions reflect management's views as of today February 24, 2021 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 Q3 2020, and subsequent filings with the SEC and and as our press release filed this morning. Please.
Please where any of the forward looking statements disclosure on slide two of todays presentation.
During this call we will 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.
This presentation is available for download on our Investor Relations website, and our summary slide contains instructions for asking questions during the Q&A session.
With that let me try on the call oversee of Jonathan.
Yeah.
And good morning day everybody.
Overstocked on another impressive quarter rounding out its banner year on.
I'm excited to share our Q4 and full year, 'twenty and 'twenty results and provide updates on our business.
The fall of the agenda on slide three.
Next slide please.
I'll start with a few quick corporate updates.
And January we announced the strategic partnership with only on venture partners for the <unk>.
Oversight of the Medici ventures portfolio companies.
This is of great transaction and I'll cover it in more detail later and our prepared remarks and.
November our board declared and annual cash dividend on the <unk>.
Series of anyone and series B preferred shares.
Fourth year in the room.
The standard we distributed the 16 cents per share dividend.
All eligible shareholders.
And January we received a subpoena from the.
So you're requesting additional information related to the 2019 to 2019 retail games, we are complying with the request we are cooperating fully and we are engaged with the regulators.
We continue to operate smoothly and efficiently during COVID-19 pandemic restrictions.
We are still working from home.
And the work.
Of course, as a gauge and her attrition is long.
And no rush to get back to the office.
Tuesday night with the vaccine rollout proceeding slower than hoped or expected.
Okay.
Watching to see what happens with the current stimulus bill.
And there we saw an uptick in sales with the first round of stimulus checks on that.
Right.
We're continually monitoring our supply chain and particularly the west coast shipping ports.
Long Beach, and Los Angeles, you Claude the shippers have been finding alternatives and Oakland.
And then and Seattle.
We are in constant communications with our partners and carriers to ensure the best customer experience possible.
Slide five please.
And as most of you know we've been looking for a new chief marketing officer.
After a careful search during which we have the interest of and evaluated many highly qualified candidates and delighted to announce we've hired and exports.
Paul <unk>, who will be a key member of our executive team.
What's the risk of Sullivan will join us as our new Chief marketing Officer.
The end of next month.
She comes to us from Amazon.
She was the head of marketing for its global private brands portfolio.
The Loopnet has also led marketing teams for numerous fortune 100 companies gross.
Lots of track record and growing building and reposition the brands will be extremely valuable to overstock and I look forward to Elizabeth contributions to continuing our sustainable profitable market share growth just wanted to C of O should gale and delighted to.
Welcome to Elizabeth to our team.
Slide six please.
Our CFO Adrianne Lee will now review of our fourth quarter and full year, 'twenty and 'twenty financial results Hadrian.
Thank you Jonathan as a reminder, we manage our business and report our financial results across three segments Overstock retail a pure play E Commerce home furnishings retailer Medici ventures, blockchain focused incubator and T zero, the largest Medici ventures business focused on financial innovation and liquidity for private companies.
Our consolidated results aggregate these three segments.
The closing of the Pelley and ventures transaction. It is our belief that we will deconsolidation of the Medici ventures businesses, which is the accounting treatment. We are currently seeking SEC pre clearance on.
I will begin with the summary of our consolidated results followed by a more in depth review of Overstock Retail's performance next slide.
On a consolidated basis, we delivered another strong quarter, our sales growth momentum continued with overstock retail revenue, increasing 84% compared to a year ago.
This growth coupled with continued expense discipline resulted in adjusted EBITDA of nearly $23 million and improvement of almost $42 million year over year.
Diluted earnings per share came in at 26 and.
<unk> of almost $1 per share compared to the fourth quarter of 2019, we ended the quarter with a healthy balance sheet, including $517 million and cash.
Which is an increase of over $400 million versus a year ago. This improvement was driven by our strong operational performance and our successful and oversubscribed follow on equity offering in August.
Next slide.
We delivered record results and record profitability in 'twenty and 'twenty, we recorded $3 $2 billion and gross merchandise sales and increase of 74% year over year adjusted came in at $88 million, which was an improvement of $162 million or 220% year over year and.
In addition, we posted diluted earnings per share of $1 24, and increase of $4 70 versus full year 2019 the.
The organization focus and operational improvements we made at the end of 2019 allowed us to profitably capture the increased demand for online home furnishings and.
Next slide.
This slide provides the summary of overstock retail strong fourth quarter performance, new customer growth was 94% and the fourth quarter. This increase coupled with improvements and our year over year average order values drove our increased revenue.
The profitability as measured by adjusted EBITDA also improved by a notable $36 million versus the same period last year.
Overstock business model is highly scalable or pure play e-commerce partner supplier drop ship model naturally supports growth. Our results also illustrate our ability to generate significant operating leverage within the hour business.
