Q2 2022 Overstock.com Inc Earnings Call
Okay.
Good day, and thank you for standing by and welcome to the Overstock Dot Com incorporated second quarter 2022 earnings Conference call.
At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question. During the session you will need to press star one one on your telephone. Please be advised that today's conference is being recorded I would now like to turn the conference over to your speaker today, <unk> <unk> head of Investor Relations. Please.
Go ahead Sir.
Thank you operator, good morning, and welcome to Overstock second quarter 2022 earnings Conference call I'm Loving <unk> head of Investor Relations. Joining me on the call today are Jonathan Johnson, CEO and Adrian Lee CFO . Additionally, Dave Nielsen President of Overstock will be available for Q&A. Please note that.
We are conducting today's call remotely next slide please.
Let me remind you the following discussion and our responses to your questions reflect management's view as of today July 28 2022.
They include forward looking statements actual results could differ materially from such statements.
Information about factors that could potentially impact our financial results is included in our Form 10-K for the year ended December 31st 2021, and in our subsequent filings with the SEC.
A slide presentation accompanying today's webcast has been posted to our Investor Relations website.
Available to download. Please review the important forward looking statements disclosure on slide two of today's presentation during.
During this call we will discuss certain non-GAAP financial measures.
Accompanying this webcast and our filings with the SEC contain important additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with the most comparable GAAP measures finally to participate during our Q&A session. Please use the registration link available under the events section of our Investor Relations group.
Site next slide please.
During today's call we will follow the agenda on slide three and with that let me turn the call over to our first speaker for today Jonathan Johnson.
Thank you Robert and good morning, everyone.
Let me start by saying how proud I am of the entire overstock team.
We're achieving our ninth consecutive quarter of profitability and doing so in a particularly.
Particularly difficult environment.
Our second quarter performance reflected the headwinds related to we consumed sentiment due in large part.
Macro economic and geopolitical volatility.
This weakness starting to become more pronounced in late Q1 and continues through today.
While we cannot control the macro environment and the impact of higher gas prices, increasing interest rates record inflation and uncertainty surrounding geopolitical events.
Consumer sentiment and competitors' behavior.
We can control and have control of many elements of our business.
Fact, our asset light business model is highly advantageous during times like these.
We don't have extensive logistics operation with high fixed cost base are significant owned inventory on our balance sheet.
We can and do continue to offer smart value to our customers.
Their wallets are stretched.
Nine straight quarters of profitability, we're very top line performance is a testament to this team's ability to run a profitable enterprise.
For our shareholders.
Well I am not pleased that our top line revenue was down 34% versus the historic high of last year.
I'm pleased that we were able to stay within the structure of our financial recipe card to deliver adjusted EBITDA margin of three 9%.
Near the lower end of our stated targets.
We increased share repurchases during the quarter showing further commitment to shareholders.
Overstock remains in a favorable cash position with a strong balance sheet well equipped to navigate through ongoing macro instability.
Next slide.
Since I became CEO in late 2019, we have operated our business under vastly different macro conditions.
During 2020, the world plunged into a pandemic and ecommerce penetration surged to over 40% compared to the 33% range today.
In the first half of 2021 consumers were largely restricted to their homes.
The excess money to spend on discretionary items in.
In 2022 consumer sentiment around home related purchases has moderated with rising interest rates.
Inflation tracking at 40 year highs.
And on services is not yet fully normalized which will likely continue to exert pressure on goods related spending.
Considering these facts and our record second quarter performances in each of the last two years.
I believe it's important to reflect on our recent performance as compared to.
Our performance in the pre 2020 timeframe.
Over this period, we gained market share and did so profitably.
The chart on this slide illustrates well the benefits we have realized from the focused operational improvements we have implemented.
Paired with 2019, we've grown 44%, which outpace the market.
In fact, if you were to look at our growth just for home related business, we have grown 60%.
Versus Q2 2019.
That is significant.
Our active customer base, although smaller than the pandemic highs and still tracking ahead of pre pandemic levels.
On a broader product assortment and an improved mobile app experience are being recognized by our customers.
Based on third party data, we review our change in retention rate versus last year was comparable to other peers in the category.
We're not alone in navigating through this difficult retail environment.
A major difference for overstock and my opinion is that our team is committed to delivering profitability.
So I became CEO this is that our commitment to shareholders.
This financial discipline is even more important during these unprecedented times.
I am encouraged by the progress made by the team and the focus on achieving our long term strategic vision visit.
This includes increasing the breadth and depth of product assortment to improve our brand Association with home.
Growing mobile app adoption and growing our Canadian revenue share.
Our unique smart value brand pillar and the market quadrant, where we compete with ample white space positions us favorably to capture demand when consumers are looking to spend in our category.
