Q3 2021 Overstock.com Inc Earnings Call
Good day, and thank you for standing by walking into the Overspend third quarter 2021 earnings conference call. At this time, all participants are in a listen only mode.
After the speaker's presentation, there will be a question and answer session to ask a question. During the session you will need to press star one on your telephone if you require any further assistance. Please press star zero, Oh, when I can hand, the conference over to your speaker today Alison Fletcher. Please go ahead.
Thank you operator, good morning, and welcome to Overstock third quarter 2021 earnings conference call I'm, Alison Fletcher Deputy General Counsel and senior director of legal Affairs. Joining me today are Jonathan Johnson, CEO and Adrian Lee CFO, Dave Nielsen President of Overstock will also be available for <unk>.
At the end of the call. 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 management's views as of today October 'twenty eight 2021 and May include forward looking statements actual results could differ materially from such statements additional information about factors that could potentially impact our financial results.
It is included in our Form 10-K for the year ended December 31, 'twenty 'twenty and our form 10 Qs for the first and second quarters of 2021 and the press release, we filed this morning and in our subsequent filings with the SEC. Please review the important forward looking statements disclosure on slide two of today's presentation. During this.
Call 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 our Q&A session.
With that let me turn the call over to you Jonathan.
Thank you all for them and good morning, everyone.
Overstock delivered another strong quarter.
Our highest quarterly revenue growth since 2004.
Significant industry wide supply chain disruptions.
As you'll see when Adrian reviews, the financial results.
Once again exceeded quarterly consensus expectations on both the top and bottom ones.
Metrics indicate overstocked and about 50.
50 basis points.
Walmart market share year over year compared to our top home.
Good retailer peers.
I'm eager to see this confirmed.
Others release results in the coming weeks.
Before I jump into the specifics on the corner.
Warren Buffett quote.
We wanted to.
Only when the tide goes out.
Oh you did.
Discover who's been swimming naked.
Well the pandemic tide can lift at all online home retail home furnishing companies in 2020 has begun to go out.
And overstock continues to operate at over two times, our pre pandemic sales model and we consistently deliver profits within our stated targets.
This is because in the six months that preceded preceded the pandemic and in the months since this management team made and.
Continuous to make foundational improvements to our business operation.
Tide is receding.
We are working on operational wetsuit, if you will.
For the last six quarters.
System, we delivered results well above our pre pandemic numbers.
During today's call will follow the agenda on slide three.
Next slide please.
I'll start with a comment on macro economic trends.
Strong and favorable we've shown these numbers before but I'll quickly review them.
In 2021 in 10 Americans moved when people move that creates great opportunities for us as a furniture and home furnishings purchases are often.
Ooh and project based.
Even if customers start with one room has moved to the next and then to the next level.
We have lots of opportunities to support these movers by helping them furnished each room within the four walls of their home.
They are living spaces that extend to the four corners of their property.
Home sales continue to grow year over year and.
Forecasted consumer spending remains strong.
All of these macro trends.
Poor category growth.
Our supply chain is broad and distributed.
Partner network reduces single source risks shipping bottlenecks and supply chain Kinks that we're proving that our supply chain works well in times of high consumer demand and low supply.
Actually because suppliers don't want to tie up limited inventory and one or two distribution networks.
Unlike some of our competitors, we don't pressure pressure our partners to lock up inventory in our distribution centers as a result, we tend to get favorable priority on inventory.
Our asset light business model and reducing gross margin pressure.
We own almost no inventory.
We continue to expand our extensive partner supplier network.
We can flex our distribution center footprint as demand fluctuates and we work closely with our regional and national contracted carriers, providing an accurate.
Timely forecasts to improve our delivery accuracy and meet customer expectations.
We have a great business model.
Great business model in periods of high demand and low supply.
It is a great business model, when Theyre, Kingston and supply chain.
And of course, we think it is a great business model and more normal business circumstances. All of this adds up to long term favorability.
Speaking of long term.
Rather than opine on what we expect in Q4, let me give some brief comments on what we think we see for 2022.
Mark Hurd current vantage point, including our perspective on the macro environment. We are comfortable with consensus estimates for 2022 revenue growth and adjusted EBITDA margin.
In fact, we think the annual estimate for 2022 revenue growth is a bit pessimistic.
We have be topline estimates for seven consecutive quarters.
Our goal is to continue to grow our market share and to build the business in 2022 and beyond.
