Q1 2022 Overstock.com Inc Earnings Call
Okay.
Yeah.
Sure.
Good day and thank you for standing by welcome to the Q1 2022 Overstock Dot Com 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. Please limit yourself to one question. If you have additional questions. Please reenter the queue.
Please be advised that today's conference is being recorded.
To ask a question during this session. Please press Star then one on your telephone if you require any assistance during the call. Please press star Zero I would now like to hand, the conference over to your host of todays call. Mr. Loeb Dash Hemdani head of Investor Relations. Please begin.
Thank you operator, good morning, and welcome to Overstocked fourth quarter 2022 earnings Conference call I'm <unk> joining me on the call today are Jonathan Johnson, CEO and Adrian Lee CFO . Additionally, Dave Nielsen President of Overstock may be available for Q&A. Please note that we are conducting today's call remotely.
Yes, yes.
We remind you that the following discussion and our responses to your questions reflect management's views as of today April 28, 2022 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 is included in our Form 10-K for the euro.
Ended December 31, 2021 handed.
And in our subsequent filings with the SEC.
Slide presentation accompanying today's webcast has been posted to our Investor Relations website and is available to download. Please review the important forward looking statements disclosure on slide two offerings presentation. During this call we disclose certain non-GAAP financial measures. The slides accompanying this webcast and our filings with the SEC contain additional disclosures.
Jos regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures finally instructions to ask questions. During our Q&A session are also available in the slide presentation with that let me turn the call to our first speaker for today, Jonathan Johnson. Thank you.
Thank you lavash and good morning, everyone. During today's call we will follow the agenda on slide three next slide.
This morning, Overstock reported first quarter 2022 results, we were profitable for the eighth consecutive quarter with adjusted EBITDA margin at 4% of revenue the lower end of our stated targets.
Revenue in the quarter declined 19% compared to the first quarter last year for.
For home only revenue the decline was 16% compared to last year later, Adrian will share more on how our non home extra efforts are impacting accuracy customer counts and revenue.
Our two year revenue growth rate was up 58% Q1, 2022 compared to Q1 'twenty.
The operational improvements we have made during the pandemic have made a difference and are sticking.
We anticipated the first quarter would be challenging considering the significant acceleration in sales last year driven by pandemic related factors, what we didn't anticipate when we last spoke with you was the level of impact of that macroeconomic factors would have on the business.
As consumer sentiment and spending resulting from a steep rise in inflation.
Bold with various impacts of the war in Ukraine.
Even though our sales performance was not what I anticipated.
Pleased that based on third party data, we hold our market share in line with fourth quarter levels, and we continued our two year track record of profitability.
We are focused on delivering annual revenue growth outpacing the market, while generating profits and improving our healthy balance sheet.
While much has changed from a consumer and macro standpoint, we continued to execute against our 2022 initiatives.
Our monthly sales trends improved sequentially from December through February , including Overstocked largest Presidents' day in company history.
I have mentioned before our team has developed an expertise.
<unk> key shopping holidays.
However March was much softer than we anticipated.
Driven by the removal of non homes skus from our side and the pandemic period comparisons and in part driven by macro and geopolitical events.
The U S. Consumer is navigating a 40 year high inflation rate, which is having an immediate adverse impact on discretionary spending.
Additionally, after two years of pent up demand consumers are spending at higher levels on travel dining and entertainment.
Time, we anticipated consumer spending will return to a more normalized mix of goods and services.
Think this will continue to include a shift to more online shopping compared to pre pandemic levels. A belief that is supported by third party forecasts.
Over the near term.
Challenging macro.
Firemen could continue to drive volatility in performance as we experienced in the first quarter.
I remain calm.
I am confident in our business as our model continues to position us well to navigate Johnson the market and consumer behavior.
And to deliver profitable results, we have a strong balance sheet with very little debt, we are asset light, allowing us to be nimble when market challenges arise.
Our smart value brand pillar delivers real price value something of growing importance for more and more consumers because their wallets are stretched slide.
Slide five please.
Now for a brief update on recent corporate events and.
In March we announced plans to simplify overstocked capital structure and.
At our annual shareholder meeting next month, we are seeking shareholder approval for the conversion of both our series day, one and series B preferred stock into common stock.
The Overstock board of directors fully supports this conversion.
Following shareholder approval each preferred share will be converted into 0.9 shares of common stock.
Additional details and information related to this proposed conversion are available on our website and in our proxy statement filed with the SEC on March 23rd.
We expanded our $100 million share repurchase program to include the ability to repurchase preferred shares in addition to common shares during.
During the first quarter, we repurchased approximately $25 million of our equity consisting predominantly of common shares, but also including some series a one preferred shares.
Earlier this month overstock officially kicked off its future of remote work and reentry design our forward plan is.