Next slide.
Now for a brief update on recent corporate events.
During the second quarter, we repurchased.
Ultimately $35 million of equity.
Year to date, we have repurchased approximately $60 million of equity.
We continue to be opportunistic in evaluating percher.
Future repurchase opportunities.
In may our shareholders approve the conversion of both our series a one series B preferred stock into common stock. We completed this conversion in June .
We now have a simpler equity capital structure.
We completed our transition to a 100% furniture and home furnishings retailer.
I think the last of our non home categories in late June .
As we've shared in the past this was a strategic choice.
Over the long term, we expect to benefit from an increased association of the Overstock brand of Hall.
While this has resulted in some short term pain.
Our data continues to support that our home customers spend more.
Higher average order value and repeats more frequently than other customers.
Adrian will now review, our second quarter financial results in more detail Adrian.
Thank you Jonathan.
Slide seven please I will begin with a summary of our second quarter financial results followed by a more detailed review, including our key customer metrics next slide please.
Revenue declined by 34% year over year, but as Jonathan highlighted increased nearly 44% on a three year basis. Despite our sales performance, we managed our business effectively to deliver adjusted EBITDA margin of three 9%.
Decline of 165 basis points versus 2021, but importantly remains within our mid single digit target range near the low end.
The second quarter of 2022 was our ninth consecutive quarter of profitability, we reported adjusted diluted earnings per share of <unk> 19.
A decrease of 54 versus 2021, the EPS decline versus last year was driven by lower pretax income and a higher effective tax rate our adjusted EPS excludes the impact from our proportionate share of the Medici Ventures fund performance and a one time item, resulting from our equity conversion.
Our effective tax rate was 26, 1% for the second quarter compared to a tax benefit during the same period in 2021, our quarterly tax expense.
And rate were significantly different versus the same period last year as we released the majority of our valuation allowance in Q2 2021 as I mentioned on the last call. We believe that a tax rate in the mid twenties range would be appropriate for forecasting purposes, noting there can be fluctuations quarter to quarter based on discrete items.
Our balance sheet remains strong even after executing on our share repurchase program in the quarter, we ended with a cash balance of $443 million.
I will now speak to these quarterly financial metrics in greater detail in the following slides next slide please.
We posted revenue of $528 million in the second quarter, a decrease of 34% year over year. The second quarter was impacted by weak consumer sentiment and macro and geopolitical uncertainty and our strategic actions to remove non home products from our site. These headwinds were compounded with comping the largest sales quarter in our company's history.
In Q2 2021.
Our business continues to perform well relative to pre pandemic 2019 levels illustrating the operational progress. We have made this is evident in the 60% how long these sales growth since 2019, but Jonathan shared with you earlier the <unk>.
Customer we have retained recognized our improved assortment of furniture and home furnishings and have strong engagement with our mobile app both of which have been key elements of our strategy online penetration in our category continues to track at a healthy 33% an increase of 900 basis points over 2019.
Performance was positively impacted by a 16% year over year increase in average order value. We are pleased to report that we ended the quarter with 100% home assortment.
On target I will discuss our key customer metrics in further detail later next slide please.
Gross profit came in at $121 million in the second quarter, a decrease of $54 million versus the prior year. This gross profit decline was partially offset by an improved gross margin gross margin was 22, 9% a 93 basis point improvement versus the same period last year the year over year increase was driven by operational efficiencies.
Issuances, partially offset by higher promotions and discounting.
I'm pleased that we were able to offer our customers smart value, while navigating a high inflationary periods, our asset light model protected our gross margin from markdown pressures that were being chased by other retailers with significant owned inventory and or infrastructure.
Next slide.
G&A and tech expense decreased slightly year over year and have remained relatively constant on average as I have mentioned in past quarters, we have increased compensation and benefits expense versus last year, mainly driven by our enhanced equity programs as a percentage of revenue G&A and tech expense was nine 8% in the second quarter a deleverage of.
310 basis points compared to the second quarter of 2021.
This was primarily driven by topline results our goal remains to be extremely disciplined in managing our expenses and finding efficiencies across the organization.
We intend to offset higher staff related costs by finding and eliminating redundancies within our cost structure identifying automation opportunities and prioritizing spend toward our growth drivers next slide.
In the second quarter, we delivered adjusted EBITDA of $21 million, which is a decrease of $24 million versus a year ago <unk>.
Adjusted EBITDA margin was three 9%.
Lower end of our stated target I am pleased that our operational efficiencies within gross margin.
Disciplined marketing spend and laser focus on expense management once again enabled us to remain profitable.
Next slide please.
This slide shows active customers and order frequency, we measure active customers on a trailing 12 month basis, our active customer base declined to $6 5 million at the end of the second quarter.