Slide five please.
Next I'll provide a brief corporate update.
We announced a $100 million stock repurchase program.
The company has not had in place since 2015.
We have a healthy balance sheet and we've proven we can consistently perform within our financial model. So we think this is a strategic way to deploy capital.
We have not yet made any stock repurchases under this program. So we have ample dry powder.
It's great to note that the Utah District Court once again dismissed the security class action law suit against Overstock.
The plaintiffs have filed a notice of appeal.
We've won this case twice in the lower core I believe we will win it again in the appellate court.
I'm proud of our announced philanthropic partnership with Mercy housing a nonprofit organization dedicated to providing affordable homes nationwide individuals and families with lower incomes.
Through this partnership we all provide one of the most.
Basic and important needs.
Our comfortable affordable long term haul.
This aligns perfectly with overstocked vision of creating dream homes for all.
I'll now hand, the call over to Adrian Lee, who will review, our strong third quarter financial results Adrian.
Thank you Jonathan Slide six please.
As announced on last quarter's earnings call. The Medici ventures businesses are de consolidated from our financial statements and the Medici Fund is recorded as an asset on our balance sheet on a quarterly basis, we recorded our proportionate share of the Fund's reported net income or loss I will begin with a high level summary of our third quarter results followed by a review of key.
Or metrics and performance indicators next slide please.
The third quarter of 2021 was another strong quarter and in line with our near to midterm financial targets. We are maintaining the significant sales gains from the pandemic and delivering financial results in line with what we committed to deliver market share growth and profitability.
<unk> declined by 4% year over year, but more than doubled versus the third quarter of 2019, adjusted EBITDA was $36 million in the third quarter a year over year decrease of $10 million driven by lower sales and onetime gross margin benefits recognized in 2020, adjusted EBITDA improved $41 million compared to the third quarter of 2019.
We reported diluted earnings per share of <unk> 63.
Excluding the impact of Truing up our tax valuation allowance, which is customary when it releases done during an interim period as opposed to year end diluted earnings per share with 54 cents in the quarter a decrease of 27 versus 2020, and an improvement of 94 cents per share compared to the third quarter of 2019, we ended the.
Third quarter with a healthy balance sheet and $512 million in cash as Jonathan discussed our board authorized $100 million stock repurchase program that we have yet to execute against I will speak to these financial metrics in greater detail in the following slides next slide please.
We posted revenue of $689 million in the third quarter, a decrease of 4% year over year and an increase of 102% compared to the same period in 2019. This quarter maintains our trend of essentially doubling our pre pandemic sales run rate of which we have done so for the past six quarters revenue performance was driven by a <unk>.
24% year over year increase in average order value and a year over year improvement in order frequency we.
We continue to believe theres opportunity in the growing furniture and home furnishings market and that the shift to online penetration online purchasing will persist our revenue trend over the last two quarters, while we lapped peak pandemic restrictions supports our business as sustainability profitability and illustrates the foundational improvements we have made and continue to make in the busy.
Yes.
Next slide.
Gross profit came in at $157 million in the third quarter, a decrease of $12 million versus the prior year and an increase of $88 million compared to the third quarter of 2019 gross margin was 22, 7% for the third quarter, which is right within our targeted range and a 70 basis point improvement versus the second quarter.
Of 2021 and achievement and it's an achievement during significant industry wide supply chain challenges.
Year over year margin decline of 78 basis points was expected and driven by a few notable nonrecurring items from the third quarter of 2020, if you recall gross margin in the second and third quarter of 2020 benefited from lower discounting activity as we balanced marketing efforts against product availability and stock outs and fulfillment related charges to pre.
The customer experience, notably gross margin improved 270 basis points year over to in other words versus our pre pandemic run rate.
Next slide please.
Chart illustrates G&A and tech expense over the past nine quarters in both absolute dollars and as a percentage of revenue G&A and tech expense declined by $7 million year over year and remained relatively flat sequentially illustrating we are running the business efficiently.
As a percentage of revenue G&A and tech expense was seven 6% for the third quarter and created nearly 60 basis points of leverage compared to the third quarter of 2020 compared to 2019, G&A and tech expense increased by only 9% while revenue increased by 102% and improved 653 basis.
Points as a percent of revenue or absolute G&A and tech spend is in line with pre pandemic levels. We continue to be measured in our spending and have operated within a consistent tech and G&A spend profile over the last several quarters.