As part of this plan, we held a two day homecoming event that was attended by almost all our employees.
<unk> gathered at our campus headquarters in Utah to connect.
Roborate and celebrate the overstock culture.
We view the event at the beginning of a new and bright chapter for Overstock.
Our forward plans design has allowed us to expand the geographic locations from which we are able to recruit employees.
We are already benefiting from access to a deep and diverse talent pools across the country to help drive long term growth for overstock and.
In fact, many of our recent senior hires work remotely from states other than Utah.
We are attracting and retaining top tier talent.
Will help us continue to improve and grow the business.
While the pandemic is still expected to impact day to day life to some extent our employees remain highly motivated to work hard to achieve positive results I'll now ask Adrian to review, our first quarter financial results in more detail.
Thank you Jonathan Slide six planes.
I will begin with a summary of our first quarter financial results, including a review of key customer metrics and performance indicators.
Slide.
Revenue declined by 19% year over year, but as Jonathan mentioned increased nearly 60% on a two year basis. Adjusted EBITDA margin remained in the mid single digits at 4% a decline of 113 basis points versus 2021, and a 593 basis point improvement versus 2020, we reported adjusted diluting earnings.
Per share of 21.
A decrease of 35 versus 2021, and an improvement of 55 cents compared to 2020. This excludes an immaterial impact from our proportionate share of the Medici Ventures fund performance and from our direct minority interest N T zero.
A quick note on our tax rate during the quarter for the quarter ended March 31, 2022, our effective tax rate was 17, 1% compared to <unk>, 7%. During the same period in 2021. This increase was primarily because we no longer maintain evaluation allowance on most of our federal and state deferred tax asset.
Which led to a lower effective tax rate in the past for modeling purposes, we believe that a tax rate in the mid 20% range would be appropriate, noting there can be fluctuations quarter to quarter based on discrete items I will now speak to these quarterly financial metrics in greater detail in the following slides next slide.
We posted revenue of $536 million in the first quarter, a decrease of 19% year over year and an increase of 58% compared to the same period in 2020. The first quarter was impacted by a difficult comparison to last year macro and geopolitical uncertainty and our strategic actions to remove non home products from our site.
While year over year revenue performance decelerated sequentially, our business continues to perform well relative to preach endemic levels illustrating the operational progress we have made and that the shift to purchasing furniture and home furnishings online is sticking.
Revenue performance was positively impacted by a 21% year over year increase in average order value and an improvement in order frequency, both driven by our strategic shift to home I will discuss these metrics in greater detail later.
Our operational metrics continue to support that exiting non home categories is the right move for our business, It's increasing Overstocked brand Association with home and our home customers spend more and repeat at a higher frequency.
Next slide please.
Gross profit came in at $125 million in the first quarter, a decrease of $28 million versus the prior year and an increase of $51 million compared to the first quarter of 2020 gross margin was 23, 4% in the first quarter essentially flat to last year and an improvement of 151 basis points versus the first.
Quarter of 2020 year over year margin results were impacted by a more normalized promotional environment offset by operational efficiencies.
We're able to maintain gross margin in line with last year, while navigating various cost increases and continued to provide smart value to our customers next slide.
This chart illustrates G&A and tech expenses over the past nine quarters in both absolute dollars and as a percentage of revenue.
<unk> expenses increased slightly year over year, the sequential step up was due to increased compensation and benefits, mainly driven by our enhanced equity programs.
As a percentage of revenue G&A and Tech expense was 10, 1% in the first quarter, a deleverage of 203 basis points compared to the first quarter of 2021.
Impaired to 2020, G&A and tech expenses were flat, while revenue increased by 58% driving over 570 basis points of operating leverage.
Our goal maintains to be extremely disciplined in managing our expenses, but as I mentioned on our fourth quarter earnings call. Our tech and G&A expense plans for 2022 include higher staff related expenses, some of which are non EBITDA impacting in fact, excluding our increased share based compensation our expenses would have been lower versus last year.
Next slide please.
In the first quarter, we delivered adjusted EBITDA of $21 million, which is down $12 million versus a year ago, but a significant improvement versus the comparable period in 2020, adjusted EBIT margin was 4% at the lower end of our stated target and an increase of 593 basis points versus 2020.
We again focused on maintaining our profitability commitment through disciplined marketing spend operational efficiency gains and a laser focus on expense management, while making progress towards our home strategy.
Next slide.
This slide shows active customers and order frequency, we measure active customers on a trailing 12 month basis, our active customer base declined to $7 4 million at the end of the first quarter, a decrease versus 2021, but an increase of almost 43% or $2 2 million customers versus 2020 the.
The first quarter decline in active customers was driven by three key factors online penetration receded from the all time highs experienced during peak pandemic restrictions our strategy to exit non home categories. As previously shared this is the right long term tradeoff and macro in a macroeconomic and geopolitical events impacting consumer sentiment.
