Q2 2023 Overstock.com Inc Earnings Call
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Please be advised that today's conference is being recorded I would <unk> I would now like <unk> hand, the conference call over to your speaker for today Love Ash him Nanny Bobeche. Please go ahead.
Good morning, and welcome to our second quarter of 2023 on a conference call joining me on the call today.
Johnson.
Oh.
Resident of Nielsen will be available.
Slide presentation accompanying today's rep.
Bullshit Investor relations website available to download.
Please.
Bolton for cooking statements disclosure on flight two presentation.
Presentation.
Discussion about responses to your questions reflect management's views.
July 27 2023.
<unk> statements.
The results could <unk> such statements.
Additional information about doctors talk with potentially impact on financial results is included in a form turnkey Youre ended December 31st 2022.
Subsequent filings with the I T T.
This call will discuss certain non-cash.
Financial measures applied.
The company at.
<unk>.
In Bolton.
Regarding these non-GAAP measures.
Building the confirmation.
As to the most compatible GAAP measures.
Mr <unk>.
Questions.
Today's call, we will follow the agenda on slightly with that let me turn the call over to us.
Jonathan Jonathan.
Thank you lavash.
Whoever won.
Let me begin by quoting.
June 29th Special Investor Cole.
I have never been more excited about what's going on at our company.
I want to reemphasize that today.
Because it is truer today than it was.
Does that.
Overstock has had a great business model.
Down with a boat anchor of a name.
Bed Bath and beyond.
<unk> consumer Brown.
Yeah.
Huh.
David business model, we got worse over time.
This acquisition drops both.
<unk>.
With a great bed Bath and beyond brand, so naturally tied to home products.
Advantageous.
Business model.
This streak boat.
Anchor free.
And allow us to meaningfully grow in scale our business.
It is exhilarating to see the hard work and high energy across the organization that has resulted.
More exciting new strategic direction.
Everyone is focused on ensuring.
Are successful repositioning of the company to attract and acquire customers.
<unk> market share.
Fliers are more eager to sell their products on our website.
Since the acquisition the head.
<unk> with the Overstock brand is being replaced by the tail end of the bed Bath and beyond Brad.
I will share some details on our successful launch under the bed Bath and beyond the name in Canada.
Which makes me optimistic.
As we get ready to watch in the U S.
This morning, we reported our queue to financial results with revenue slightly ahead of the preliminary performance. Okay. We shared last month.
Alright, just to leave it was positive.
13th quarter in a row.
We ended the quarter with a strong balance sheet.
Are consistent and solid financial track record is allowing us to play offense.
Extra cute transformative rebranding of our business.
That will include a larger than normal promotional and marketing budget for the next few quarters as we attract and retain loyal.
Bath and beyond customers.
Our teams commitment and focus and our asset like business model is delivering results.
We continued to execute against our strategic growth drivers.
Strong independence day performance was better.
Our internal expectations.
For the month of July thus far are home only revenue trend has improved slightly relative to <unk>.
This is encouraging when you consider the highly competitive environment and.
<unk>.
Larger players in the industry.
Next slide.
After a brief update on recent corporate events.
May 31st probably I'd venture partners hosted Medici Ventures day.
The event featured interviews with the leadership of two zero <unk>.
Edelman.
[noise].
I found the presentations insightful and exciting.
It provided a better understanding of how these companies differentiate themselves in the market.
In the markets in which they operate.
And their potential for growth.
I was particularly excited.
<unk> presentation.
Having to listen to these presentations.
He is available or Investor relations website.
Hello, Your adventures has been making progress repositioning the emergency vet your portfolio companies or.
More success.
As we do each year in early June all our local and remote employees gathered in our corporate campus campus in Utah for a two day event.
<unk> connect.
The theme of this year's event was shared ownership empowered to achieve.
Over the two days our colleagues engaged in breakout sessions and presentations on a variety of business topics.
We focused on the importance of having the mindset.
Unleash potential.
<unk>.
Action.
Importantly colleagues from across the World organization.
Acted with each other.
There was palpable and positive energy.
During the event.
Oh that positive energy increased later in June when we announced been completed the acquisition of the bed Bath and beyond brand and other intellectual property.
We acquired the assets for.
Only $1.5 million funded with cash on hand within hours of closing the transaction, we launched in Canada.
Then we have.
Harder work formulating strategies.
Preparing for the U S launch.
Since announcing our plans to rebrand his bed Bath and beyond we've been asked when we will change the overstock corporate name.
D O S T J stock symbol.