Next slide please.
In the third quarter, we delivered adjusted EBITDA of $36 million, which.
Which is down versus a year ago, but up significantly versus the two year comparable period.
Adjusted EBITDA margin was five 2% and right in line with our stated targets.
The EBITDA margin decreased year over year, mainly driven by one time gross margin benefits in 2020, but an increase of 660 basis points versus 2019.
This was a well managed outcome driven by our focus on market share growth and disciplined expense management next slide.
Now I will now I will turn to our operational metrics that we use to manage and assess our business performance in which we began disclosing at the beginning of this year.
This slide shows active customers and order frequency active customers as measured on a trailing 12 month basis. So as online penetration has receded from the all time highs experienced during peak pandemic restrictions. This metric has somewhat.
That trend.
Just customer base declined to $8 7 million at the end of the third quarter, but represents an increase of 5% compared to the third quarter of 2020, and an increase of 60% or $3 2 million customers versus 2019.
Orders per active customers I.
It was 100 168 times in the third quarter, essentially flat sequentially and an improvement of 3% year over year, we anticipate order frequency will increase over time and be influenced by our customer retention efforts on our larger home customer base as we continue to increase Overstock brand Association with home.
It's important to point out that while active customers has declined we have been able to strategically offset this decline with an increased average order value.
And average order value is more aligned with the home category, and which I will discuss in greater detail on the next slide.
Next slide.
This slide shows average order value and orders delivered average order value improved 24, 24% year over year to $214 and remained relatively flat sequentially. The year over year improvement was primarily driven by our continued sales mix into home categories.
Orders delivered was $14 5 million for the trailing 12 months period. This is an increase of 8% compared to the prior year or $1 1 million orders and an increase of 51% or $4 9 million orders compared to 2019. The sequential decline is attributable both to our decline in active customers.
During the period and is as expected.
As we lean into homes, we are maintaining our elevated quarterly sales trends that began during the pandemic last year with a different dynamic than we have historically had the value of each order or a obi is improving while the absolute number of orders has declined its a strategic tradeoff and reflects the purchase behavior of the customers we are targeting home customer.
That trust us with higher value items, and who have a higher propensity to make a repeat purchase.
It's important to remember that there may be some near term noise in our operational metrics as we exit non home categories and as online penetration stabilizes, but overtime. We expect consistent improvement we do expect a decline in average order value in the fourth quarter consistent with the seasonal sales mix shift within our home and home furnishing categories.
In summary, we are pleased with how we executed in the third quarter and our ability to continue to deliver solid financial results in line with our stated targets with that back to you Jonathan.
Thank you then.
Jim again executed well during the third quarter navigating competitive pressure or risk privacy dry ginger.
And pervasive supply chain Kinks to deliver solid financial results profitable results that are in line with our targeted margin guardrails the.
Team is focused and committed improving we have implemented.
You implemented meaningful foundational operational changes.
Please.
We ran 20 months of sales performance, the double or nearly double our pre pandemic run rate, despite numerous and varied supply chain challenges and eager to see what we can do when the bottlenecks in the supply chain subsides.
But we will be able to significantly grow the number of Skus, we offer as we increase the breadth and depth of our home products.
15.
Next I'll provide some additional insights into our ecommerce business, including where our focused strategy is paying off our agile operations that are key in today's environment.
Where we are targeting and driving growth slide 16. Please.
We believe online penetration continues to grow and we will finish the year at a pre pandemic growth rate. It's nice to do again see nice growth in that penetration in 2021, even after the large surge we saw last year.
Fortunately third party forecasts project continued migration in 2022 and beyond as customers recognized the broad assortment available value ease of purchasing furniture and home furnishings online.
This online migration the growth in our home market Tam.
<unk> has two nice tailwind factors.
Slide 17 please.
We've shared this slide for several quarters and continue to believe it illustrates well we're overstocked in the overall market and the significant white space available in the quadrant, where homegoods expertise.
Smart value.
This quadrant is the right place for overstock.
We've been strategic about choosing to focus on.
Our targeted customers already have a propensity to shop with us. So we purposefully plays to our natural strength.
And these customers represent roughly 40% of the market. So overstock has ample growth opportunity in this space.
These targeted customers.
I will now talk to each of our three brand pillars, each of which help to find always starts value proposition slide 18.
Our first brand pillars product Barnard ability.