Orders per active customer was 167 times in the first quarter, essentially flat sequentially and a slight improvement year over year, we see this as a positive proof point of our home focused strategy.
It's important to point out that while active customers decreased we have been able to partially offset this decline with an increased average order value, which I will discuss in greater detail in the next slide.
Next slide.
This slide shows average order value and orders delivered average order value improved 21% year over year to $221 and was primarily driven by mix and it will be also.
Also improve sequentially as we shifted from more seasonal and home giftable sales in the fourth quarter to home furniture.
Orders delivered was $12 3 million for the trailing 12 months period. This is a decrease of 25% compared to the prior year and an increase of 41% or $3 6 million orders compared to 2020.
The year over year decline was an acceleration compared to the fourth quarter as the magnitude of nonhuman removals was greater the first quarter includes non home exits from Q2, and Q3 of 2021 and the removals during Q1 of this year.
<unk> results are an important proof point of our continued focus on home while orders are declining the value each of each order is improving it's a strategic tradeoff and reflects the purchase behavior of the customers. We are targeting home customers, who trust us with higher value items and have a higher propensity to make a repeat purchase.
Next slide please.
As we near the completion of non home category removals from our website I want to provide some perspective on our home related performance for better comparability versus our home furnishing peers.
On this slide we show our active customer base and revenue metrics adjusted for the impact of non home customers, leaving our ecosystem and the related impact on revenue note. We classify a non home customer as one that has purchased only any non home category over the last 12 months.
You can see on the chart on the left at the end of the first quarter, our comparable home related active customer base would have declined 23% versus the reported 26% decline.
The chart on the right illustrates what Jonathan said earlier during the first quarter, our comparable home only revenue would have declined 16% versus the reported 19% decline Jonathan.
Jonathan would you like to add anything further on this slide.
Yes, I would.
Everyone should know that our strategic decision to remove non home category shop by a portion of our active customer base.
Is intentional.
Yes, there is some short term pain.
But our data continues to support that a home customer spends more.
As a higher average order value.
It repeats more frequently than other customers simply said, we are investing in our most valuable customers.
That should be good for the business and the long term.
Thank you Jonathan next slide.
I will wrap up my discussion on the financial section by highlighting our strong balance sheet. We ended the first quarter with $493 million in cash and only $37 million in debt. We have no significant debt maturities until March 2030 at the end of the first quarter. Our net cash position of 456 million was down only modestly from <unk>.
Quarter levels I want to highlight two key items to aid in comparability relative to the fourth quarter, we returned $25 million to shareholders via the share repurchases and we invested $7 5 million in two zero and the first tranche of its series B funding round alongside ice in the Medici Ventures Fund, which was announced in February notably we were able.
To maintain a solid financial position following these transactions.
A quick reminder, that our share repurchase program is authorized through December 31, 2023, and we currently have about $75 million available on it we will continue to be opportunistic in making future share repurchases.
To sum it up we are proud of our strong financial position as it provides us ample opportunity to evaluate strategic options to enhance shareholder value with that back to you Jonathan.
Thank you Adrian for highlighting our healthy balance sheet.
Like others, we are not highly leveraged.
I'm encouraged by how the team continues to execute against our home strategy and maintain strong financial discipline generating profits quarter after quarter.
We continue to see that our opportunity lies.
Increasing overstock brand Association with home.
A home only customer metrics and financial performance.
Reinsured with you validate just that.
I like our strong balance sheet with almost no debt and a good amount of dry powder for strategic opportunities.
In my view many of the headwinds should be temporary as we steer the company towards long for long term success I remain optimistic about overstock future Pearl.
About the future for Overstock slide.
Slide 16 please.
Next I'll provide some key insights into our business.
Including where.
Our focused home strategy is paying off.
Where we are targeting driving growth next slide.
Overstock is the fourth largest online retailer of home furnishings in the United States based on third party forecast about a third of furniture and home furnishings purchases in the U S are expected to be transacted online during 2022.
This continued migration online combined with a growing and highly fragmented total addressable market of $390 billion and our planned growth in home SKU Assortments means there is significant opportunity for overstock to gain market share.
Slide 18 please.
I'd like to show this slide to remind investors that overstock has significant white space available in the quadrant, where home goods meets homegoods expertise.
Smart value.
This quadrant is the right place for overstock, we've been strategic about choosing to focus on it.
Our target customers, those who seek smart value, we're simply the highest quality and style for their dollar.
I already have a greater propensity to shop with us we purposefully play to our natural strength. These customers represent roughly 40% of the market overstock has ample growth opportunity in this space and with these targeted customers as I mentioned earlier.
Target customers seek smart value and when wallets are stretched more consumers turn into savvy shoppers seeking smart value.