This decline in active customers was driven by three key factors consumer sentiment towards discretionary spend has been weak as a result of high inflation and consumer staple categories, our strategy to exit non home products. As previously shared this is the right long term tradeoff. Despite some pain during the short term.
And continued normalization of store versus online spending coupled with a shift in wallet share to experiences and services.
We are disciplined when customer acquisition costs are high well. This can slow the pace of new customers are year over year change in customer retention rates has been comparable to peers as measured by third party data illustrates that our home focused strategy is working.
Orders per active customer was 165 times in the second quarter, a slight decrease versus last year and relatively flat sequentially. This is a strong result, when you consider that we are comparing against our largest sales quarter in history.
Active customers has decreased we have been able to strategically offset a portion of this decline with an increased average order value, which is more typical of the home category and which I will discuss in greater detail on the next slide.
Next slide please.
Average order value improved 16% year over year to $247 million $247. This is a record high for the company.
<unk> also improved sequentially as we shifted more into outdoor furniture during the seasonal period importantly, while we continue to experience cost pressures throughout the quarter. Our <unk> improvement was primarily driven by the mix within our home product assortment.
Orders delivered were $10 7 million for the trailing 12 months period. This is a decrease of 31% compared to the prior year or $4 8 million orders.
The decline was primarily driven by weak consumer sentiment and a shift in their spending priorities along with the cumulative impact of non home product for renewables from our site that started a year ago.
Our <unk> results are an important proof point on our purposeful focus on home while orders are declining the value 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.
We introduced this slide last quarter, which provides a view of our business. Excluding non home sales is more comparable to our peers. As you can see on the left chart at the end of the second quarter, our comparable home related active customer base declined 26% versus the reported 29% the chart on the right.
Illustrates our comparable hormone only revenue declined 31% versus the reported 34% and <unk>.
Fact on a sequential and trailing 12 months basis. The impact is larger this is due to the cumulative impact of non home customers exiting our ecosystem.
Next slide please.
I will wrap up my discussion of the financial section by highlighting our strong balance sheet. We ended the second quarter was $443 million in cash and only $36 million in long term debt. We have no significant debt maturities until March 2030 at the end of the second quarter, our net cash position was $406 million having.
Minimal debt in this uncertain macro environment is a great tactical advantage. It allows us the ability to focus on improving our core operations and strategic initiatives without having to rely on the capital markets. During this rising interest rates and restricted environment.
Notably we were able to maintain a solid financial position, even after allocating capital towards share repurchases, we returned $35 million to shareholders. During the second quarter on top of the $25 million last quarter. Our current share repurchase program is authorized through December 31, 2023, and we currently have approximately $40 million.
Available on it we will continue to be opportunistic in evaluating future share repurchase opportunities.
We are proud of our strong financial position and the competitive advantage. It provides any time of macro uncertainty we continue to deliver on our stated margin targets and make progress on our strategic initiatives to drive long term value for our shareholders with that back to you Jonathan.
Thank you Adrian and today's uncertain market I like the slide.
Having a strong balance sheet, certainly gives us more stability and flexibility in a world of uncertainty and rising interest rates.
Next slide.
Next I'll provide some key insights into our business, including where our focused home strategy is paying off.
And where we are targeting and driving growth.
Next slide.
We've shared this slide in the past to illustrate the direction of third party forecast for online sales in the domestic furniture and home furnishings market.
Based on our revised third party data as of June online penetration in the category is still expected to track around 33% this year.
However, this is now expected to be below penetration levels in 2000, 22021, which were revised higher.
These revisions are not surprising.
It is encouraging to see the projections were 33% of purchases to be transacted online.
Longer term.
We still believe.
But as the market matures there is sufficient room for online penetration to move higher.
But also excites me is that the total addressable market for the Europe and the U S for furniture and home furnishings continues to grow.
It is now estimated at $419 billion up from $390 billion based on prior third party reporting.
The larger market provides us with additional opportunities to gain market share.
A highly fragmented space even.
Online penetration declined slightly this year.
As the fourth largest online retailer in the home furnishing home furnishings in the United States, our smart value brand pillar and.
Our strategy focused on increasing the breadth and depth of our home product assortment.
Will help us serve as larger and still growing market.
Next slide.
A lot of showing the slides remind investors that overstock has significant white space available in the QUADRA, where homegoods expertise.
Smart value.
This quarter is the right place for overstock to compete.
We've been strategic about choosing to focus on it so some competitors leveraging oversize that <unk> expenses business model targets.
Cast a wider net on both ends of the customer value spectrum to drive sales growth.
We believe that strategy is not economically viable over the long term.
Our focus on the white space, we've grown our QUADRA helps us maximize our marketing spend to win business across our customer base.