We continue to lean into hall, it's critical that our customers know us.
Home furnishings offerings.
Quickly and easily find a home products Theyre looking for.
One of the critical strategic moves we've made has been to focus on home.
Home good expertise gives us significant white space opportunity.
As discussed.
And it's important to know because the customers who purchased home products from all have a better experience two times two times higher basket value.
And are more likely to make repeat purchase.
We've made good progress to associate the overstock brand with home.
For example.
We have increased our brand association with home by 11 percentage points since December 2020.
We've expanded our new home Skus.
Third 50% year over year, including showcasing exciting home brands like Kasper and kitchenaid.
Supply chain Kings moderate we expect significant new SKU growth, because we have even more partners and our existing partners bring new skus on site.
We held the number one traffic share and outdoor furniture.
During the summer months.
That's a big deal.
94% of our sales were in the home categories with slight improvement from last year.
We continue to strategically remove non all products from our side. Our goal is 100% of sales to be home related by this time next year.
Even with these wins overstock still does not have enough brand association with home.
Paramount that overstock is seen as an online furniture and home furnishing destination that we made finding our home products easy and fast we know there is room for improvement and our team is eager to continue to execute against this strategy.
Mid 19.
We said that brand pillars smart value.
Smart value means offer great products at great prices or said differently.
This quality products for the price.
Our promotional model is intentional.
Critical to attracting and retaining our customers they love finding a deal and want to feel like they are women.
Our competitive pricing panel remains to offer a winning price post promotion.
We continue to see progress in our smart value pillar.
<unk> three areas of improvement.
First our promotional model, especially around holidays and special events.
<unk> with customers, we have the largest fourth of July and Labor day sales results in company history.
Second our competitive pricing strategy was again within our targeted range.
We increased our comparable set from last year by 14 percentage points.
80% priced within the competitive range.
Third roughly 60% of our new customers well within our targeted segments significantly higher than the 40% of the population these customers represent.
We know how to reach these customers and we are meeting one of their top purchase drivers.
End.
And of course, our free shipping on everything policy is an important component of a smart value and the benefits that really matters to our customers differentiate us from our competitors slide.
Slide 20.
Yeah.
Our third brand pillars easy delivery and support.
This includes getting the right product assortment and then optimizing its journey to the customer.
We have a distributed supply chain with our partner base Dropship model that includes more than 3000 partners with more than 5000 fulfillment centers nationwide.
This is an advantage when navigating industry wide supply to supply chain disruptions and allows us to flex quickly for changes in demand.
Carrier network is diverse with re.
Generally and nationally.
Where we've seen challenges is namely in highly populated metropolitan areas and areas close to ports and that.
If we hit these challenges we continue to provide timely forecasting and communicate frequently allowing us to meet customer expectations.
A proof point of order.
Advantageous business model and robust analytics was our ability to capitalize on the demand for outdoor furniture.
Since we're not limited by shelf space.
And we have a wide network of products, we were able to meet the significant demand and we are in fact number one in traffic share.
Our door furniture of this summer dusty everyone, including our largest peer.
In short our operating model provides a significant advantage, especially during times of high demand and low supply economic uncertainty and industry wide supply chain disruptions.
He has been working well for us, especially over the last 20 months.
It's distributed and flexible, allowing us to scale effectively and efficiently.
Slide 21.
Usually when we talk about support we talk about customer support.
In this time of increased supply chain constraints I will focus on how we support our partner suppliers.
We believe our superior partner relations and support gives his priorities priority on inventory and increase in normal.
In fact, our inventory levels are significantly improved versus last year, although they are not yet back to our pre pandemic levels.
Importantly, as our supplier partner suppliers are more efficient and effective this benefits our customers by providing greater assortment higher in stock.
Prove speed of delivery and overall customer service.
Part of the support we provide partners is through our proprietary software overstock supplier Oasis, which provides real time sales data.
Missing opportunities operational and fulfillment metrics.
And all at a SKU level.
It also provides business dissolved and analytics data to support manufacturing and new assortment opportunities. This is a very real way for our partners to grow their business with us.
As we add value to our partners suppliers it benefits us through increases in assortment of home products of breadth and depth.
In fact, the number of homes related Skus with sales has increased from pre pandemic levels in both 2020 and 2021.
Customers are finding smart value across a large product pool.
When they can't find the exact product they want.
Finding natural replacement products.