We remain focused on growing the top line at a faster pace and our operating expenses for the third consecutive quarter. We achieved that revenue increased by 84% while total operating expense increased by 41%, which includes the sales and marketing efforts.
Next slide.
Overstock retail achieved record results in $2023 $2 billion of gross merchandise sales and a $136 million of adjusted EBITDA and addition to delivering record financial metrics, we achieved our long term profitability targets gross margin and the 22% range operating leverage and adjusted EBITDA and the mid single.
Digits.
Next slide.
And the fourth quarter growth remained strong with retail revenue of $670 million again, an increase of 84% compared to the fourth quarter last year Importantly, estimates from third party transactional data suggests that our fourth quarter growth was ahead of the overall online home furnishings industry.
Future trends remain difficult to predict but we continue to believe that the shift to buy and home furnishings online is the trend that will continue it's not whether customers will continue to buy home furnishings, but where they will buy them and we believe the convenience assortment and value offered and the online purchasing experience will continue to.
Our goal remains to take market share and the expanding U S online home furnishings market year to date, our sales growth remains strong.
Next slide.
Retail gross profit increased by $75 million year over year to $151 million in the fourth quarter retail gross margin came in at 22, 5%, which is an improvement of more than 180 basis points compared to a year ago.
And is in line with how we intend to run our business. Our call Center was adequately staffed partners were meeting customer expectations, and we offer great promotions to our customers and.
The year over year improvement and gross margin was largely driven by operational efficiencies, including more effective promotional activity. The April 2020 rollout of our marketing allowance program and leverage from our fixed costs warehouse infrastructure.
On a full year basis gross margin came in at 22, 9% and was largely in line with our long term targets. We did experience. Some bend the pandemic related gross margin inflation and the second and third quarters that I would not expect to repeat.
Next slide.
Yes.
This chart illustrates illustrates overstock retail's operating expenses in absolute dollars and as a percent of revenue operating expenses are composed of sales and marketing spend and general and administrative expense and technology expense.
As a percentage of revenue operating expenses improved by 563 basis points year over year, and we were able to leverage our G&A and technology expenses, while sales nearly doubled.
This illustrates the scalability and strong operating leverage inherent in our business on.
Our expense structure has remained relatively consistent and absolute dollars and as a percent of revenue throughout the last three quarters, demonstrating our focus discipline and managing our business.
Next slide.
Overstock retail posted $34 million and adjusted EBITDA on the fourth quarter and increase of $36 million year over year EBITDA margin came in at five 1% and improvement of over 570 basis points year over year. We also recorded $27 million and retail pre tax net income posting our third of sequential.
Quarter of profitability.
We continue to expect consistent EBITDA margin performance and the mid single digits long term as pandemic related expense benefits normalized and revenue moderates on our now higher established base in summary, we delivered a strong fourth quarter and a record of 'twenty and 'twenty financial results with that back to you Jonathan.
Thank you Adrian <unk>, 'twenty, and 'twenty rose and amazing year for Overstock.
For the full year, 'twenty and 'twenty of the retail business delivered of $136 million of adjusted EBITDA.
And a margin of five 4%.
This is incredible performance, it's also repair and the margin rate guardrails.
Targeting and our long term plan the true.
There is a fair price from our 2019 performance and ours.
It's a new normal profitable growth.
Slide 13 please.
Could you just have the Sir I'm, so pleased with the order stocks performance and growth.
And disciplined focus and execution.
And thank all my colleagues of the company for their hard work and <unk>.
Certainly was a team effort.
Slide 16 please.
I'll now discuss of our operations specifically.
And we achieved these results slide 17.
Overstock as a top five companies and the fast growing online home furnishings market.
Market that is now more relevant than ever and well.
And we believe will remain relevant.
And you'll see we've expanded the risks on the slide from.
Five to 10.
And we want to show some of the serious home furnishing maybes.
We outperform.
After years of major growth and online penetration the interest.
<unk> saw a significant spike this year and we estimate that as of December 35% of home furnishings are being purchased online.
The slides the other Jaguars before Inc.
Books, two decades ago, and apparel a decade ago.
We've been home furnishings is now experiencing the civil war permanent shift on.
The entre and sustainable profitable market share growth on <unk>.
Proud of the fact of Overstock grew 2.3 times the price.
Of the online and home furnishing markets overall.
Overstock is gaining market share on top.
And are we can continue to outperform the market.
Alright 18 please.
However, we are performing and competitors.
Well of brand pillars of regiment of it.
More on furnishing shoppers on discover and overstock its value proposition.
The internal brand research.
We see customer purchases and tenant which is the measurement of the probability that of questionable.
<unk> support from us.
Is that seven of the 5% over the previous year.
Importantly, we are winning.
The customers, who best for our value proposition Savi the savvy shopper.
Purchase and telling them on savvy shoppers of increased 20% the greatest improvement compared to any of the competitor brands you measure internally.
Customers increasingly.