Oh, there is not much I can share on these topics today, we are certainly considering alternatives and will provide updates due course.
A medium top priority is a successful you at lunch which includes.
Gauging and retaining the bed bath and beyond customer base.
Ensuring our moral overstock customer base.
<unk> find the smart value they expect.
Now I'll ask Adrian to review, our second quarter 2023 financial results.
Thank you Jonathan next slide place.
Revenue declined 20% year over year in the second quarter well. This is an improvement in the year over your trend relative to the first quarter results continued to be impacted by weakness across the furniture and home furnishings industry, which as a result of lower consumer engagement in the category of shift in spending preferences and a week housing market.
Gross margin performance was in line with our targeted range of 22 per cent for the corner. This was a solid result, as we were able to offer our customer smart value. During a highly promotional period, we delivered positive adjusted EBITDA of $8 million at a two per cent margin during the second quarter and positive free cash flow for the first half of 2023.
Ah reported E. T. S loss of $1.63 was primarily driven by a non-cash non operating expense associated with a change in value of our equity securities any associated tax impact the change in value of equity securities reflects the reduction evaluations for our direct investment in two zero.
And are proportionate share of the Medici venture sponge.
Change in value of the fund was driven by an updated valuation of its investment in debt, reflecting dilution of ownership interest in bit from 86 per cent to 63 per cent.
Excluding the impact of our equity Securities. We reported adjusted diluted loss per share of two cents a decrease of 21 cents versus 2022, reflecting pretax losses compared to income in the prior year.
Our balance sheet remain strong we ended the quarter with a cash balance of $343 million our queue to any cash balance includes the $21.5 million outflow of cash for acquisition of the bed Bath and beyond brand and other I P.
Next slide.
We posted revenue of 400 and $422 million in the second quarter, a decrease of 20 per cent year over year as I mentioned consumer continues to prioritize service related and need base spending putting pressure on the demand for discretionary home goods adjusting for nine home revenue our home only revenue declined 19% year over year at the end of the <unk>.
Second quarter, we fully cycled our exit of nine home products that was completed in June of 2022.
Revenue performance is driven by fewer orders and lower or average order value compared to last year I will discuss our key customer matrix in further detail later next slide please.
Gross profit with $94 million in the second quarter, a decrease of $27 million versus the prior year gross margin came in at 22.4% a 50 basis point decrease versus the same period last year.
For your decrease was driven by higher discounting, partially offset by merchandising actions and operational improvements.
As a reminder, we do not expect to maintain our current gross margin profile over the next few quarters, we plan to lean in on promotions and provide targeted offers to acquire and reengage bed Bath and beyond customers are gross margin performance is a proof point of our asset late model and something we expect to keep in the 22 per cent ish range. Following an initial phase cuss.
Summer acquisition investments.
Next five.
Joining a tech expenses decreased $2 million a year over year, which includes savings related to our organizational review and 2022 and benefits from efficiencies in automation, partially offset by higher stock based compensation.
As a percent of revenue Jana Tech expense was 11.7% in the second quarter, a deleverage of 192 basis points compared to the second quarter of 2022 due to weak topline results as indicated previously or fixed <unk> continued to track around $50 million per quarter I would note we.
We may see increased spend in the near term related to hire tech expenses to support expected incremental sales volume one time janey expenses for our brand integration efforts and other short term discreet investments next slide please.
And the second quarter, we delivered adjusted EBITDA $8 million, a decrease of $13 million versus a year ago, we manage the factors within our control to help offset category headwinds and competitive pressures. We remain focused unsuccessfully integrating the bed bath and beyond brand and appointment strategies that will deliver increased active customers and.
Five shareholder value next.
Next slide please.
This slide shows active customers and order frequency, we measure active customers on a trailing 12 month basis are active customer base declined to 4.6 million or 29% year over year at the end of the second quarter. This decline in active customers is driven by two key factors a shift in spending preferences as consumers.
Need to spend on experiences and services and our purpose full shift to transform into 100 per cent online home retailer, excluding non home customers from the <unk> from last year are activist customers declined 23 per cent ear over here.
Orders proactive customer or 1.56 in the second quarter, a decrease of about 5% versus last year and a decrease sequentially order frequency continues to hold up relatively better compared to a decline in active customers. We expect that over time to relaunch of the bed Bath and beyond branch growing mobile app adoption and.
Enhance loyalty offerings will help improve this metric.
Next slide.
Average order value declined by five per cent year over year to $234, you'll be improved compared to Q1 as order shifted away from furnishings and decor and <unk> furniture as is typical in the spring and summer months, we have seen evidence of trade down across our primary categories and signs of deflation and product costs.