And do so profitably.
Our targeted customers those who seek the highest quality and style for their dollar what we call smart value.
And an easy experience to find what they want already have a greater propensity to shop with us.
Purpose, we play to our natural strengths.
These customers represent roughly 40% of the market.
Overstock has ample growth opportunity in this space and with these targeted customers.
And when Walter stretched more and more customers seek smart value.
I will now talk to our three brand pillars, each of which are key to our continued growth.
And help define.
Overstock value proposition.
Next slide.
The first brand pillars product find ability during the quarter approximately 99% of our revenue was in home categories.
Merchandising team has done an impressive job of adding breadth and depth of product assortment on our web site.
<unk> unique capital wide and asset light business model allows us to onboard partners and broad product assortment and a relatively fast pace. The key part of our strategy to grow our brand Association with home.
The expansion of home prices.
Positions us favorably to meet the evolving needs of our customers with a broader and better offering.
Unlike some of our competitors.
Cause we don't only inventory we are insulated from risks associated with changes in consumer demand or preferences across categories.
Home sales have slowed and economists outlook point to further reduction through this year.
However, home equity values remain strong which is good for our business consumers.
Consumers are investing in their homes and backlog for home project related spend is still above pre pandemic levels.
Our business has been reflecting.
Same trend.
Sales growth in our home improvement categories have been outpacing the overall company average during the second quarter. These categories continued to deliver positive sales growth.
And as consumers start spending more on home products again, we are well positioned to meet demand and capture market share.
Next slide.
Yeah.
Our second brand pillar of smart value.
We strive to offer the highest quality products at the best price.
Our high low promotional model was intention and critical to attracting and retaining customers.
As is widely acknowledged during the second quarter the industry faced elevated Quebec competitive promotional pressure due to a mismatch of inventory and demand.
Our asset light model does not directly exposed us to mark down or liquidation pressures.
We did have to navigate through a challenging environment to deliver smart value to our customers and maintain margins.
And we did so successfully.
We held our pricing parents in line with past quarters.
Unlike some of our competitors, we didn't need to liquidate any excess owned inventory.
Nor will we need to do so in the future.
Our smart value proposition is.
Not only important to our strategy as it is something our customers count on.
We delivered the second largest memorial very customer.
In company history.
This is impressive considering we were comparing against <unk>.
Largest quarterly sales volume and overstock history.
It is also important to compare to your sales events in 2020 to do as a major change in consumer sentiment since the start of the year.
Sales on Memorial day, this year, where larger Presidents' day in February which as a reminder, with our largest on record.
Considering a consumer that backdrop it was significantly weaker than made in February .
At our event driven strategy continues to work and our smart value our offering is resonating.
We continue to do well with our mobile App adoption, which has enabled us to improve customer engagement.
Our mobile App is now our strongest conversion and customer retention platform.
During the second quarter, we saw that.
<unk> loans increased 85% sequentially.
On top of 54% sequential growth last quarter.
We are now capitalizing on this larger installed base of mobile App users.
Listen to our popular app exclusive coupons and deliver additional value to our customer.
We have revised database strategies like model offers.
Started using the notification more effectively.
These strategies have been delivering results on mobile off return on our AD spend has been higher year over year during key events, making us more efficient with marketing spend.
Believe we still have a long runway for growing mobile app adoption and continue to use to direct strategies.
For further growth.
Next slide.
Our third brand pillar easy delivery and support.
Our asset light supply chain continues to be a competitive advantage.
<unk> us favorably in the industry relative to others.
Our supply chain is broad and distributed with a vast and growing partner network.
Reducing single source risks shipping bottlenecks.
And supply chain Kinks, we own almost no inventory protecting us from a markdown or clearance risk.
This unique supply chain model is a major advantage in the current environment.
Our focus on delivering on our financial recipe card is appreciated by our partners, who with greater and greater frequency remark there.
It is important for them to do business with a company that makes money and Zubair asset backed lenders know, we'll pay them quickly.
As a result.
Listing partners, who were historically under represented on our website.
Our increasing allocations to us.
We're broadening our partner base with new partners interested in working with US, particularly since we are now 100% home focused.
There is a reason we refer to our suppliers and partners.
We have an unparalleled commitment to them, which was fully evident in the second quarter when their inventory piled up their warehouses.
Our other channels canceled orders and they faced significant markdown pressure.
During the quarter, we supported our partners by providing them improve promotional pricing tools to enable them to sell through their over inventoried items and positioned our inventory and our marketing campaigns to help move it quickly.
Our unique dropship model enables them to eliminate cost tied to warehouse and logistics.
Many of us are negotiated carrier rates to lower shipment costs.
Of course, we continue to pay the amount of on regular timeline.