Alright, and use it as a template for future international expansion efforts.
We are establishing our government business.
Does that consistently sad for the past few quarters. The government business is a longer term growth strategy for us and what we think will help open other business to business opportunities.
We have a great mobile app, but it remains under adopted.
We did some effective app only promotions for our 2021 customer day, and we're pleased by the outcome.
Mobile App revenue in Q3 was at its highest percentage of revenue ever.
We still need to better focus on optimizing our market channels with the goal of increasing direct crappy.
Ah brand Association of at home will certainly aid in that effort.
We feel the opposition poised with a great business model and many leavers to Paul to continue to gain market share while delivering profitability.
523.
As I've mentioned several times before we believe we are in the middle of a secular shift where consumers are increasingly buying furniture and home furnishings online.
We have intentionally.
That are near and mid term growth in margin targets with the desire to take market chair during the secular shift while delivering profitability.
When we feel the industry has <unk> has reached its natural maturation point.
We may consider revising our targets and establishing a different longer term margin framework.
We have consistently delivered against our financial targets, which are as follows topline outpacing the market driven by our technology, our customer focus and our business model.
Gross margins and the 22% ranch, which may fluctuate slightly from quarter to quarter.
Disciplined G N N tech spending to continue to drive operating leverage.
Justice EBITDA margins in the mid single digits.
Overstock has been operating within this framework for six consecutive quarters with the operational changes we continue to making the business. We expect to continue to do this 524. Please.
Next I'll briefly discuss significant updates on the Medici ventures Uhm 525.
I will provide some updates to the two biggest holdings in the Medici venture spun starting with T zero.
The two zero board is engaged in an active search for a new C E O.
It is focused on hiring the right person.
Rather than making a quick and hasty decision.
In the meantime, acting C. R. Alan can F. C has been doing a great job, leading the T zero operation.
In the past few months two zero has initiated trading of the exited digital security announced a new digital security the plan to trade on the T Zero Ats partnered with wealth work for private companies seeking continue a secondary liquidity.
Support for eight more crypto currency on the T zero crypto App and received.
Kendra approval to self clear trades.
And my my two zero is seeking to provide to pay that has won the day in tech from time immemorial.
This week.
T V. <unk> goal is to create a sweet so that the customer will have one place to buy or sell unique private security public securities Crypto and M. T F F T's among other things.
When I'm asked out T zero will compete with Robin Hood or coinbase.
Appeals to me like being asked how Microsoft competes with a single spreadsheets solution.
And remember.
Two zero capital market Sweet and the capabilities behind it may be able to be used for both data C and a bit of peace solution.
Turning to significant new this quarter from pet.
The Central Bank of Nigeria announced it selected bit is it technology provider for <unk> IRA <unk>.
The country's central bank digital currency.
The email IRA launched on Monday.
That much shorter time from announcement of the deal to launch of the in IRA also showed that the <unk> is winning deals and implementing quickly.
Remember, Nigeria is the world seventh most populous country and that population skews young and tech savvy.
I think this is a big deal.
While the detailed terms of eating out of a deal with the central Bank of Nigeria are necessarily private at.
At the request of the Central Bank. The basics are they did receive a payment in two ways first a licensing fee for the software that is related to the number of participating institutions and second variable fee on usage per transaction fee.
The network gross.
I think that has real potential upside as it gains traction and is more central banks look at issuing central bank digital currencies.
Slide 26.
This slide notes a few other updates the Medici venture fund companies have disclosed publicly.
And that is you've answered signed participated in.
<unk> recent up round slightly increasing the funds ownership percentage in rookie out now.
Now did you add governance is doing proof of <unk> proof of concept pilot in New York City.
<unk> continues to support elections, even in this off cycle year.
It's been six months.
Since overstock closed the Pelley adventures transaction.
We're pleased without pallium is acting as the funds general partner.
<unk> actively helping many of the portfolio companies advanced their respective vehicles and the overstock management team can focus on E Commerce business.
Hi remain bullish on blockchain technology, and many of the companies and the Medici venture spot.
I think the market does not yet fully appreciate the value of the fund.
And on that note I understand <unk> is planning to hold a medici fun today and Q2.
Chair.
527.
I'll know briefly recap.
The quarter and then we'll move to Q&A.
528.
We continue to improve.
Overstock brand Association with home.
Increase the number of home products on our site.
Notably, we outperform peers and the outdoor furniture category.