Since our brand pillar is smart value, we continue to offer compelling value to our customers and pass on cost reductions that we receive our competitive pricing continues to align with our internal K P is even as we navigate a highly promotional environment.
Orders delivered were 7.2 million for the trailing 12 month period. This is a decrease of 33 per cent compared to the prior year as I discussed earlier, 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 removal from our site.
Next slide please.
I will wrap up my financial discussion highlighting are strong balance sheet year to date, we have invested over $30 million in strategic growth opportunities to drive shareholder value and we still have capacity to deploy capital on robust customer acquisition strategies, we ended the quarter with over 300 million and that cash, including the cash outflow.
Related to the purchase price and transaction fees associated with the acquisition of the bed Bath and beyond brand.
Strong balance sheet has enabled us to acquire an iconic consumer brands that are synonymous with hall and we have developed strategies to maximize the return on this critical investment we have worked diligently quarter and an order out to generate positive adjusted EBITDA free cash flow remained positive year to date, we have maintained a laser focus on expense management.
And have realized operational efficiencies all of this has resulted in a solid balance sheet the ability to weather uncertain market conditions and allowed us to invest for market share growth. This is the significant differentiator of her advantageous business model with that back to you Jonathan.
Pleasure, Andrea let's pull up to the next one.
All of Us Boulevard, and update or bed Bath and beyond integration timeline.
Early Rouge indoor performance in Canada.
The progress we've been making do the large in the U S <unk>.
Bed Bath and beyond my name is synonymous with home products.
Early August we will re brand or bed bath and beyond or in the U S.
<unk> to be a seamless transition for the overs overstock customer base and bed Bath and beyond customer base.
<unk> website will have.
Familiar brand sucks.
The customer experience will be consistent with a great customer experience, we have been providing.
We were all for tens of millions of customers the opportunity to browse and purchase quality furniture and home furnishings products.
<unk> value.
Phase one progressive on schedule <unk>.
We successfully went laws in Canada within hours of closing.
We are making significant progress and Albert and Onboarding, new partners growing or a servant of quality home products.
Transfer, Italy June we have added 600000, new products to our site many of them well known name brands.
This will be continued and sustained effort as we expand the breadth and depth of our home product offerings.
We have also developed strategies to target most loyal customers and the bed Bath and beyond and overstock customer databases with the rebranding of our club over loyalty program is welcome rewards I will share more on that shortly.
Cause we are at the end of July are focused now on phase two.
We continued to charge it in early August launch in the U S.
I'll go to bed Bath and beyond brick and mortar stores are expected to close this weekend.
Executed Canada launch well.
We are confident we will replicate that success with are you as much.
The next 60 days will be critical and.
An exciting for every company we.
We have the right strategies, the right action wherever the right people in key positions execute a transformational rebranding of our business.
Next one.
Our technology is digital product <unk>.
An outstanding job of launching in Canada on June 29th.
Finalize this with an hour's worth of completion of our acquisition of the bed Bath and beyond intellectual property assets.
Lunch was well planned and executed over many weeks.
This is a team that knows how to execute it.
Thus far we have not encountered any real setbacks in Canada.
Let me provide some additional color or Canada business across certain key metrics comparing our performance there.
<unk> pre and post launch.
We expect to direct traffic, meaning customers, who type bed bath and beyond Dot C are you into their browser.
To increase given bed Bath and beyond strong brand association or a call.
Direct traffic visits to the new bed Bath and beyond <unk> have increased substantially.
We are taking advantage of the vast Canadian <unk> customer file required.
File that is orders of magnitude larger than our previous Canadian customer file.
R E mail marketing campaigns, which reward careful rollout slowly.
Avoid being caught in spam filters.
Have seen an increase in click through rates driving further traffic to our Canada site.
This journal has been a key driver of our growing Canadian business.
The increase in visits has accelerated our rate of new customer acquisition.
As we shared with you a few weeks ago the growth in the number of our active customers is how we will measure the success of this transaction.
<unk> is rosemary with the Canadian customer.
Bedding, Bath and kitchen categories, you've been our strongest growth categories.
This is impressive when you consider other company.
I have some work to do to add products in these categories.
Alright, continuing to add more skews, we can grow walch or within the existing customer base.
<unk>, new customers and capture incremental market share.
As expected or average order values have decreased slightly due to a combination of product mixture afternoon promotional offers.
Our value proposition quality and style for less is clearly resonating with customers.