Even as we navigated a challenging top line environment.
With faith that our partners have put in our partnership goes a long way towards successful achievement of our long term vision.
Next slide.
Our mantra is sustainable profitable market share growth.
Growth is and always will be a key component of our business more on which we spend a significant amount of time strategy and working to achieve.
This slide shows several key drivers that are critical to support continued growth something we are working to jumpstart.
Our differentiated business model is allowing us to pursue these growth drivers despite headwinds in the overall macro and competitive environments.
These growth drivers are not capital or resource intensive.
Rather than limiting what would be inefficient marketing spend.
Our focus on profitability is not hampering the progress.
Any of our growth drivers.
Our focus on these strategies, while continuing to be disciplined in managing expenses.
We continue to add Skus to increase our home Association.
Sharper on pricing something that was greatly tested during the second quarter.
Effectively leverage our mobile app.
And make shopping easier for our customers with the move to 100% home now complete we are pursuing initiatives to reposition the brand as a prominent retailer of furniture and home furnishings with a long runway for growth.
Moving to a quick reminder, on our Canada efforts.
As we've shared before our goal is for Canada to grow to 10% of our U S revenue over the next several years. During 2020, we do not expect our Canadian business to meaningfully contribute to our stated financial targets as we carefully developed at <unk>.
<unk> effectively and serve as the right template for future international expansion opportunities.
Right now.
Team is focused on enhancing the Canadian customer experience.
Increasing products locally available to ship from Canada, and improving price competitiveness.
To enhance the end to end customer journey to increase conversion.
Marketing is focusing on bringing additional traffic to the Canadian website and showcasing our unique brand pillars.
These efforts are progressing steadily and positioning overstock for long term success in the Canadian market.
Next slide.
We continue to direct our strategies to drive sustainable profitable market share growth within our financial recipe card targets, even as the online market contracts some.
Overstock as opportunities to gain market share as we win brand Association recall.
Our annual targets for 2022 and beyond remain unchanged. These include topline outpacing the market to deliver market share growth under various macro scenarios driven by our advanced technology.
<unk> focus on the customer.
Our inherently adaptable business model.
Gross margins in the 22% range, so that we can deliver on smart value.
<unk> these may fluctuate slightly from quarter to quarter.
Disciplined G&A and tech spending to deliver operating leverage.
I will note our.
Ability to drive leverage during the first half of 2022 with limited by the difficult sales environment.
We'll of course continue to manage these expenses carefully.
How do we continue to do our best to deliver adjusted EBITDA margin in the mid single digits on an annual basis.
Next slide.
I will now discuss a few updates on the Medici ventures.
Next slide.
And it's been over a year since we handed over full control of the day to day operations and investment decisions with emergency portfolio compelling on venture partners.
As you will recall during 2020.
As we pivoted our focus to.
Strategies aimed at driving sustainable profitable market share growth for the furniture and home furnishing ecommerce business. We went through a rigorous process to evaluate options for the Medici portfolio.
Remember most of the Medici portfolio companies were and still are in early stages and early seed and series a investment stage and require an experienced venture capital style, operator to get them to a level to realize the best financial outcome for all stakeholders.
<unk>.
After considering multiple professional venture firms, we chose to partner with a firm which has decades of experience in helping disruptive technology companies scale.
<unk>.
We structured upon sooner the better pallium does with the portfolio company exits.
Overstock shareholders and <unk>, we'll see the benefits.
<unk> has proven to be a great choice actively help advance the portfolio of companies' respective businesses.
The overstock management team to remain focused on the furniture and home furnishings.
Commerce business.
<unk> is demonstrating its prowess and elevating companies to the next level.
Recent examples of a strong leadership position at T zero and bit.
In June T zero added two new members to its board.
Edward Marshall.
Former senior Vice President and founder and Chief Technology Officer of Intercontinental Exchange and Michael Baldwin Chief Operating Officer of the New York Stock Exchange.
Zero should benefit from their combined technology and financial services background.
We remain excited about the future of T zero.
That has also strengthened its executive team.
Last week did announced the addition of <unk> Central Bank digital currency, where CBD C founding team, including Jim Sheehan and Eric vessel.
Our team has successfully engaged over 12 central banks in Latin America Africa, Europe , and Central Asia advancing their CBD C programs.
This team will continue these engagements with <unk> market, leading technology and CVC products suite and.
<unk> also added a new chief product officer.
Baker <unk>.
These appointments.
<unk> market, leading position in the digital currency space and set it up for long term growth.
This digital currency management system is the technology behind most of July retail <unk> deployments across the world, including launches in Africa.
Central America.
It has established relationships with an impressive list of partners and associations, which enhanced the digital currency experience for everyone within the country's financial.