And we look forward we.
Believe we have an exciting event driven strategy to support the holiday season.
U S consumer continues to spend on the home and.
In our supply chain is prepared to support sustainable profitable market share growth.
As I noted earlier from our current vantage point, including our perspective on the background environment, we are comfortable with the consensus estimates.
Consensus estimates outlook for 2022 revenue growth and adjusted EBITDA.
We are lucky to continue to grow build this business and 2022 beyond.
In summary, we are.
We're pleased with our progress focused in execution.
Market is large and growing a.
Our business model is distributed and flexible.
On our target customers are a sizeable market segment.
Perhaps the best way to view US is that we are a company gaining market share in a long term growth market.
No operator, let's take some questions.
And she would like to ask a question.
And then on your telephone and to withdraw your question just press the pound cake.
911 for questions.
Our first question will come from the line of leverage Hum.
<unk> from credit Suisse.
Maybe I guess.
Hey, everyone. Good morning, and thank you for taking my questions. So thank you put the color on 2022, just to start with that with regard to the expectations for 20 twenty-two how incremental does GSA become I can move to the your is it gonna be a major factor put 2022, and then I have a follow up.
She is a great question, our love Aspirate question.
GSA.
I think it's gonna be an incremental factor in 2022.
<unk> is a long term plan as I've mentioned before it started slower.
Then we have.
Hoped and expected, but that's okay. It has helped us AD partners, we think well grow for us It started as a pilot worthy site, which is now a full fledged site.
The GSA limited our ability to advertise the customers with its now loose and somewhat.
It's taken time to expand our product offerings cause that's taking off so GSA is not a big factor.
<unk> 2022 plant.
Got it. Thank you put that color and just a quick follow up on the short term trend I go back to the last call you sort of indicated expectations for trying to improve later in the quarter. So you can just provide some guidance on the Q T sales trends by Montana. What are you seeing in October sofa. Thank you.
Oh, that's a great question, let me give some color on Q3 Intraquarter sales.
A year over year revenue cop was better in August.
And then it was in July.
A year over year revenue cough was better.
In September.
It was in August.
And I expect are you over your revenue cop for Q4.
Will be better than it was in Q3.
And there will be drawing top line again.
Now we've been doing intra quarter color.
To start with the pandemic based content SEC guidance about early pandemic color and disclosure.
Now it was lap or two toughest quarters to calm.
No longer seems necessary or frankly prudent.
Give intra company corner.
Debra Polka song not a longer horizon.
The comments and the prepared remarks about our current view of 2020.
I will say this.
Even as we sharpen our focus on home, we do expect to be competitive and provide a great assortment of home gift pickles for the holiday season I Hope that's helpful.
Hello, Thank you so much.
Okay. Our next question with offline and Andre that Anita you may begin.
Oh, great. Thanks, so much in the morning and congrats.
I really am great right out check my fifth at two Jonathan I'm really excited about that to you. After Kennedy. It can you maybe talk about some of the new cap categories <unk> or with that has the right away I think you mentioned Casper and kitchenette and also where you plan to add the additional depth and what.
The timeline, we should thank God for next year as you begin to flow N does that for Ya.
Second question to Adrianne really solid expense control I think right. This is your second quarter and around with that affects the dollars are declining it sounds like we should expect elaborates to continue maybe I can can you talk about some of the specific in the pocket, where you're seeing the opportunity. Thanks. So much.
Oh. Thank you it's good to hear your voice as far as increased skews.
As I mentioned.
Are distributed and diverse supply chain has helped us of his front.
As people have been expanding their living spaces from the four walls of their home to the four corners of their property.
Outdoor furniture was a big deal.
As are emerging I routine.
I was able to work with our partners despite supply chain challenges.
To do this well.
We are working on expanding breadth and depth and an alternate today to talk a little bit about.
We're we're focused without giving away too much of our inside baseball and you know because some of the timing on this.
Yeah. Thank you Jonathan.
We are adding products every day in multiple categories and there're categories, where we are.
Well penetrated and we and we own the categories as Jonathan mentioned with outdoor furniture earlier, and then there are categories, where where underpenetrated more focusing on adding products always in those areas and with that bass distributed network of partners.
We like the potential that that they bring us to add these new product categories and just to give you a couple of them like storage and organization to be specific is one that is just really taken off for us recently and we're continuing to put resources behind it having R. R.