Sure the Canadian business is off to a strong start postwatch.
We are optimistic about the future of our company under the new brand <unk>.
<unk>, Canada.
Canada is still a small part of our business.
You still have work ahead of us to where the customer something that is never easy highly competitive marketplace.
I noted the awareness gap between the bed Bath and beyond brand or the overstock brand.
Larger in Canada than in the U S.
So the results of our launch of the U S <unk>.
Dot b as pronounced or as quickly materialized, but I am eager to see.
Excellent.
We remain on track to watch in the U S and early August .
We are meeting all our pre launch targets.
Our teams are made a lot of progress progress to ensure success.
I'll provide some details about business section section segment.
First merchandising and supply chain.
Merchandising Dream is clearly searing detail, where I'm from attaching our business model to the well known and much love bed Bath and beyond brand name their ranks much higher.
Overstock brand name.
<unk> and its association with a call.
Within bed Bath and beyond historical vendor beds, we have an 80% overlap across the brands, which represent most of its revenue and addressable categories.
Product categories, we offer.
However.
Pass Uhm.
Some partners some of our partners have not offered us their entire catalogue of these brand at home products.
That is now changing in a meaningful way.
Since we already have an existing relationship with so many of these brands we have been able to quickly add skewed you're excused from these partners as they open their catalogs of products to us.
The total number is huge we've added since early July when the media first reported the news of our acquisition is now 600000.
Importantly, all these views will be fulfilled on a dropship basis.
<unk> with a <unk> model.
When we measure our delivery matrix <unk> click to delivery for the time between Ah customer, placing an order and receiving delivery.
Our small personal quick to delivery time is more than a full by faster and bed Bath and beyond historically was.
We are faster.
Our supply chain team is keenly focused on ensuring we continue to deliver products to our customers quickly.
And on time.
Prospective partners are now more willing to work with us.
R. <unk> conversion success rate has increased by 60%.
Metric cracks the merchandising team success, when we reach out to prospective partners.
<unk>.
Knowing we will be operating his bed bath and beyond.
Made us more attractive to supplier partners.
The merchandising team is onboarding new partners roster.
With the acquisition of the bed Bath and beyond Brad.
Contracting time has decreased by 50%.
New partners are more willing to onboard skews give us access to a broader and deeper product offering.
Moving to an update on our marketing plans.
Like we did in Canada.
We intend to launch of the U S using both the bed bath and beyond and overstock logos.
An initial cobranded period.
Over time.
We will sunset the overstock log on Brad.
Customers and suppliers in like the bed Bath and beyond brand.
So do we.
That is who we are becoming.
We have robust strategies to engage with and acquire the bed bath and beyond customer base.
These strategies will drive our marketing and promotional budget higher than our recent run rate and higher than our financial recipe card targets.
However, we expect benefit over time from this marketing investment as we increase actor customers in gain market share.
We intend to target for moral welcome rewards customer base cohort that is in the high single digit million ranch.
We think this represents a real opportunity to grow our loyalty program in a meaningful way.
We will leverage our hugely popular mobile app.
Acquire and retain customers.
Our mobile App has been a big success for us.
Will rebrand it as the bed bath and beyond that we.
We have strategic plan to incentivize those who loved the bed bath and beyond brand download our mobile app with specific promotional call to action.
The coupon loving bed Bath and beyond customer will love, our mobile App promotions.
We acquired a bed bath and beyond customer file that's substantially exceeds the 20 million active customer base.
We have separate plans to target these customers over time.
Bring them back to the new.
Bath and beyond.
For an update on customer experience been technology team efforts, we're doing the fall.
As I shared earlier, our technology and digital product games have a roadmap to ensure that the U S launch progressive as smoothly as the Canada launched it.
The customer experience in Canada has been impressive so far in fact, our post M. R posted incident M. P. S. In Canada has improved since our Canada lunch.
With depending you asked launch we're confident we can handle the expected incremental traffic in the U S.
As a reminder.
As part of the acquisition of the bed Bath and beyond intellectual property.
Did not acquire any website back end systems architecture.
Relaunched experience will continue to run an hour.
<unk> web architecture, which handled pandemic your order volumes more than two and a half times current order volumes without a hitch.
Since then our technology team is upgraded our infrastructure.
We have a solid technology stack.
As I imagine the merchandising team has done a great job.
Adding new product is sir.
We know we need to make it easy for customers to find just what they are looking for with our increased product assortment.
As a result, our product and technology teams have been working to improve search and navigation on both our website and our mobile app.