Excuse me customers increasingly perceive overstock is the.
The brand that makes you feel like the smart shopper.
Offers quality for the price.
And of course and it's.
Free shipping.
Driver purchase consideration.
Slide 19 please.
As we've discussed before.
No.
And the market with.
We play to our distinctive position of strength of the Mark and home expertise and <unk>.
<unk> value defined as quality and style of the Cosmos.
Tumors, particularly of the surgeons Weird Congress on one quality and style and <unk>.
One of the third grade value.
Fewer of the market are focused on this unique blend of style quality and price like we are.
The competitors and the smart value space and focusing on quality to the same degree. We are for example of care has a different value proposition and phone.
Susan and a very different customer.
We believe our position and differentiate us from the other top 10 of online players and we believe it is the position.
Rover and any market condition, but especially during challenging the or uncertain economic times.
Going forward, we will continue to clarify and strengthening of our idea of it.
With the amount of white space, and our quadrant and we think there is a real opportunity to increase our share of the market and brand Association with home and with smart value.
I'm excited to have our new CMO address is the top.
And the priority.
Slide 20 please.
Continuing and the spirit of differentiation.
Our research and findings of <unk>.
Driven us to focus on targeting two customer segments that particularly stood on our strengths savvy shoppers and reluctance of the Freshers and together they represent 40% of the home furnishings market.
For about $120 billion.
We've learned and do these two customer segments and already have a higher propensity to shop with us.
These customers are deal driven.
We feel great about their purchases and one of the low hassle shopping experience.
And what's overstock.
The 21 please.
The next door focused strategy much.
Much of the strategy will appear familiar and remain the same in 'twenty and 'twenty, Although we've made some slight refinements.
<unk> vision is to create dream homes for all making beautiful comfortable and roll appointed the homes accessible by helping customers find what they want from us.
To achieve our goal of sustainable profitable market share growth.
We must focus on serving our customers' needs.
Needs.
Our brand pillars aligned to these needs and Eric find ability.
Smart value and easy delivery and support.
These provide the long term guardrails and focus on innovation. So they were only working on the things that improves the experience our customers want.
I'd like to call your attention to the enablers on the slide.
All of our strategy.
Specifically to the damages and culture, we are developing and refining.
We consider ourselves of the.
Technology Company first.
And we'll show we are embracing that and mentality, we're allowing them to draw of all decisions and actions and we will.
Growing long term relationships with customers to drive repeat purchase behavior.
This cultural tankers.
And we'll continue to have real impact on our business performance.
You can also see on 2020 strategic initiatives all of it to these later and the presentation.
Slide 22 please.
I'll now walk through of the process.
We made on.
I'll now walk through the progress, we made and each of our three brand pillars.
Improving our mobile platform was one of the forms of initiatives for the retail business and 2020.
The laws are product find the bill of the muscle of Blue.
Moving to the progress we made.
Sales from mobile remained at 50% of revenue through the third quarter and the ROE, which is particularly amongst the achievement and the fourth quarter.
And there are still improvements we need the barrick and on our mobile experience in 'twenty and 'twenty one.
Particularly increasing adoption of our mobile app.
It's a great assets.
Great retention tool.
And its broader adoption is one of the things that I expect our new CMO to help drive.
And as customers continue to naturally migrate to mobile.
And increasingly important platform, particularly for millennial customers.
The 23 please.
Our vision is to create dream of homes for all and emphasize the word of homes.
Vision statement.
And as demand for home furnishings continues to increase new and repeat customers and finding us and liking us poor core competency.
Furnishings, which remained above 90% of our sales mix and the fourth quarter.
And any other fourth quarter and one of his.
True.
We have a real opportunity to increase our brand association with the home.
And we've made good progress, we still have plenty of room for improvement and <unk>.
Oil falling oversights identity.
We know it's helpful from the sales perspective.
<unk>, who come to us and search of home items are twice as likely to include overstock of among the companies they will purchase from when they make their next purchase.
Slide 24 please.
Our value proposition is smart value.
Shipping and promotions are two key components of the proposition.
We know free shipping as the top purchase driver, particularly for larger items. So if we launched free shipping on all items.
Italy and response to the COVID-19 pandemic to support our customers during a challenging time.
Cash three shipping responded so strongly with our customers, particularly the savvy shoppers and late 'twenty and 'twenty may free shipping on all items of permanent benefit.
Savvy shoppers loved us.
Customers rated us the 11% better than our competitors' customers rated them on shipping charges in the fourth quarter.
It is important for us and differentiation for us to differentiate and win.
Space and we're doing just that.
Slide 25 please.
Aside from shipping cost.
Our product pricing must be right.
One of our four strategic initiatives in 'twenty, and 'twenty was to clarify our promotional messaging and <unk>.
Refining our pricing model.
That means we need to ensure our products were optimally price versus competition competition.
Not too long and post promotion and certainly hard.
Yeah.
We are not and everyday low price leader.
