Dive Brief:
- Overstock's Q2 revenue took a 20% nosedive YoY to $422 million, as per their Thursday earnings announcement. The retailer incurred an operating loss of $4 million, a net loss of $73 million, a gross margin of 22.4%, and a gross profit of $94 million. This is their first earnings report following the acquisition of bankrupt rival Bed Bath & Beyond's intellectual property last month for $21.5 million.
- During the quarter, the company's adjusted EBITDA was positive at $8 million or 2% of revenue, but it fell about $13 million compared to the previous year. Overstock ended the quarter with $342.9 million in net cash. However, active customers during the quarter plummeted to 4.6 million, a 29% YoY decline.
- CEO Jonathan Johnson asserted the company's overall financial standing is robust and they are ready to "push forward and execute a transformative rebranding of our business," which will involve rebranding as Bed Bath & Beyond to capitalize on that retailer's name recognition.
Dive Insight:
Net Income at Overstock Decreases by 20% in Advance of Bed Bath & Beyond's Rebranding Move
As part of the transition, Johnson informed investors last month that a period of financial volatility could occur as Overstock continues its rebranding and repositioning efforts in the U.S. The company had already relaunched in Canada on June 29.
"We anticipate an early August launch in the U.S. now that the Bed Bath & Beyond brick-and-mortar stores are expected to shutter this weekend," Johnson explained to investors and analysts on Thursday's call.
Johnson explained that Overstock had a solid business model but was encumbered by a brand name that often confused or disappointed customers and vendors. Bed Bath & Beyond had a well-established consumer brand name but was "weighed down by an outdated, sinking business model that kept worsening over time," Johnson shared.
"With this acquisition, we've ditched both millstones," he added. Now free from the weight that held them down, the company is prepped "to see impressive growth and scale our business."
Big blue printed coupons, one of Bed Bath & Beyond's iconic offerings, won't be making a return in their original form. Instead, Johnson stated, they'll incentivize customers to engage with promotions and discounts by downloading Overstock's mobile app, which will be rebranded as Bed Bath & Beyond.
"We know the Bed Bath & Beyond customer adores coupons," Johnson said in response to an analyst's question. "Bed Bath & Beyond has always been a high-low retailer. So have we."
The company plans to continue some discounts and promotions, but they won't be as generous as those offered by Bed Bath & Beyond, Johnson revealed. However, during the relaunch, customers who've never shopped with either retailer "can anticipate some enticing coupons" to entice current and new customers.
GlobalData Managing Director Neil Saunders pointed out that customer erosion is one of Overstock's main issues at the moment. "Overstock isn't unique in experiencing this issue. However, our data also suggest that Overstock has slipped off the consumer radar somewhat and is no longer attracting customers, even just to browse, as it used to," Saunders commented in emailed remarks.
He also noted that additional strategy and investments will be required to market Bed Bath & Beyond, which will be without a physical store presence. The company "will need to make a lot more noise to remain on shoppers' radar," Saunders said. This comes with added costs.
Adrianne Lee, Overstock's CFO, cited the macroeconomic environment as the reason for the company's Q2 results. Consumers "are prioritizing service-related and essential spending, putting a strain on demand for discretionary home goods," Lee stated.
During the second quarter, Overstock reported active customer declines, 1.8 million orders delivered, down 16% from last year, and an average order value of $234, down 5% YoY.
Saunders summed up, "The company remains in the red with an operating loss of $4.2 million. This isn't disastrous and can be turned around with some better cost management and sales discipline, but even so, it marks a significant deterioration over the same period last year."
- The acquired intellectual property from bankrupt retailer Bed Bath & Beyond has led Overstock to rebrand, aiming to execute a transformative change in their business.
- The company anticipates a period of financial volatility as they rebrand and reposition themselves in the US market, with an expected relaunch in August.
- GlobalData Managing Director Neil Saunders highlighted that customer erosion is a significant issue for Overstock, as they struggle to remain attractive to shoppers.
- During the second quarter, Overstock experienced a decline in active customers, a drop in average order value, and a decrease in the number of orders delivered, all contributing to a challenging financial period.
- With the acquisition, Overstock hopes to leave behind encumbering brand names and move forward towards impressive growth and scale in the industry.
- In response to the macroeconomic environment, Overstock is prioritizing service-related and essential spending, which puts a strain on demand for discretionary home goods, impacting their Q2 financial results.