I Hope this update gives you an insight into the amount of focus and work our teams are putting in across the organization.
As I mentioned earlier on the call everyone. At the company is focused on repositioning the company with this iconic consumer brand within the home category to capture market share.
Next slide.
We expected the acquisition of the bed Bath and beyond brand of intellectual property positively influence our gross flywheel and help accelerate some of our work.
Even before the U S launched this is already happening.
As you can see from the shaded items on this line nearly all elements of our gross flywheel are directly benefiting from our association with an iconic consumer brand.
This acquisition gives us a greater opportunity to grow our presence in gain market share within the large and fragmented total addressable Barker.
Exceeds over $440 billion.
Opportunity is real.
Unlike the overstock brand bed Bath and beyond bread is and always has been all about.
That was apart the primary restrict strategic rationale for purchasing it.
I've I've mentioned.
Added 600000 excuse since early June <unk>.
I expect a merchandising team to continue adding squares.
As I noted on an earlier slide or Canada business is already benefiting for being associated with the brand is it much better association with them.
Regarding category management.
The acquisition or bed, Bath, and beyond basked customer data, coupled with a subsequent customer interaction.
Allow us to learn more about which categories and sub categories resonate with our new and expanded customer base.
This will inform our longterm strategy of it's sort of an expansion in pricing optimization.
The position is favorably for market share growth.
I talked about our plans to leverage our mobile app to acquire and returning customers.
If you loved the bed Bath and beyond mailed coupons, you will love engaging with our new mobile app, which will be available to download with the U S launch.
We believe that the bed Bath and beyond brand will drive stronger customer retention over the longterm.
Is a well known and beloved breath.
We believe.
Marketing our assortment under the iconic bed Bath and beyond brand will help us deliver a better return on our marketing expenditures.
We've already seen that account, we've already seen that in Canada.
Return on add stand has significantly increased since we launched there.
Even as we spend more on search engine marketing.
We plan to launch a new plan to launch an improved search.
<unk> I'm, sorry, we plan to launch an improved internal search experience.
Four.
Once you're in the U S.
I've noted products liability is Paramount, we continue to add more excuse to our spot.
Our site.
Excellent.
Before we take your questions I'll provide some color on quarter today trends and our expectations for two three and beyond.
As I indicated previously we've seen a slight improvement in our year over year revenue trend in July compared to June .
<unk> net revenue.
Slightly improved.
<unk>, Hi, tease ranch.
U S launch a bed bath.
And beyond is on track for early August .
We expect our revenue trends to improve postwatch.
These expectations do not making any improvement in the poorer macro economic environment or weak consumer spending our industry, both of which are uncertain and difficult to predict.
We expect to benefit from operating are advantageous after light model business model with as much love bed Bath and beyond name in the furniture and home furnishings space.
Early performance in Canada is encouraging.
Here to see what happens in the U S.
Moving to adjusted EBITDA.
Based on our assumptions for customer acquisition, we expect to see adjusted EBITDA margins moving into negative territory.
A few quarters.
We will spend more a discount on your marketing when customers during this unique window.
Clothing goes in the large bed bath and beyond customer list we acquired.
We have a range of planning scenarios for the top line.
As a result at this time, we will not provide more specific guidance.
Profit.
Margin targets.
Management team, we intend to take advantage of this unique opportunity.
Grow our customer base.
We will be purpose for an agile.
Plans for encourage for incurring higher discounting your marketing expenditures to attract customers or a few quarters.
As I've mentioned previously.
Measure of success for this transaction is growth in the number.
Active customers, we are focused on significantly increasing number interactive customers.
Now operator.
Let's take some questions.
Thank you.
The first question comes from the line of Rick Patel of Raymond James Red. Please go ahead.
Hey, guys. This is Josh filling incorrect here thanks for taking the question.
I was just curious if you could provide us a bit of a of an update.
The couponing like I know you mentioned it a bit I know and I know, it's important for the bed Bath and beyond Brad that's coupons.
Apply to that so I'm curious are you aiming to <unk>.
Targets, specifically, the bed Bath and beyond legacy customers.
And also how should we think about the marching implications of that's.
So let me talk briefly May return to Dave to add and then talk about margin implications.
We know.
Beyond customer loves coupons.
And beyond historically has been a high low retail.
So I believe we have always offered.
Great promotions.
And coupons.
I think the bed bath and beyond customer will find that our pricing <unk>.
Sharper.
Better.
Then, there's historically scene and bed Bath and beyond.
While we intend to continue the promotion strategies.
Used in the past.