<unk> strategy of removing some of our non home products is allowed or choose to focus even more on those home categories, where we are underpenetrated and see opportunity for future growth.
Thanks to Alison.
Okay. Adrian I wanted to address the question of expense control that I come I want a sound that.
Certainly on a yes are are are kind of absolute dollars as as you've noted have been relatively consistent over the last nine quarters and I think you know two things obviously to take away is that we don't need to add a significant amount of G. N. A N tech expense to support additional sales I've got a lot of scalability in our business.
And the second is just you know, we're very disappointed with irony fasting and so we as we invest dollars into the business. We're very focused on our lives and I'm, making sure that we can have our our guardrails work within our investment. So I would just say nothing in particular that we're targeting as you know take out it's more of just being really measured in our <unk>.
Spending and investing Jonathan.
Yeah. This is a great question, we follow the financial recipe card. So we called internally that we share with the street.
We are going to have 22 percentage gross margins and never gonna manage expenses tightly to bring in a single digit adjusted EBITDA.
You know I, sometimes here.
Oh, the only reason overstock sticky market chair is work cutting price.
Not so well thank you Mark a chair because we are running.
Great business type and because we're offering smart value to our customers.
This is a growing segment, we're growing businesses.
I think as long as we follow that financial recipe card.
There's market share to be taken and I would say I have I've sent so many times keeping our gross margins at this level for now is we think absolutely the right thing to do.
An example, I've given so many times as the Oklahoma land Rush.
When the Bell went off the prey Sooners sprays schooners started going maybe they didn't take time to water the horses and feed the oxen.
Iran. We're not taking time to water the horses and see the oxen were saying a 22% gross margin taken market chair.
[noise] that's terrific. Thank you so much that I send that too.
For the holiday.
Well thanks.
Chop chop off and then I thought that I was fine.
[laughter].
Next question I'll cancel my Peter case from Piper Sandler you may begin.
Hey, good morning, everyone and great results and nice summary, with the prepared remarks as well you know Jonathan you guys to talk about sustaining this 22% gross margin and sustaining be mid single digit EBITDA margin, we get a lot of questions I'd pushed back.
Right now we're in a low promotional environment and that as we go into 2022, an inventory availability gets better and promotions pick up that that overstock is gonna get beat up and see margin pressure [noise].
But why would that take can be wrong.
Wow.
<unk>, yes, we're in a low promotion environment, but we're also in it.
Very competitive advertising environment.
Let me add span is aggressive.
Like there was cooped up AD dollars from last year.
We're spending more on their ads and they have in the past.
Fast.
Maybe it's slow compared because they're limited some have limited scheme, we seem to be able to find excuse we need and if we don't have the exact few we need we have a replacement skew and our customers are finding liking and bye.
So.
When the supply chain Kinks yet.
I'm Kate and.
Products for a little more smoothly.
It's gonna be great for us.
We're gonna increase the number of excuse me have on site. We're gonna have more products to offer we're going to continue to compete on price do so well alright.
That's just.
I get that there will always be a bear case.
That's the best their case and I don't get it that's not that's not a very good.
Okay Fair enough and then so you did just a tease out a little bit of commentary around Q4 and and the previous question. So is it.
To understand you would expect a year on year growth or it's a quarter on quarter growth for the quarter.
Oh, I said I think we'll be growing our top line again I think that.
You're on your growth.
Very good thanks, so much everyone.
Yeah. Thank you Peter.
Our next question comes from lying on Victoria James from D. Davidson you may be in.
Thank you for taking my call. So I have two questions, but let's take them one at a time you commented a bit on the last question about the supply chain. So from your vantage point, what is it gonna take to improve the supply chain and logistic challenges and when should we expect a significant improvement.
Oh, well that is the 64000 dollar question to go back to 19 seventies game show Parlous.
It's gonna take some time I.
I think this is gonna go beyond the end of the year.
And in the 2020 to.
And the supply chain has many links.
And several of those links have been 10th at different times.
Early on it was the manufacturers that doesn't seem to be to keep right now that would be carriers from warehouse.
Customers, we worried about ship again, which by the way I didn't affect us because of our forecast that.
And then there was the poor and the containers and this bill containers today, it seems to us that the worst can't.
Is the trucks and chassis.
Has containers empty containers are piled up.
Yeah at the parks.
The supply chain is fragile and that's why we like our model, it's so well distributed that.