And his promotion driven.
Those two and on price after coupon and the other discounts if we can if we can price competitively on the 80% of our Skus pre promotion and that's in line with where we want to be and you.
Can see we've made great progress this past year.
Slide 26 please.
We know of delivery speed and on time delivery accuracy.
And are to customers and are key drivers of customer satisfaction.
And on time delivery accuracy, especially matters. It can mean the difference between the customer purchasing of robust again or not.
The sky, despite what many predicted would be a challenging quarter due to more customers doing the online.
Holiday shopping online coupled with the carrier capacity constraints.
Overstock third well during the fourth quarter due to the rigorous planning and diligent communication with our carriers partners and.
The customers.
For us ship again.
And as much as an impact and some anticipated.
All things considered we maintain good customer service levels during the fourth quarter and.
And part because our main carrier delivered well on its commitment.
We continue to build out of our free consortium program with that carrier of program, which allows our partners to take advantage of our lower shipping rates.
And all we held up well during the.
The challenging quarter, and we expect that to continue.
Slide 27 please.
Yes.
As a percentage of orders and customer contact volume declined 23% year over year due to more accurate delivery of instruments and <unk>.
Improved automation.
I should note of the second quarter was the bit of an anomaly and not all customers were able to reach us when we temporarily turned the phone lines on things was the case with many of our peers, which artificially drove down the contact rate during the quarter.
The self service enhancements, we've made throughout 'twenty and 'twenty not only reduce cost, but also improve customer satisfaction because customers prefer to hurdle returns and so issues themselves.
Not all of them to call any one of them.
The way from <unk>.
Self service channel.
And so were three games.
And as a percentage of total sales from a year ago.
And see a slightly up from the percentage of self service cases, and Q4 and.
And that is typical of the customers are a little quicker to pick up phones prior to the holidays.
During 'twenty 'twenty, one we'll continue to make improvements to increase self service capabilities and to enhance the overall customer experience.
The 28 points.
Yeah.
The retail business of four strategic initiatives in 2024 for new initiatives in 'twenty and 'twenty one.
Our first initiative is to continue to improve products by the bill of you on our site.
It means customers can quickly and easily.
And the products they want.
And if we're going to win in this area of the kind of ability.
Upgrade or on site search capabilities, including search.
Relevancy and recommendations and.
And when customers to search more green with more granularity and specificity and save them time and hassle.
And generally ensuring a better shopping experience.
This initiative makes like normal e-commerce blocking and tackling.
It is and that's why I like it so much on mobile.
Blocking and tackling execution Guy I know, it's something we need to do better and I know.
And that's something we can do better.
The next to our growth initiatives.
Geographic expansion.
As we think about geographic expansion opportunities and Canada is close and promising sort.
And are planning to grow there and 2021.
This means serving our Canadian customers from Caroline and I'm, not just to Canada and like we've been trying to do.
We will locate and.
Sourced product and Canada, and then specifically mark that product too and for our Canadian customers. This will allow us to win on smid value and ease of delivery two of our three brand pillars.
The other growth area is the establishment of our government business.
The GSA pilot contract, which we were awarded in 'twenty and 'twenty was really the impetus for this initiative and the.
The foundation from which we will build our government business did.
Did you say power continues to slowly ramp.
Taking the opportunity of you expand the products sold to government agencies and to make those products available to additional government agencies, including at the state and city levels.
We are also engineering of more intuitive purchasing experience.
I know many of you would like to hear specific sales results on the GSA contract, but it's still too early to report and the heat meaningful growth.
Forging ahead on the submission of the change that.
Our fourth initiative is to transform our enterprise our enterprise platform.
One component of this initiative is to improve the organization and accessibility of our data to enable faster and better business insights.
That is one of our greatest assets and.
And we use it to do.
Drive improved performance.
The other component of this initiative is to increase the option to a level that maximizes the efficiency and ensure sufficient redundancy.
The submission of the basic technology blocking and tackling on.
And again that excites me and <unk>.
Sure al will be improving our business by blocking and tackling and thereby.
By throwing hammer and classes.
In summary, we've chosen and four initiatives for 'twenty and 'twenty, one and we think will have a material positive impact on the business.
Slide 29 please.
Let me sum up the retail business the business kind of remains well positioned for continued.
Growth, especially market share of growth.
Our revenue growth is outpacing the industry, leading biotechnology, the customer focus and the business model.
We've improved and maintained our normalized gross margins are.
And we're expecting weight arms of our expense rate continues to grow slower than revenue driving operating leverage.
This was through two of them to produce launch and adjusted EBITDA margins in the mid in the mid single digits.
We are delivering delivering sustainable profitable market share growth and enabling our vision of dream homes for all.
Slide 30 please.
Let's turn to the Medici ventures business.
Before I summarize our recent and exciting announcements.
And I'll give a brief recap of the loss and also the transaction.
92 benches with sort of a turning point the.