FICO system.
I hope everyone has had the chance I hope everyone has a chance to attend managed today on May 10 posted by the <unk> team led by Matt <unk> Matt.
Matt has over 30 years of experience with early stage companies and key relationships and the disruptive technology space that the Medici portfolio can leverage.
Six portfolio companies.
And based on feedback received attendees appreciated details on the businesses and how the portfolio is pioneering the use of blockchain technology.
For those who have not yet had a chance to review the presentation.
Replay remains available online.
Turning to use of blockchain technology.
For those who have not yet had a chance to review the presentation. A replay remains available on our Investor Relations website.
I anticipate that the <unk> hosted Medici day will become an annual event, which is the appropriate cadence given the still early stages with most of the portfolio of companies.
Our partnership with probably an eight year term and in my view there is a lot of good news still to come.
Kelly on T zero.
And bid teams are making good progress.
Next slide.
I'll now briefly recap the quarter and provide some thoughts.
Before moving to Q&A.
Slide.
During the second quarter, we continued to demonstrate our commitment to profitability against a weak consumer backdrop.
We also returned cash to our shareholders through share repurchases.
Our balance sheet is strong and provides us flexibility in the current macro environment.
We believe that the overstock business model agile and resilient.
Reacts well to jokes in the market and consumer behavior.
And it is well positioned to capitalize on opportunities to gain market share.
Looking ahead, we continue to increase the breadth and depth of homes SKU assortment available on our site strengthening Overstock brand Association with home.
Our focus on smart value is unique, especially in times, where consumer wallets are under pressure.
We are successfully leveraging our mobile app to increase customer engagement.
Our supply chain is also light built to support <unk>.
Stable profitable market share growth.
Wrap up we like our business model and we have a strong adaptable and focused team that is proving it can control the controllable.
This is a team that wants to and I believe we'll win.
We like our position in the market and.
And our differentiated model.
Now operator, let's take some questions.
Thank you as a reminder to ask a question you will need to press star one one on your telephone we ask that you keep it to one question and then go back in the queue for any other questions. Please standby, while we compile the Q&A roster.
One moment for our first question.
Our first question comes from Seth Sigman with Guggenheim Partners. Your line is now open.
Everybody. Thanks for taking the question.
I'm looking at the EBITDA performance, it's continued to be impressive in this environment I'm just curious about the sustainability of mid single digits. If we're thinking about the potential for sales to continue to decline from here, especially in Q3, and a potentially lower volume quarter, yes could we start to.
See the operating deleverage get worse, particularly thinking about some of the more fixed expenses like tech and G&A or do you feel like you have some levers to continue to offset that thank you.
Thanks, Thanks for acknowledging our EBITDA performance Adrian I'll ask you to address a personalized and comments.
Certainly Jonathan and Seth.
I would just say of course as you mentioned in the second quarter with our sales performance, we were able to deliver on our margin targets.
We've been able to do this over the last four quarters, where we've seen revenue declines.
To your point and Jonathan's prepared remarks, we talked about our goal is to continue to deliver results in that mid single digit EBIT margin and manage our expenses effectively.
Jonathan.
Yeah. So we're always going to look at our expenses carefully.
We've proven we can manage them and we have.
A bottle that works that way we are.
I should address the other part of I think your comment and Thats what are we doing to drive sales.
Because top line growth helps all kinds of things.
I'll say a few things that we're doing in merchandising and a few things that we're doing in marketing.
In Merchandizing, we've made great strides in adding breadth and depth of Skus.
The team is aggressive plans as skus.
Through the year and is doing well and meeting those plans.
Adding skus from Underpenetrated partner.
But sell through our competitors.
So I think that is.
It was a big deal.
Also note some of the Skus, we're adding I think are particularly focused for second half of the year sales because we look for small appliances and things like that to help in the fourth quarter Windows. When people are looking for giftable home appliances on.
On the marketing front, we're working to leverage our app to increase customer engagement.
Using our marketing communication, you can expect us to use more marketing communication.
Five.
Our move to a 100% home and to Reengage with our existing customers and expand our customer base now that we're 100% home that message and that brand association become more important and something we'll focus on so Seth thanks for the question.
Thanks, guys.
Thank you one moment for our next question.
And our next question comes from Rick Patel with Raymond James Your line is now open.
Thank you good morning, I appreciate you taking my questions.
Jonathan can you just share your views on what's going on with pricing in the industry.
The companies are trying to take up pricing given inflation for discounting was also up so when you think about the bigger picture do you think this net down for prices being higher or lower versus last year for the home category and as it relates to your business, we talked about the importance of having a smart value just given what youre seeing with the pricing in the industry do you see the potential to tweak.
Your pricing favorably, while continuing to remain very competitive.