As in the past I will now talk to each of our three brand pillars, each of which are key to our continued growth and to help to find overstocked customer value proposition slide.
Slide 19 please.
As we continue to execute our home focused strategy, our merchandising team executing on specific goals to grow to grow both breadth and depth of home assortment on our platform.
In the first quarter, our merchandising team exceeded its goals.
97% of our sales are in home categories at the end of the quarter.
We continue to add new Skus and onboard new partners to our platform we.
We expect overstocked growing brand association with home will translate into a bigger share of customer wallet ultimately driving market share gains.
Let me share. An example, with you which gives US reason to believe that our home focused strategy is the right one.
That it's working.
Mattresses is one of our fastest growing categories.
Entering 2022, we worked with our partners to expand the breadth and depth of the mattress assortment available on our website.
The same time, we've been improving category navigation, intuitive browsing and product content, including better photos and more robust descriptions to enhance the overall customer experience.
These efforts drove positive year over year revenue growth in the mattress category.
Based on third party data, we believe this translated into market share gains for overstock in this category.
This is how we win.
This execution plays right into the strengths of our unique business model are capable merchandising team was able to focus and deliver this value generating result by leveraging our asset light model, requiring no additional capital requirements or inventory per.
Slide 20 please.
Our second brand pillar as smart value.
We strive to offer the highest quality products at the best price.
Our promotional model is intentional and critical to attracting and retaining customers in the past I've shared with you. The expertise we have developed to deliver strong performance in our key shopping events.
<unk> in the first quarter of 2022.
And we continue to do well with the mobile App.
During the quarter mobile app downloads increased 54% sequentially versus the fourth quarter of 2021 that have included record App performance over the cyber five period. This 54% growth was on top of the <unk>.
80% fourth quarter increase we highlighted on our last call.
Customers Love.
Exclusive coupons, which helped drive.
Perfect to our highest order value conversion and retention platform.
Mobile app.
This execution helped us deliver on the largest presidents' day in our company's history.
We believe our smart value Tennant continues to resonate not only with not only our repeat customers. But also those that are new to overstock, new customers are buying furniture and home furnishings with higher order values in fact, our internal data shows.
<unk> 11 of 100 basis points higher average order value for new home customers compared to the company average for transactions measured over the last 12 months.
As we continue to make online shopping and navigation easier.
Add new home Skus and enhance our overall customer experience, we expect to attract additional new customers.
Now, let me share some thoughts on the inflationary environment that burdens overall or the overall customer base.
As Adrian shared with you our year over year improvement in <unk> was largely driven by mix shift and to a much lesser extent by cost increases resulting from inflation.
We believe our pricing strategy benefits, everyone. That's shops on overstock and they can be rest assured we are not.
Not overpaying.
We continue to work with our partners to limit price increases in response to higher costs.
I see significant opportunity for overstock to attract new customers and even reactivated customers back into our ecosystem.
We expect these customers to appreciate and react as we deliver smart value to that.
Specially with rising inflation.
While consumer spending on discretionary goods and services is normalizing.
Also see a scenario, where an inflated travel costs and higher gasoline prices could limit demand for their services.
As a result.
Choosing to spend time at Hallmark Staycations may increase we believe that this behavior would benefit our category.
In particular overstock, given our smart value offerings slide 21. Please.
Our third brand pillar is easy delivery and support.
Our supply chain continues to be a competitive and competitive advantage positioning us favorably in the industry relative to others. As a reminder, our supply chain is broad and distributed with vast partner network that reduces single source risks shipping bottlenecks.
And supply chain kicks, we don't pressure our partners to lock their inventory in our distribution center.
We own almost no inventory and can flex our distribution center footprint easily.
As I shared earlier overstock ranks fourth among online retailers at home furnishings in the United States, we've been able to achieve this market share position while delivering.
On our profitability targets.
This is being recognized by our partners, who with greater and greater frequency remark that it is important for them to do business with a company that makes money.
Focus on delivering on our financial recipe card means less variability of costs and <unk>.
Pricing for our partners. This helps them in their inventory allocation decisions and capital investment plans for their manufacturing facilities.
As a result existing partners, who are historically underrepresented on our site are now increasing allocations to us.
And potential new partners are showing your keen interest in working with us and.
This is a validation that our strategy to move out of non home categories is the right one and we will continue to increase our brand Association with home.
In fact, the mattress market share gains I mentioned earlier are a testament to our growing recognition among home goods partners. While there are a myriad of retailers we work with they continue to choose overstocked to drive their growth.
Now and into the future slide.
Slide 22 please.
Our mantra is sustainable profitable market share growth growth is a key component of our business one of which as I have mentioned before we spent a significant amount of time strategizing.
In fact, our employee homecoming event or in early April our growth drivers were the key themes of many breakout sessions.