The portfolio of companies now have different needs and require different skills and we.
And then when we initially started investing.
And now require a more strategic day to day attention with the.
And a host of alternatives to address these needs and increase the likelihood of success for each of the portfolio of companies with the goal to maximize shareholder value.
After evaluating several options, we decided to partner with the professional venture firm with expertise of decades of experience, helping companies like those of the Medici ventures portfolio scale of achieved successful economic outcomes and we found exactly the right time to do this.
Kelly on the venture partners slide.
Slide 31 please.
The slide shows the summary of what this partnership looks like.
We will be converting Medici ventures into a limited partnership there will be.
The polling on venture firm partners on.
I'll add on to the will be the general partner of <unk>.
<unk> will be the limited partner.
And once the deal closes powering on more handle all day to day the operations of the fund. This will include operating oversight and investment decisions.
It will be net of an experienced dedicated and professional team will work to take these companies two of the next level.
The term of the fund is eight years 45 million and cash is being familiar with the phone.
Mr. Fundraisings additional capital Overstocked as an option on this.
So the discretion to contribute the first edition of $30 million.
Volume will on an annual fee for running the fun.
Success fees.
According to the peripheral according to the performance as outlined on our limited partnership agreement.
This is the standard venture capital fund structure.
And we anticipate the deal will close and through six months pending required regulatory approvals.
We were pleased the pie on the right partner and polyol.
We believe this is the best way to maximize the value of <unk>.
Most of the Medici ventures portfolio and overstock and.
The next slide please.
It's not just and we believe Medici ventures would benefit.
For more specialized oversight and equally important but we found on the right part.
Elliot and his experience and investing there.
And is done so for nearly 20 years and his team as over 90 years of combined investment of experience it's Tom.
Just on early stage companies of the current stage for most of the Medici ventures portfolio of companies.
Is focused on this space disruptive technology, and what's more disruptive and blockchain technology.
It starts with the fact of advisers with the reputation of being trusted.
The board members for its portfolio.
It's a proven fundraiser.
The ability and the networks necessary to help the portfolio of companies raise additional capital when the issue when necessary.
And staffed with proven operators as team knows how to help companies scale Overstock made this decision because we found the right partner and <unk>.
<unk>.
We've made good progress since we announced this transaction.
The smart, including completing the process of winding down of nearly completing the process of winding down the day to day operations of Medici ventures, and making the appropriate regulatory filings, we'll continue to keep you apprised of our timeline.
In summary, the.
The deal.
Simplify the story and enables all parties to do what they do best and we.
We think that's good for the overstock shareholders.
Slide 33 please.
I'll briefly recap before we move to Q&A slide 34.
We've made a lot of progress from 2020 across all our businesses.
And here are some of the menu 'twenty and 'twenty highlights.
And we significantly strengthened the leadership team.
We reported key and the blender and diverse directors to our board.
We identified our strength of Crawford of focused and disciplined strategy to enable us to succeed and ex.
Moving against that strategy.
We were awarded a federal proof of concept federal and government proof of concept pilot contract with the General services administration, which is of long term play and will take time to become a meaningful piece of our business, which we believe is a real long term upside.
We have opportunities.
And we Opportunistically raised capital.
We found the strategic partner and tolerant ventures to oversee the balance sheet portfolio.
We had a banner year with record sales and profitability.
We remain focused on delivering sustainable.
<unk> margin short growth and 2021 and thereafter.
We are stronger and.
However.
Now, let's take some questions Alexis.
Operator can you. Please open up the line for Q&A.
And.
Ladies and gentlemen, as a reminder, task of question. Please press Star then one.
And for your question has been answered and you'd like to remove yourself from the queue. Please press the pound key.
Our first question comes from Rick Patel with Needham Your line is open.
Thank you good morning, everyone and congrats on capping off a strong year here.
Where we're about a year into the pandemic and your business continues to thrive.
Would you be able to paint a picture of.
And what Sterling.
And when you think about the early days of the pandemic versus more recent trends.
What's been strong what has moderated and as you look out to 'twenty. One will play out where are you, placing your bets for which product categories will have the most potential.
Great Great and from you and thanks for the question. So I'll, let the I'll, let the comment on what's selling specifically and we'll tell you this and as I've mentioned in the and the prepared remarks.
We are on.
And on the home.
The 90% of our sales came from the home furnishings products.
And then and continue to grow and her.
And I expect to get that close to 100 over the next 12 to 18 months gave you on a comment on specifics and trends we've seen the there.
R J.
Change from March to February.
Sure Jonathan.
And thanks for the question Rick.
You know it's interesting we've in the prepared remarks, Jonathan mentioned.
The home categories, and I will tell you for the specific home categories.
It has been our largest biggest categories that have flourished throughout each of the quarters.
Some seasonality switching between patio and outdoor furniture.
But I will tell you our largest categories of rugs and home furnishings furniture.