Versus others.
Greg.
Cogent questions. Let me provide some initial comments and then look to date add some more color.
During the second quarter.
Maintaining our pricing 10, being the low cost on the Internet post promotion and our high low model.
Was challenging.
As some of our competitors who own their inventory or publicly acknowledged they have too much and are liquidating it I assume at a loss.
It means that we're competing against.
Against people.
Behaving.
In some sense irrationally by selling them a lot we don't have the pressure because we don't own inventory.
That said during the quarter, we worked with our partners.
Get them to lower their first cost for us so that we could keep their products on our site have it available to sell at competitive pricing within our.
Pricing tests.
We saw that particularly during the second half of the second quarter. We continue to see some in the third quarter I think we will see it through the third quarter. The good news is our team worked with our partners helps us get cost concessions. So that we can keep keep competing.
Price lines Dave.
Dave what would you add to that.
Just one additional point, Jonathan I think well covered.
We've increased our match rate percentage, if you will.
A very very challenging time for pricing and we want to make sure that we know exactly where we are in the industry and we feel confident that by hitting that.
80% competitive rate plus then take into consideration our coupons or discounts it makes us the best deal out there and as.
As we've increased that match rate, we feel even more confident that all of those actions that Jonathan just talked about are resonating with customers and we will continue to as we move through the fall.
Jonathan inbound Matt Rick.
Rick Let me add one thing you ask oil prices come down or will they continue to rise.
Here's my guess.
Sure.
Products were.
Our competitors and our partners have.
Simple inventory even over inventory.
They'll come down for areas, where there are still waiting for product.
To get through the courts will rise so I mean, it's econ 101.
We're a supplier of higher than demand prices are going to come down where supply is less than demand will go up and I think there are categories like home like patio outdoor furniture.
Our supplier example, right now and there are a lot of deals to be had.
And we've got deals on overstock, we're competing at the price level, we want to compete.
That addresses your question Rick.
Thank you very much. Thank you one moment for our next question.
Our next question comes from.
Peter Keith with Piper Sandler Your line is now open.
Hi, Thanks, good morning, everyone.
So the expense management.
Very impressive when you have a lot of things going on but I didn't want to focus on the order growth.
You talked about the home sales growth of 60% from 2019 at the same time. Your <unk> is up I'm calculating 49%. So it does look like about 11% home order growth, which is about a three 5% CAGR over the last three years. It seems a little low given all the goodness thats going on.
So the heart of the question is is that math about right and are you potentially not advertising enough to drive your smart home value proposition.
Andrew I'll, let you comment on the math and then I'll.
Dark through marketing efforts.
To emphasize the home.
Okay great.
And then what.
Thanks, Jonathan and.
Yes, math Directionally correct. Peter I would just also includes kind of that order frequency component as well just looking at that kind of consistency in some uptick there, but yes generally your math is in line Jonathan.
So on.
Emphasizing our brand are associating our brand better with home.
And as I've mentioned in past quarters, we felt like doing that.
We still had.
A good number of non <unk> skus.
On slide was premature when you emphasized home and then people see jewelry or watches.
We felt like we weren't getting the maximum bang for the Buck.
Now that we're 100% at home.
You can expect to see.
Different branding campaigns being rolled out that show that we are home I think theyre going to be exciting I think theyre can achieve I think the consumer is going to understand them and as I've said many times overstocked name recognition is very high.
Our our association with home is not where it needs to be.
I think that will change over the coming quarters as you see more.
Better.
And more focused branding, bringing out there David I know youre working closely with the marketing team that you'd add there.
No nothing to add excited for what's coming in at the end of the third quarter.
Peter also address your question.
Yes very helpful. Thank you. Thank you.
One moment for our next question.
And our next question comes from Andrew <unk> with Needham <unk> Company. Your line is open.
Great. Thank you and good morning, everyone.
One quick one for us.
As mentioned you saw a record high at Memorial Day weekend, but then I think trend slowed towards the end of the quarter could you provide more color on that I think June was good for the whole industry overall and curious what are you seeing in the business quarter to date.
Yeah, yeah. Thanks.
Memorial Day was good morale is.
Very good wasn't quite as good as last year better than president this year, which I think.
Saying something given where the market was growing June was a little worse than may.
July is a little bit better.
June I'll emphasize the little bit in that sentence.
It's tough to know how the.
Summer is going to play out.
And then what will happen with somewhere around and people get back to work and to shopping.
Hum.
I think we're in a good place we continue to offer smart value, we continue with our high low.
Promotional.
Yeah.
Events I do think there is a high low retailer.
The days when people are shopping at the holidays are important days for us to win.
And we're getting better and better at it and I'm looking forward to labor day.
Our customer day.