This slide includes several key drivers that we feel are critical to support continued growth.
I'll comment on these drivers focusing it and on our Canada expansion efforts.
There continues to be big opportunity to increase Overstock brand Association with home.
Our focused strategy is being recognized and attracting new and Underpenetrated partners, who want to work with us.
We've increased and will continue to increase the breadth and depth of our homes SKU assortment.
This should help overstock enhance its relevancy for the core home customer providing.
Avenue to drive further market share gains.
The merchandising team is significantly improving how we manage categories. This is something we have needed to do.
We are making good progress.
Growing mobile App adoption is a key focus area.
It helps us market more effectively and improves customer retention.
Underpinning our successful event driven strategy.
Repeat customers continue to account for a large share of our revenue mix and we are looking at ways to increase customer attention even further.
From a loyalty standpoint club membership continues to perform at its highest level in our history.
We are thrilled to welcome Angela <unk> as our new Chief marketing Officer.
She started just over a month ago and I look forward to her.
Contributions to optimize our marketing spend and grow the overstock brand.
Her appointment the executive team led by our President Dave Nielsen is a is.
<unk> is in a strong position to deliver long term success with talented leaders across each area of the business.
Our efforts to improve our website, our ongoing product find ability and easy navigation continue.
And make a notable difference for our customers.
Last quarter, we highlighted Canada is our key focus area for 2022.
We remain big believers in the Canadian market and see large long term opportunities for market share growth in the region.
Our goal is for Canada to grow to 10% of our U S revenue over the next several years. During 2022. However, we do not expect our Canadian business to meaningfully contribute to our stated financial targets, because we carefully develop it to scale effectively.
Serve as a template for future international expansion opportunities.
The team is focused on improving the Canadian customer experience by increasing local availability of in store assortment and improving price competitiveness to improve.
<unk> customer journey and increase conversion.
Marketing is focused on bringing additional traffic to the website and showcasing our unique brand pillars to the Canadian customer.
These efforts are positioning overstock for long term success in the Canadian market.
We believe we are well positioned with a great business model and many levers to pull to continue to gain market share.
Do so profitably slide 23 please.
We continue to direct our strategic or we continue to direct our strategies to drive sustainable profitable market share growth within our financial recipe card targets.
Overstock as opportunities to gain market share as we increase our brand association with home.
Targets for 2022 and beyond remain unchanged. This includes topline outpacing the market to deliver market share growth under various macro scenario scenarios driven by our advanced technology, our unwavering focus on the <unk>.
<unk> and our inherently adaptable business model.
Gross margins in the 22% range. So we can deliver on smart value.
<unk> these may fluctuate slightly quarter to quarter.
Disciplined G&A texts and tech spending to continue to drive operating leverage during the first quarter, our ability to deliver leverage was impacted our higher share based compensation expenses and a challenging revenue environment.
And adjusted EBITDA margins in the mid single digits range, as we delight, our customers and deliver on our vision.
Dream homes Pearl Slide 24, please.
I will discuss a couple of updates on the Medici Ventures Fund next slide.
We're excited about the growth opportunities ahead for T zero under its new leadership.
Prior Chief strategy Officer of Intercontinental Exchange, David Duke took the helm at T zero last month.
I am confident in David's ability to use his rich knowledge of and deep connections within capital markets and exchanges to accelerate growth for T zero.
The team recently celebrated its leadership in the digital innovation and strategic funding round led by ice by ringing the opening Bell at the New York Stock Exchange.
As a reminder, <unk> ventures will be holding in Medici ventures day on May 10th 2022 to highlight some of the fund's top four top portfolio companies do this.
Event is overdue, all and we will share registration details soon.
At this event to zero bit.
Bit green.
Ranging spira Rip Yo and watchdog capital will make presentations.
<unk> has also raised four former Cft's see chairman, Chris Gian Carlo to speak about the industry it should be a great event.
For those of you wanting to know more about our blockchain portfolio.
To wrap up our discussion of the Medici Ventures fund.
I am pleased without piling on is acting as the tons general partner.
Actively helping many of the portfolio companies.
Since their respective businesses.
Thus, allowing the overstock management team to focus on the E Commerce business I remain bullish on blockchain technology and many of the companies in the Medici Ventures Fund, particularly T zero under David <unk> leadership with <unk> investments.
Slide 26 please.
I'll now briefly recap the quarter and provide some thoughts for the rest of the year and then we'll move to Q&A.
Next slide.
During the first quarter, we managed to hold onto our market share.
Managed to hold on to our market share in line with the fourth quarter of 2021, despite a larger deceleration in year over year revenue performance.
The team's unwavering commitment to profitability helped us deliver adjusted EBITDA margin at the low end of our stated target.
Because of our healthy balance sheet.