Patio and outdoor continue to be our largest categories and have been throughout the entire pandemic.
Got it very helpful.
And a question on the rate of growth for 'twenty, one and you noted that overstock should outpace the market growth could you help us.
Think about the assumption, we should be using for that market growth I don't think anyone's expecting the strong growth of 2020 to repeat in 'twenty, one, but just curious how we should be thinking about that trajectory for the industry of comparisons get meaningfully tougher heater and about a month.
Great Great question.
And now the quantity of the gives guidance, but I'll tell you the age.
Graeme mentioned.
And the remarks.
They were in Q4 Q1 results today.
The new to be strong.
As you know towards the end of Q1, our year over year growth comps get tough.
Well.
We are on.
The new operating model and we'll continue we expect to continue to grow.
Expect to continue to be profitable and we expect to continue and take market share.
And as far as.
The other kind of thoughts on how to.
The model things out we expect our gross margins to remain in the 22% region and.
Adjusted EBITDA margin can be and the mid single digits. So.
It's hard to predict what 'twenty 'twenty, one will look like.
That's our best of the best we can do right now.
Thank you very much on the best this year.
Thanks Jack.
Our next question comes from Peter Keith with Piper Sandler Your line is open.
Thank you good morning.
The graph on the just wrapping up a phenomenal year.
I wanted to just parse apart the the <unk>.
Adjusted EBITDA margin guide for mid single digit.
It looks like with the.
2020, your retail EBITDA.
EBITDA margin is going to come in at five 4% and I think the good another good quarter with Q1, you'll probably land closer to 6%.
So how do you really think about that going forward. It is the intent that you think you should hold EBITDA margin.
And it's kind of flattish going forward to take market share.
Or do you want to see some level of normalization and and then maybe readdress where that retail EBITDA margin can go over time.
Peter Thanks for a great.
Great question all of that.
And.
Given the thoughts and as a matter of appropriate the arms.
Great Good morning, Peter.
About our EBIT and margin one of the biggest obviously functions of that.
EBITDA margin as our gross margin and lets Jonathan just the Scott. So I think for US we still feel very confident and that 22% range. We think that gives our customers kind of the right value and pricing.
And that those two targets.
The segment's excuse me.
Kind of require of us. So that's kind of how I think about the EBIT margin and that's really derives from kind of that gross margin performance and then as you saw this year and really leveraging our G&A and tech.
One of the things, we have said writers and let us deliver those results consistently those are long term targets and then if it makes sense, we'll address at some future date anything different than that Jonathan.
Yes, I think it's really important as we think about how.
And how we flow down the road.
GNL.
And we maintain.
And all of the 22 percentage gross margins that's important to our customers we have to be providing smart value.
And we start getting thicker on margin we lose.
Play on that upper left hand quadrant and was on one of our slides on the margin you start getting thicker.
We're not really of my quadrant, and we're not providing that smart value. They look for so for us that's the top of the P&L, we got on the image everything else on the P&L.
To get to the EBITDA margin and coming out of in the mid single digits.
As where we think of the right place to do.
The right place the duty to maintain a proper balance everywhere.
Okay helpful. Maybe sticking on the gross margin.
You had highlighted as one of your of your goals for 2020, with just two and and <unk>.
Proof that the pricing and promotions.
It looks like you've had success there do you feel though that you've you've accomplished the the lion's share of that work or is there still opportunity to to get a little bit sharper on pricing and maybe even doing less promotion when and when you're.
On overly discounting relative to the rest of the market.
So on.
I'll give her the initial answer and then and in terms of days.
The answer is there is always more work to do and.
And just because of something was of initiatives that we think we performed well on and 2020.
We don't put it on the shelf and let them gathered gas sales.
And pricing team is looking at this constantly day.
Day, why don't you add some more color on this.
Thanks JJ.
You know it's.
As Jonathan said it is a work in progress always as we continue to.
The grind down on pricing and understand where we need to be promotions is key to that and and understanding that our customer that savvy shopper.
And that customer expects of promotion.
As Jonathan mentioned in the prepared remarks.
The customer wants to get the best deal and we price our products. So that we're competitive every day.
But our customer can get the best deal on promotion.
And running those promotions is key to our customer satisfaction and repeat rates. They like this model and that's why they come to us. That's why we so that's why they selected us and we selected them as our primary target customer.
Yeah, Okay add on.
And I'd just add on.
We're not and everyday low price leader we're on.
Higher loan and that's what our and frankly, that's where are the savvy shopper and the reluctant refresher, Mike and so were the kindred or two of them.
Okay. Thanks for the feedback guys and good luck.
Thanks.
Our next question comes from Ryan Gee with Bank of America. Your line is open.
Hey, good morning, guys great results.
Clearly there is still some tailwind that you guys continue to benefit from so on one for Jonathan and then maybe one for Asia and Jonathan can you talk high level.