Black Friday cyber Monday.
The second half of the year has got some good advantages that we think we can capitalize on.
Okay, that's super helpful and if I could follow up.
Actually a follow up on the previous questions just considering the new marketing campaigns coming out in the back half to drive that home Association for Overstock should we expect some step up in marketing expenses. As a result, you guys have a manage that line item really well.
You can expect us to continue to manage it well Dave.
How are we how we're going to.
Brent brand launch and manage return on Ad spend.
Sure so.
As we look to some of the comments Jonathan mentioned about our about our upcoming.
Home campaigns.
We'll be shifting dollars between the channels and we're always doing that and we don't ever really reveal or or provide specific details around each individual channel, but we will be increasing in some of our channels to broadly distribute.
Our brand recognition of home and home furnishings, and as we do that will be increasing.
Our influencer campaigns and with some brand ambassadors some very exciting things that we have coming that we're looking forward to so as Jonathan mentioned, we will always watch the bottom line expenses from a from a channel spend on our return on AD spend.
The models are built to efficiencies and two a return level and you could you could spend more and lose a lot of money doing it and grab a customer, but it's such a cost that it is.
The future value, it's not worth it so we continue to balance those and watch our expenses as we do it.
Alright.
I know that we're committed to profitability and with our smart value, which means 22% ish for the gross margin.
Are there.
Some fixed expenses.
We're going to be really careful in making sure that how we advertise how we brand since within the return on AD spend metrics, we have and we were committed to.
All right terrific. Thank you so much guys very helpful. Thank.
Thank you.
One moment for our next question.
And our next question comes from Victoria, James from D. A Davidson your line is now open.
Great Hey, Tom Forte Davidson. So can you talk about your club O program and how are sales trending there versus.
Trends overall and do you have any plans to make any changes to club O.
<unk>.
Tom Thanks for thanks for bringing up Congress will cover our year over year. It continues to grow.
It remains strong it's something we focus on those customers.
They have a higher <unk> shop more frequently.
We are working on some things to expand and improve our loyalty program I don't want to go too under the covers on those more to come we think it's exciting.
And well.
Help us grow when those are launched for Cuomo continues to grow year over year.
An exciting part of our business.
Great. Thanks, Jonathan.
Thank you.
And our final question comes from the line.
Yeah.
Of Curtis Nagle of Bank of America. Your line is now open.
Terrific. Thanks for taking the question.
So I guess just the first one it was.
Focusing on mobile right. So you guys have done a lot too.
Alright increase.
Reality.
Experience download all of that but if you just look at the percent of orders.
And through mobile hasn't really budged.
$5.
Radiocarbon might actually be higher than.
What we're seeing we offer them.
So I guess why is that is it just going to take a little more time for it to catch up.
How should we expect that channel to grow in terms of the.
Total.
I was going through it.
Yeah.
Thanks for asking about mobile it gives us.
She has to.
<unk> highlighted some more accurately correct some assumptions some flawed assumptions in your question.
Dave why don't you hear a little bit of color about what's coming through mobile what we see and why we're so excited about.
The mobile App business for Us that channel is as mentioned in the remarks, it's our highest repeat rate and our highest conversion and our highest <unk>.
These are loyal customers and once we once we acquire them and get them in the ecosystem. It is less expensive for us too.
Hi.
To advertise to them to market to them and interact with them. So this is a channel in it and it is growing and growing significantly for us we don't reveal the individual channels growth publicly but I will tell you. This one is on a.
Terrific trajectory and we are continuing to invest in the capabilities and the marketing capabilities of remarketing efforts with the mobile app.
Yeah, Thanks, Dave in Europe , I've mentioned courtesy with the mobile App, we are reaching.
A little bit different demographic.
Not different in that it's not a savvy shopper reluctant refresher.
Younger demographic.
And it's important for us to pick that up to communicate actively with them.
So.
Mobile continues to grow and we're excited about it.
And more and more of our sales are coming from.
We address the question.
Thank you.
And I would now like to turn the conference back over to Mr. Johnson <unk> Johnson for any closing remarks.
Operator, and I want to thank everyone for participating in today's call.
I like our business.
We have the right asset light business model.
We're focused on the right market, the furniture and home furnishings market.
We're focused on the right customer segment.
Shoppers and reluctant refresher customers would have a natural tendency to shop with overstock.
We have the right team.
Jude and deliver both market share.
Growth and profits at the same time, even with macro and competitive headwinds.
We have dry powder.
For strategic opportunities and.
And we have a portfolio of blockchain assets being well managed by penalty on that I believe has huge potential to drive value for our shareholders.
Again, unlike our business and I like our future.
We appreciate your interest in and overshot and ownership of Overstock.
This call.
This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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