They won't be.
As big as bed Bath and beyond some work.
That said I <unk>.
During the initial launch.
Bed Bath and beyond customers overstock customers.
Ever shop, Reviver can expect to see some significant good coupons to attract people to attract them to the Grand Overstock, alright, So there will be an initial.
Push with the bigger than usual coupons.
Followed by.
Great prices with overstock traditional.
Promotional.
A strategy.
<unk>.
<unk>, maybe more than I should have strategically said anything you wanted to add there.
I think you answered that question perfectly and I think it's going to be a really exciting a couple of months as we launch I'll leave it at that for now.
Now I'm Larges and before I, let it go and talk to that.
We're we're not providing.
A lot of margin guidance because.
Canada, which is a great test place for us because it's small part of our business.
<unk> you know we're guiding too.
Negative adjusted EBITDA for a few quarters.
Because this is a very unique opportunity to require a lot.
A lot of customers and that's important.
<unk>, probably said, which you were gonna say, but what would you add about <unk>.
Mmm, Jonathan I wouldn't that I, just reiterate as I said my scripted remarks will see pressure on gross margin where.
We don't expect to be in our kind of targeted 22 per cent of strange and as you mentioned you know negative adjusted EBITDA margins. So just reiterating those two comments.
Yeah. So Josh Great question, we're gonna be very strategic here.
You know overstock.
Mantra has been sustainable profitable market share growth, we expect to get back to that but in getting there it will take.
Could could and it will it should take acquiring these customers as we rebrand so.
So there'll be alone for a few quarters departing.
Purposeful departing.
<unk> to get back to that mantra.
Yeah. Thanks for all the color of their best of luck.
X.
Please stand by for the next question.
The next question comes from the line of <unk> of Barclays set. Please go ahead.
Great. Thanks, Good morning, everybody I wanted to just follow up on the state of the business. Currently so the improvement that you saw.
From June to July that the down high teens, maybe just discuss some of the drivers behind that between customer growth frequency it'll be anything specific that you did to drive that or do you think maybe the market is just starting to see some signs of stabilization just any context, there would be great. Thank you.
So first thing I would say I'm really proud of our team for running a business and running it well Wow.
We're doing a ton of work.
To get lost in Canada.
Be prepared to launch in the U S.
There's this excitement in the building for what's new in next.
Even with that the team has not taken their eye.
<unk> off the ball running the business.
Every day.
Alternative days after I say I don't see a lot of macro change.
The macro still feels very hard.
Interest rates went up again yesterday.
Consumers are still spending your own experience.
No.
These are spending a lot I'm going to compensate our concierge around the country people aren't buying for the home like they did during the pandemic that said I think the team is focused on doing well David you are talking about particulars.
Yeah, just a couple of items I would add independence day, our our fourth of July promotion was was really well received by our customers.
That was the primary driver and we had a lot of success in fact record breaking success with our mobile App, we continued to lean into our mobile app promotions.
Drives are more loyal customer higher order frequency at a higher average order value and we as a percentage of our of our sales had one of the best of the best.
Major promotion, we've had so far the mobile App is really working out nicely for us.
Yeah. We're also seeing some trade now you know when we talked about a O V being a little lower this quarter. The second <unk> typically in <unk>.
Does well because people are in patio and that's you know a higher price point larger basket.
Even then there's even as a buyer patio furniture and the good better best.
Products, they're trading down a little so people are watching their walls.
Okay to answer the questions.
Yeah, No that's super helpful. I appreciate that maybe just one follow up about what you're seeing in Canada. Thus far the positive trend in visit do you have a sense as to whether that is you know the current bed bath customer coming back is that an overstock customer. That's maybe you know seeing an improved experience or a wider assortment or maybe just a new.
Customer for both both banners right I'm, just trying to think about the incrementality. Thank you.
Yeah.
I think it's all three of them and I think what's really.
How long does is that.
A lot of it is coming through.
Changes in market.
So when people type in a product or looking for in Google or another search engine.
And it's being sold his bed bath and beyond.
The conversion rate is higher.
I mentioned earlier, and it's you know kind of not everyone.
Company Loves me using this analogy, but the owners dot.
I'm really was a boat accurate.
And I'm not sure we knew how.
How much heavier than anchor it was.
But as we see.
Better conversion in Canada through search engine marketing and as I mentioned.
Return on <unk>.
Better even as we spend more unusually so we haven't found the elbow on that curve yet.
I think that gives us a sense.
You know in the past when people found a product.
Sure.