We were able to return our return cash to our shareholders through the.
Share repurchase program.
We believe that the overstock business model is resilient.
Reacts well to jolt in the market and consumer behavior.
And is well positioned to capitalize on opportunities to gain market share.
Looking ahead, we continue to increase the breadth and depth of homes Skus available on our site strengthening Overstock brand Association with home.
Our focus on smart value is resonating with customers, especially in times, where consumer wallets are under pressure.
We are successfully executing in event driven strategy supported by our global mobile App adoption.
Our supply chain is agile asset light and built to support sustainable profitable market share growth.
Before we take your questions I would like to provide some thoughts on the rest of the year.
The uncertain macro and geopolitical environment is impacting consumer sentiment and putting pressure on household budgets. This.
This is ultimately impacting discretionary spend and is reflected in our lower than expected year to date sales trends.
As a result, it has become increasingly difficult to predict our revenue performance for the year.
Thus like we did during the height of the pandemic for the time being we are backing off our prior revenue guidance and not giving revenue growth estimates at this time.
That said, while the broader market direction is unknown, we believe our unique business model positions us favorably to take market share under almost any macro situations.
Inflation runs rapid causing the industry to shrink we're confident we will shrink class.
Let's take market share.
The administration and Congress decide on more stimulus checks supporting discretionary spend and causing the industry to grow.
We're confident we will grow more.
And thus take market share.
We like our business model and think it adjusts well two jolts in the market you should know that our mindset is to fight every day to grow market share over the long term and come Hell or high water, we've experienced over the last two years or may experience.
<unk> growing forward.
We intend to do just that.
Taking into consideration all of the uncertainty we face.
Still plan to be profitable in line with our stated targets delivering adjusted EBITDA margin in the mid single digit range.
Now operator, let's take some questions.
Operator, we're ready for questions.
Operator.
Okay.
As a reminder to ask a question. Please press star one on your telephone and so with all your question. Please press the pound key as a reminder, please limit yourself to one question if you'd like to ask an additional question. Please re enter into the queue.
Our first question.
Will come from Peter Keith of Piper Sandler Your line is open.
Hi, Thanks, good morning, everyone.
Just given the step down in the demand trends I was hoping you could address what youre seeing from the competitive environment with regard to pricing and advertising and then Jonathan on that note. We are hearing that it's getting a little bit more promotional and more aggressive have you thought any further about exploring more of a house brand strategy just to <unk>.
<unk> some.
Some differentiation and maybe.
Make it more difficult for comparability across sites.
Peter Great question. Thank you.
Pricing and AD spending all all dressed.
In terms of days and then we will.
We'll talk about.
House brands, but.
On pricing, we continue to do well in getting price comparisons price for our page views and in fact, we're much we have a much higher percentage of our.
Pages that are priced comparable that's up to about.
About 60% right now.
Of those 60% our goal is to be price competitive with plus or minus 5%, an 80% to 85% and we're right in that range. So on pricing, we continue to be very competitive.
Dave maybe you can comment.
Comment on what we're seeing.
The component of advisors.
Yes, the competitive environment is.
Obviously, when when demand is off of visits are down across the industry.
<unk>.
The level of competition for purchasing those.
Those clicks as is more expensive, but it hasn't been out of control it's been challenging.
And we're tracking from a promotional standpoint, just looking at our percent of coupon sites all promotions.
'bout inline very close to in line with the fourth quarter with the first quarter, even as we transition into April so, but we're comfortable we have a handle on it and our competitive pricing is.
And staying very consistent where it's been historically.
Thanks, Dave.
With Angela joining our team she taking a real fresh look at where we're spending our AD dollars, where are we where we can be more efficient and where perhaps we can back off a little bit so.
A good set of expert fresh eyes.
Is a good thing for us as far as house brand, we look at this occasionally we've.
Done private labels in the past without a ton of success is something that we continue to evaluate and when we think we have the right expertise and the right partners.
It's something we will pursue at this point.
Don't expect us to go deep into that into those efforts.
Okay. Thank you very much.
Yes.
Thank you. Our next question comes from Seth Sigman of Guggenheim. Your line is open.
Hey, good morning, everybody.
Let's start with a shorter term question and then a follow up I guess first on the top line. It sounds like you exited March a bit weaker any indication on April maybe how unique where some of the factors in March was there a seasonal.
There may be weather or anything else that you would highlight and then what youre seeing here early on and then how.
How would you think about seasonality of the business for the rest of the year or are we getting closer to normal seasonality I guess, how are you thinking about that thank you.
Yes Seth.
I appreciate those questions.
April is showing slight improvement relative to March.
And.
I wouldn't attribute it to weather, although I will say that the east coast has been colder and that affects our patio business, but I'm not sure that's had a huge impact.
I do think things like the war in Ukraine.