About how much the past year has impacted some of the mission critical aspects of running the business of for examples of marketing strategy of pricing our technology investments I know you're talking about mobile, but maybe put another way is there one or two things that you stopped where may be temporary changes you guys you've been.
The major investments during 2020 of that.
You know the are going to be long term changes that overstocked the way.
Day, you operate and and maybe any observations on buyer behavior of the sustainable.
Great question.
Right.
There are things that we put into the place.
And part of the pandemic.
And I think is gonna be half of the course going forward.
Turns of marketing strategy and talked about how we launched free shipping on all items and that was initially and response to the.
The COVID-19, pandemic and support our customers' journey, Charles and time, we saw on August.
It was actually hoping or sales without a significant cost and so we've made pretty shipping permanent on all items. That's that's something that the business turns during the pandemic, it's going to be the film.
I think pricing you know.
It was the time when I think.
We had to get sharper because people were shopping online and spending a lot of time, comparing so we did that and then move along with sales of its become kind of pandemic.
Pandemic.
Driven but has become normal and that's more automation and customer service.
When you look on what happened in March and April of last year the flow.
One of the sales none of us.
A lot of customer service calls and when.
We weren't staffed for that and sales.
So we did a bunch of things one we hired more true unfortunate when we turned off the phone for a little bit the three and most importantly, we still automating customer service partner management areas all different parts of the business.
We had great response, and we will keep doing that the silver.
Michael the millions of automated response and a P.
Partner base, our customer care and.
It's gonna be normal going forward and boy the the product team, we have working and on.
Automating thing.
On.
I think we've just scratched the surface.
And that will go and help them address of the question.
Yes, that's super helpful color. Thanks, Jonathan and then another one is I know that you guys mentioned earlier on the prepared remarks still and your partners are having.
Some constraints getting supply into the country and.
And that's been giving things to adjust but can you talk about the in stock rates, which I know are a challenge that you called out kind of in the summer last year, how is that and stock right.
On the trended since then and then as you think about the partner and as you think about the competitors and maybe you called out on and one of the slides and the presentation do you guys feel that you know.
Overstocked, any better or worse positioned or your partners are any better or worse position to get supply and to the country and they are or maybe youre on a better position.
And if they are facing and you're facing challenges of partners.
And now your partner's share of competitors are facing even greater challenges getting supply and thanks.
Go ahead Larry.
A lot of the Thomas Dave Why don't you take the first pad on the spot.
Okay.
So let me address first.
In stock.
And in stock rates, and how we're performing versus our competitors.
And.
I think our performance.
Really speaks to two that and stock rate or are we getting our.
Are we getting our products and when you look at our growth rate versus what the external markets are and and resources that we use of showing from a market share standpoint, we are getting more than our share of the goods from our partners.
We thank our partners, who are doing a fantastic job being creative and switching ports shifting their supply chains.
Flying materials and from other countries when needed to get product through.
Keep in close contact with them on a daily and some cases weekly basis and.
And provide forecasts for them they provide forecast for us we keep very close with them so on that front.
Think we're doing a good job managing through this.
Through this pandemic on the first question regarding or part one of the question regarding the supply chain challenges, it's really shifted for us it's shifted from early on being about.
The quarantining and factories, not being able to get laborers and manufacturer of the goods to now being more of a.
And of the supply chain challenge where of the ports are congested as the brief the brick and mortar retailers are now bringing inventory back in at the same time, so there's and there's an influx going through that will that will pass through the supply chain, but we're having to be creative with our partners and our carriers of bringing that product end of the.
Country.
The in stock levels are improving we're up 20% from our from our low and we've got more to go.
Yep.
I would say and we're still below where we want to be and we've improved significantly we still we still see trail off sales and Ohio.
And so there's work to do everything based on the spot on.
Super helpful. Thank you guys.
Our next question comes from Yigal Iranian Wedbush Securities. Your line is open.
Hey, good morning, guys and thanks for taking the questions I wanted to dig into the free shipping a little bit more and maybe if you can add a little bit more color on when you made that switch to free shipping.
You had some strength and purchasing patterns of your customer growth is strong and the quarter.
Can you just talk a little bit more around some of the metrics that changed once you implement some of that and then how do you think about free shipping in terms of.
Pricing and margins.
Allocate the cost if you can.
You know price differently and promote differently because of half reshaping there is and offering.
Great.
And you won't take first the first answer I guess one.
Sure.
Yes.
Yes, thanks, Jonathan.
The.
The free shipping and Gal. Thank you for the question and I would say that the best part of that as we talked about is the purchase intent and this is really a driver for our target customers and really a big component.
<unk> of their satisfaction and what we've been fortunate enough to see and the P&L is that that free shipping cost has just been offset by additional sales. So for us it's been a real win on obviously the customer satisfaction side, and we think we'll be up really good retention.
A retention component and we havent seen kind of any of the negative financial impact that could come west offering such a great value like that.