Search and it was on overstock. They may have had questions is this last year as good as the stick with Asians goods or.
Bed bath or comfortable making the purchase so it's been a boat anchor with customers.
Nearly C without skew growth has picked up it's been a boat anchor with apply.
Suppliers and.
So you know as I said dropping.
<unk>.
Adding it to our great business model. This is a sleek boat that's gonna sail.
Great. Thanks, so much good luck.
Please stand by for our next question.
The next question comes from Thomas Forte D. A Davidson Thomas Please go ahead.
Great. So first off Jonathan and team congratulations on the quarter and congratulations once again on the bed Bath transaction.
So Jonathan you've been asked this question a lot of times I'm Gonna ask it just slightly differently. So as a longtime participating homey commerce category at a high level. What are your thoughts on you know looking ahead, the timing of the category returning to positive revenue growth recognizing that the near term pressures from.
Revenge travel and.
Consumer spending a live events Taylor Swift as you pointed out things of that nature and then also at a high level is it overly optimistic to think that as you transition the brands to bed Bath from overstock that at a company level, you could return to revenue growth faster than that.
Category.
So the first part of that question is hard.
Think that reading the papers, there's talk about the.
U S economy avoided a recession.
I would say the home furniture and furnishings industry.
Had a recession our industry has been in recession and.
There's still some glut of inventory out there, there's still liquidation going on.
I can't predict how quickly we're gonna get.
Out of this and we get back to normal I will say it's the.
The normalization, we've seen as in the quarter over quarter <unk>.
So we're all the same.
Spending is not yet back to normal.
The second Corps, we did see a comeback in patio, we saw an uptick in the second quarter like we expected too. So I think the quarter to quarter trends are starting to feel more normal. It's just not the total volume does not get back to normal.
The second part of the question.
Do I think the bed Bath.
Acquisition rebrand helps us output.
Outperform.
Folks in the industry.
And in fact it yes.
I really think so you know I mean, we did this.
For a purpose, we've been looking at bed Bath and beyond.
Some time.
We loved it's brand we loved its customer base, we didn't like its business model. So you know buying it as a going concern looking out has been growing concern.
We want it but when this opportunity came to get the good parts of it.
Without it's about a car parts.
And felt like you know just a dream come true. So I do think between the customer base bran customer based on what we've acquired we can now new customers. We can market too I do think we perform better and get back to you.
Get back to where we need to be where we want to be more quickly than others in the industry.
Thanks, Jonathan.
Okay. Thank you Tom please.
Please stand by for your next question.
The next question comes from the line of Curtis <unk> at the Bank of America Curtis. Please go ahead.
Great. Thanks for taking my question.
So just I guess a quick one on thinking about the comparisons through three Q July did see an improvement right. It sounded like it was due to a better for us.
But I guess, it's possible can also you could get a fall off in August September .
Without the support of a bigger fan Rebecca holiday period.
How big is the labor day period versus July 4th in terms of.
Sales generation.
So just historically and I'm not counting what we're doing with our rebrand, which I can kind of.
Really shakes, the snow globe and things will be significantly different for us with the rebrand or that Sir I'm eager to see.
August tends to be a little slower but.
Labor day is a big event.
Labor day in the in this industry has always been big and we performed well in the past.
Historically, sometimes <unk> September October we see some of our competitors do their special events.
Not also generally has a halo effect or others in the industry. So I think bears.
Lot of good and.
Third quarter still to come particular around labor day.
I will note not this year.
But next year I.
We're gonna get some more tailwind in the third quarter.
With.
Back to the dorm.
Back to college.
The timing of this acquisition.
That means we missed that up.
Missed most of that opportunity this year.
But we know bed Bath and beyond has historically done well and even one.
<unk>.
Segment in the past we have every intention.
Marketing hard to add group next year, so not really relevant to the next 60 days Curtis, but relevant to the quarterly friends as you pick about us in the future David anything you'd add to that.
No you've covered it.
Adrian any okay, alright, two thumbs up from Adrian are screened here, so Curtis I hope that address the question well.
Yeah, No for sure I got good afternoon <unk>.
<unk> point is certainly a good good one maybe just as a follow up kind of curious to dig into the the tray down comment right. So it sounds like a a <unk> a little bit, but I guess it would there be any offset from.
Customers coming in because they are seeking value industry.
<unk>, you know really industry or is that just kind of being.
Not really happening because.
Fingers or promotional at the moment.
Well we are.
Our value proposition is smart value, we provide quality product for less.
And you know whatever the price point a person is willing to spend on we think we provide the best value. There. So you know.