And record higher inflation make.
To make a difference we've seen in the past whether it was 911 or the Iraq war or different things than that.
Major news events like this caused people to pause.
And so.
That seemed to have a real impact in March.
It was a little better slightly better.
Still difficult as far as seasonality.
Second and third quarters tend to be our best quarters.
And we think that that's what we're headed into and so we're.
We're looking forward to those last year.
Once the patio outdoor furniture category, we're poised to do that again, we have great in stock inventory with our partners and are ready to go.
Sure.
We are working could be better.
With Giftable home Giftable for the fourth quarter fourth quarter is historically and over the last few years not been our best we think we can do better.
So that's how I would address the season the seasonality question.
Okay. Thank you that's helpful.
And then the second question is just around the pricing strategy I want to dig into this a little bit more.
He has it really seemed like the smart value proposition should be even more relevant in this environment.
I guess two parts. One is if you could frame sort of the relative price gap today, where you are how that's progressed and then the second piece of it is I'm looking at your gross margin, which is above your long term target. It's actually one of the highest ever this quarter for overstock.
And the company has done a really good job of balancing sales and profitability, but yet customers are declining orders are declining.
Would there be an opportunity to actually invest more in price at this stage, especially given how price sensitive it seems like the customer is right now.
That's a lot of things that are important there.
One smart value has become more important than ever.
Yes.
The savvy shopper and the reluctant refresher or 40% of the market yesterday, we expect with the inflationary.
Environment, they will become more than 40% of the market tomorrow. So I think more people become savvy shoppers as their wallets are parents and theyre trying to stretch dollars that bodes well for us.
As far as.
Pricing.
This is something we monitor.
Every single day.
We're looking at pricing on.
A myriad of products.
Practically all our products all the time.
And moving them up and down to make sure we're competitive with the market.
Yeah, Adrienne I'll, let you comment on gross margin and you know where it is now versus historically.
We are not trying to maximize gross margins as we've said before our goal is our goal was 22% range to provide smart value because we think our business model at that 22% range still lets us spit out mid single digit adjusted EBITA Hadrian income.
It's more on gross margin.
I'll add one thing Jonathan and Seth as we looked at the gross margin year over year.
Did increased our promotional activity to be kind of in this more normalized environment in 2022 and that was offset by some great operational efficiencies that the team delivered so we were more promotional this year than last year.
Okay, great. Thanks, very much Adrian.
Thank you and our next question comes from Anna <unk> of Needham Your line is open.
Great. Thank you so much and good morning, guys.
Just a quick follow up on the category exit I should we expect a similar three point headwind here in the second quarter and then secondly, we're surprised to see you guys.
They think only $25 million on the buybacks I just wanted to check what's the appetite for share buyback, especially at these levels.
I'll answer those questions in reverse order.
Last quarter, I said that at the prices.
Talk with that.
We thought it was undervalued.
It's at a lower price today, we continue to think it's undervalued.
I'm glad we have more buyback.
The ability now because its trading in the thirties as opposed to where it was trading in the 40 or so.
You may have been surprised.
Think that should turn into happy surprise as we still have $75 million left in the program to purchase should the stock be where it is today or at these levels.
Your other question was remind me on the head.
Yes.
Unmet yes. Thank you.
So non home exit.
Adrienne I'll, let you comment on what we think the headwinds are we can we should be done by the end of Q2, we have our largest non home categories.
Exit out of Q2 jewelry and watches.
Those will have an impact.
Adrian May comment on what percent, we may have or.
She may choose not to comment on that.
I think as long as it chooses as long as it proves to be useful will continue to show that slide that Adrian added to the deck. This time.
So you can see.
Non home versus home is for year over year comparable do you give a little more color.
You want to add to that.
Yes.
Sure.
Jonathan I would just echo jewelry, our biggest category is yet to come off site. So I take that into consideration as youre thinking about the non her home versus home that we showed in the first quarter here.
Okay got it. Thank you so much and if I may squeeze another one to Adrian gross margin discipline in the business has been really good for a number of quarters now and you mentioned being a little bit more promotional on here in <unk>, but can you talk about specifically what's worked well operationally.
For you how sustainable that is and do you think you could still have gross margins up for the rest of the year and thank you so much that.
Thanks Anna.
Not necessarily won't comment on kind of the balance of the year projections right. We continue to target that 22% ish range.
We'll say from the operational efficiencies that I noted earlier.
Those are sustainable improvements in our business there are things that we've done over the last.
Two years and continue to find improvements in things like customer care and our fulfillment services. So.
So we expect to continue to find those and deliver those operational efficiencies.
Okay.
Ladies and gentlemen, please remember to limit yourself to one question.
Our next question comes from Thomas Forte of D. A Davidson your line is open.