I would also say you know we've had free shipping for orders of over $45 for a long time and.
So this is really the change just kind of the small orders and what we watched carefully was third shift.
Uh huh.
However growth.
And it wasn't much of the change change of fairly easy decisions and to go forward and offerings.
Wholesale going forward.
Thanks, and then.
And once the act also a little bit more about the brand and marketing.
And you hired Elizabeth obviously, its still little bit early shafts and she's not starting until late March but.
And kind of to those points also the things that you've seen this year.
And again back to the purchasing of tenant and the strong customer growth and <unk>.
The customers coming more from you guys for the home category and and aiming to kind of become fully home.
Set up to nearly 100%.
How do you think of as we kind of work through 2021 and your true.
And of continue to take share and in the category of what your brand and marketing efforts will be.
And you are taking the first the answer is branding there.
Yeah, our vision and dream homes for all and we're going to lean into it heavily.
We want to continue to grow our portion of the home business, that's our vision and our mission.
Jonathan and I.
And you can see.
On the slide where we list of the top 10 and historically the top five.
But the reason all of those other five below us.
Those are <unk>.
And everyone associates with the homes, we will continue to push everyone associates.
And when.
When we look and we see what Elizabeth has done.
At the company and she's been she's been great.
Repositioning and building brands and whatsoever.
Yes.
That's why we're satisfied of the average yarn.
Okay.
I appreciate it helps the thank you.
Great why don't we take one more.
Sure.
<unk> from another person and then we'll wrap it up.
Our next question comes from Brad Buffalo with P. A a research your line is open.
Thanks for taking my questions first.
The first I was wondering if you could dimensionalize, where you stand with your vendor partners, let's say at this point this year relative to a year ago and one of them thinking about is a what kind of allegations of getting from your existing vendors b. How many new vendors have you been able to add to the ecosystem and the past 12 months.
So where do we stand.
And on a better place.
They love our forecasting with the help them run their businesses they love our growth.
Helps them be successful and their businesses.
The love our level of the communication.
And we've been you know.
We've been very very communicative during.
During the pandemic one thing they don't always love is.
And as our customer centric approach always wanted to do right by the customer, which sometimes means pushing them harder to get deliveries in the.
And we know that's better for them.
And as Dave mentioned with our market share growth we're getting.
More and more allocation from them there.
Kind of allocate to where they see growth Dave would you add anything to that.
No agreed.
Okay, and I know you guys are trying to separate on the discussion around zero and the D G to.
What's the other platforms, which is on the T zero upfront with.
The coin basis value at $75 billion to $100 billion and many people on this call and think that T zero has similar potential.
Can you at least give us an update on some of the things that were had been discussed for T zero, notably.
What are the prospects for new tokens trading and the next.
Three or four months, where do you guys stand on getting the sales custody.
Issue resolved or.
The self clearing issue resolved and then.
And when can we expect the integration of teaser of crypto and Tcl and markets.
Great questions.
The <unk>.
Self custody and wait.
The hope is by the end of Q3.
And the self clearing rather buy we ended Q3.
Yeah.
One of the differences between coinbase and the T zero Crypto App.
Sales of custody of the joke.
The coin and.
It is important.
And the hardcore crypto folks find that most people and crypto and and I don't think that is.
The important and so two zeros moving and I think over the next quarter.
And we'll have someone else kind of through that and we'll feel more like coinbase and I think we'll be a much easier user experience.
And as far as getting new tokens and I think the reason the announcements where Byrne tullow.
Hello.
Family Office networks and the.
And the third covering steady my name and those will help.
Drive the Biz Dev for tokens.
And I suspect we'll see.
The doubling or tripling.
And tokens and by the end of the year for T zero.
A lot of good progress is being made on.
And some of them has mentioned and as you said.
And or even 420 was working to raise money and I think it when he finds the strategic partner and of the money raised.
And we'll see it's token growth.
And its ability to market and do business go way up so.
I do think of it has enormous potential.
Uh huh.
And I think really it needs the strategic partner of the different and overstock the.
It was more loans to focus scale from.
Really pulled off and Thats, where its focuses more on.
Okay. Thank you.
Well I want to thank everyone for participating on today's call. If theres, one thing and everyone should take away from Nicole is the.
The overstock is taking market share and the online home furnishings space we grew.
Two three times the pace of online home furnishings market in general.
And we took market share and then goes and the top 10 sustainable profitable.
Market share growth.
One other nugget to chew on.
New home starts are expected to reach.
<unk> and a high in 2021, driven by record low interest rates and.
Higher household saving rates.
Macro environment bodes well for home projects overall, and the related benefits and the home furnishing market throughout 2021 of marketing, we continue to grow and I appreciate.
And your interest and ownership and overstock and.
Can we talk again will be working diligently to deliver on 2021 plan. Thanks, everybody.
Ladies and gentlemen, this does conclude the program and you may now disconnect everyone have a great day.
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And.
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