Someone else asked earlier.
So what are we doing it's helping us do better I think it's that value proposition. So.
Is there.
That value seeker savvy shoppers, we've referred to in the past or are they are they finding us more frequently.
Yes, and that's a shopper, they're really shops.
Value something we offer so.
As we see a little tray down in good better best I think we're also probably getting some benefit from people just looking for a value as they shop part across the industry.
Okay got it. Thank you very much I appreciate it.
Thank you Curtis.
Please stand by for the next question.
The next question comes from a line of Anna and <unk> <unk> <unk>.
Can I. Please go ahead.
And great. Thanks, so much and good morning, guys.
A couple of questions from us great to hear that the consumer in Canada, It's dying and I think you mentioned drank a sofa over there in a bad back four categories like bed Bath and kitchen, but curious how has response been.
To some of that overstock core categories and what type of marketing are you finding most effective at driving that conversion I think you said the plan is to have a coupon potentially less deep than what historically that that's offered and then I had a quick follow up.
So as I mentioned, we've we've seen.
The categories that have done best Mmm, Canada are the ones that are.
Traditionally associated with bed Bath and beyond.
A kitchen.
But we've seen growth across.
Half the board, it's not just those categories it's people.
Patio furniture, finding a bedroom or a private rather living room and dining room furniture.
Rugs.
Art on our.
Alright in Canada.
Buying it so.
Those the ones that I mentioned are the ones that are growing the fastest thing I think there's a familiarity there.
But the brand is helping.
All categories.
How are we marketing.
Most of it has been through search engine monitoring as I mentioned the email Bush.
Bush ramped up slowly.
Ranch slowly it's not yet.
Paul <unk>.
We're not sending it to everyone yet because we really need to make sure we stay out of its spam filters now the good news is.
R E mailed to you knows how to do this.
You know I think there's.
There's always an eagerness.
If they're faster send them send to a larger group I mean, that's the C. E O is mantra.
The good news is D. B E mailed team says.
Whoa Nelly slowdown Jonathan.
If we do would you want to do it actually is gonna backfire, and so we know how to do it.
Okay, there's a lot of marketing their.
<unk>.
Yes, we've done some a little bit more aggressive coupon or you're in Canada out of the gate.
Like you know I've hinted that will do.
The U S, but that's not a longterm play.
Alright, let's remember, we still like our financial recipe card over the longterm and well.
Adrian said.
Gross margins will go down a little bit initially because of some some aggressive couponing and promotions.
<unk> tend to over time get back to our financial recipe card, which is gross margins in the 22 per cent ish rash.
Ranch.
Hope that addresses the questionnaire.
Okay. Yeah. That's that's super helpful. Just as a follow up on the vendor base I know you've taken some direct possession of good just on the margin historically I'd recently, how should we think about the willingness to.
To take that direct possession, all good from our suppliers as it relates to bed bath vendors coming to the platform.
Yeah. So we did take a little bit of what we call core inventory, where we purchase it and the second half of last year.
And pulled through it quickly it was really to prove to vendors that there was demand.
On our site.
As I noted in my prepared remarks, as we've added more product.
All of that product.
Is I'm gonna drop ship basis.
Love, our asset like business model.
We intend to continue with that satellite business model one of the things that we've seen is that with vendors are more eager.
<unk> to us.
<unk>.
Before in the U S. We've become bed bath and beyond because they know it's coming.
So.
They're not requiring.
That we <unk>.
We purchase inventory and we really don't have an attempt to do that on any kind of meaningful scale.
Okay. That's perfect. Thank you so much and best of luck guys.
Thank you.
At this time I would like to turn it back over to the speaker for any further comment.
<unk>. Thank you and for everyone. That's been on the call. Thank you and closing I need to thank the entire game for it's focused hard work on a rebranding I'm confident it will pay off.
[noise] supplier partners are motivated by the steel door of a new suppliers, who now want to sell at the new bed Bath and beyond.
We expect our customers will be excited by the preservation of the beloved.
And trusted bed Bath and beyond Brad.
They sure have been in Canada.
Our employees are energized by this opportunity.
It has shot adrenalin.
The company.
They see a bright future.
So do I.
With the iconic bed Bath and beyond brand attached to our great business model.
And the actions of the team is taking I'm more bullish than ever on the future of our company.
This team will capitalize on this great investment.
I look forward to sharing more on our progress on our next quarterly call have a great day everyone.
Thank you for your participation in today's campaign. This does conclude the program you may now disconnect.
Mmm.
[music].