Great. Thanks for taking my question. So for my one question Jonathan can you get 60 seconds.
High level on how inflation is impacting your business. Thank you.
Hum.
Great question and thanks for a follow on question.
Uh huh.
Inflation is real gas gas prices.
Impact everything from the cost of inputs.
That are made with oil to shipping.
To the U S to the factory or I'm trying to the warehouse.
And to the customer, it's real and gas prices when people are driving around their wallet gets pinched. So we think it has a real impact and we think that's where in March.
Has the slowdown.
It did.
That's the downside the.
The upside is we think inflation turns people into savvy shoppers looking for smart value, that's what we offer.
When I go back and think about 2008 2009.
That's when our home business began to take off.
2009 is when overstock, Bruce premium profitable under my.
Second year being the president of the company.
We do well.
And we have done well and inflationary environments when when budgets are pinched. So we think we're in a good place there. Please.
Places tough and it's real particularly were worth 40 year high levels I will say this people are still buying homes.
And when people buy homes.
That's good.
<unk>, thereby furniture, so we think all that Scott.
Home prices remained strong too.
Thank you Jonathan.
And our next question comes from Curtis Nagle of Bank of America. Your line is open.
Hey, it's a it's Dave on Essakane for Curt Nagle. Thanks for taking the question just a quick remark on market share I mean, you referenced earlier that you maintain share. According to your third party data sources in the quarter just looking on our end. It looks like you might have actually lost share can you. Please elaborate on what you're seeing on your end and what sorts of show that thanks.
Yeah, we're seeing just so we said that we.
We maintained market share and Theres a lot of different sources ours are.
We've put note ours.
And.
It is a tough market I think it's particularly important to note. This new slide we've added.
We look at where we are in the home space or decline was not 19%.
16% and when you see what our competitors report, particularly those that are home only look to see where they are there.
Frankly, we can all predict the score looking at market.
Uh huh.
Source data.
But when results come out that's what the score shows so that's where Dave or Adrian you want to add anything to that.
No nothing to add.
So I hope that's helpful. Dave.
Thank you.
Okay.
And our last question will come from Brad SaaS <unk> S. P. A a research your line is open.
Thanks for taking my question I really had two first on the vendor front can you talk about.
Let's say, you're a renewed efforts to expand your vendor count after kind of rationalizing it for a period of time.
We can achieve there and then too.
With the new hiring and the CMO. It seems like there's a lot of opportunity to improve the messaging from a consumer perspective, you've obviously done well over the last few years.
Consistent national advertising campaign, but can you explain what you plan to change about your marketing going forward. Thank you.
Thanks, Brad for each of those questions all drove superstar vendor, maybe Dave I'll, let you talk a little bit above market and then I'll wrap it up.
Vendor count.
Vendor tell it's important as we add new vendors, but more important.
Then vendor town is SKU count.
We have a lot of vendors, where we are under represented in.
Their business that we're growing.
As you look at the vendor number as we report going forward Theres two things to remember we have one more quarter.
Excluding non home, we have a significant number of jewelry and watch vendors. They will drop off we continue to add vendors.
In the home space and Skus in the home space as I mentioned.
We have a merchandising team has.
Goals for increasing the breadth and depth of our home Skus.
Exceeded those goals in Q1.
Uh huh.
I expect them to keep working hard and exceed the goals.
In each quarter of the year. So we're focused on it.
And you should see.
Some new categories, we get into in the home space, but mostly its express expanding the breadth and depth of its categories were in good better best.
More more products within categories, where we need to grow mattresses was an example, we share with you.
We think we want where we learned to win in this quarter to take those learnings and replicated going forward.
CMO Andrew is great.
She is less than two months into the job she is very analytical.
And very well connected and well respected in the industry you can expect our messaging to improve.
Whether that's in a national campaign or not.
She should be the person who called that out because we know how to reach our customers and sometimes it's not just more advertising on the cable news stations, it's being more select indirect David anything you want to add to that.
Nothing to add Jonathan that was spot on that's exactly where we're focused consistent messaging.
Through important channels with with high acquisition rates.
So Brad thanks for those questions.
I'd like to thank everyone for participating on today's call.
I was trying to emphasize.
Hi, Mike.
Business.
Our strategy is aimed at increasing Overstock brand Association with home.
That's important.
I believe our business model is advantageous and resilient within economic cycles, especially with the foundational operating improvements the operational wetsuit.
We have made and continue to make sure we have a strong balance sheet with little debt, we have dry powder for strategic opportunities, we pay our partners quickly.
Never Lake I.
I believe we are in a favorable position to deliver market share growth.
And profits to the bottom line.
Regardless of.
Macro headwinds we appreciate your interest in an owner ownership of Overstock. We hope you all have a great day. Thanks.
This concludes today's conference. Thank you for participating you may now disconnect.
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