Once the bars, not getting something others can't.
One thing we've noticed.
Our supplier partners are nimble some of them are smaller and their ability to call in a favor with a check of your shipping company.
To deliver.
A smaller number of containers, rather than hundreds of thousands of containers.
Has been real and so you know.
It's part of the reason, we like our model I think this is here to stay for awhile. Unfortunately, Dave Dave you're much deeper into the logistics and let me hear you to add to that.
No I think that was well answered.
Thank you for that and then my next question would be.
Davidson least and monitoring a bunch of different data about like consumer trends are queuing, specifically, we've been looking at T. S. A three putt data and we've seen that consumers are clearly traveling more this year than they were last year, how if at all do you believe that's impacting the home category.
First question, we think as I mentioned on our call in to do we think it did have it.
Impact negative impact in Q3 is pent-up travel demand.
Particularly at the end of the summer.
People got to the beaches, they got the mountains, they got to wherever they're going I think they're still we're still some of that there.
My my premises, there's 10th of gathering.
And then people will gather during the holidays, they're gonna travel and Gamble I know I'm, just so eager to be with family and friends and Thanksgiving and Christmas <unk> gathering demand.
Spills over into a home Tonight.
When you get all those people that make sure I have just put a little bit better homes gonna pay a little more Hogan and so you know we yes, there is that demand, but we think that some of it's correlated again, Dave all anything you would add to that.
The only other thing I would add is you know in this new work environment, where people are working more remotely.
People are more aware of their home surroundings, and they are remodeling and they are updating more frequently than they did before so we think that place to our advantage as well, even though the travel restrictions are using their or other.
Counter.
Activities going on that or they're holding that demand high.
Great color. Thank you so much.
Thank you and our last question for today will come from the lineup Curtis Nagel from Bank of America may begin.
Good morning, Thank you very much so apologies if I missed this but I'm trying to just I guess a quick question on three Q in terms of you know the incremental supply chain. It presents a bedroom for it or I should say product approve it like what what specific categories did you really see you know an incremental benefit and you know I really made of.
A difference in what looked like a pretty nice court.
That kind of scared question, we did talk about that all that they were prepared remarks, I think category, we'd we'd highlight.
Is outdoor furniture.
We take the number one stays in that for summer, we'd be everybody and that this summer and I think it's because we've got this broad supply chain.
Burgers were there for us and we were there for them they needed to move it.
Who cares after furniture is seasonal.
And they know who they can move panicked with.
That's S.
That's us and so that's why we think we'll get a.
Good first look at inventory.
Cause I also mentioned they don't like tying up their inventory.
Any particular, one supply chain.
And when they feel pressured and pressured I think is a euphemism when they feel pressured to put their product.
One distribution one channels D C. They.
They don't want to do that because they're not sure that that distribution channel can deliver what they need so they keep it out and that's why we do require or pressure people to put product in our supplier license fulfillment Center services warehouses, we did get it makes it it makes a big <unk>.
<unk>.
<unk> expenses and then just as a.
Yeah, I was there anything about capital allocation fellowships in great shape, you know, where where does that what did you catch grill. It over the next couple of years to the deployment.
Okay Great question.
No later than that I imagine, we have 100 billion dollar stock repurchase program we haven't.
Execute on that at all he got dry powder on that I think as we learn from our Canadian expansion.
In the future, we could use that capital to expand internationally and we'll say there's not a second country. That's imminent right now, but we are learning from Canada, and we feel like we're ready to go <unk>.
We'll release that one you know, we'll leave that course and has it off and run it.
And then we get pitch and ideas all the time and we look at them carefully.
Thus far none.
It seemed like the right the perfect right fit.
But where do we find one it's nice to have some capital in reserves is dry powder.
Okay, except that's very much.
Well, we appreciate everyone.
Participating on today's call.
We're passionate about the business, where it and our business model.
Likeable and scalable macro trends support the category.
The gains achieved during the pandemic of proving sustainable <unk>.
Business model is resilient within economic cycle.
Especially with our foundational operation operated improvements.
As in Japan Panic type goes out.
Overstock is wearing an operational wetsuit.
That will allow us to continue.
To take market chair.
We appreciate your interest in ownership and overstock.
How much time, we'll keep working hard to consistently deliver sustainable profitable market share growth.
After the first of the year.
This one cause today's conference call. Thank you for participating you may now disconnect.
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