Beyond Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 21, 2024

There are 10 speakers on the call.

Operator

Thank you for standing by and welcome to Q4 2023 Beyond Inc. Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Please be advised that today's call is being recorded.

Operator

I would now like to turn the conference over to Adrienne Lee, Beyond's Chief Financial and Administrative Officer. Adrienne?

Speaker 1

Thank you, operator. Good morning, and welcome to Beyond's 4th quarter and full year 2023 earnings conference call. Joining me today on the call are Executive Chairman, Marcus Lemonis CEO of Bed Bath and Beyond, Chandra Holt and CEO of Overstock, Dave Nielsen. Today's discussion and our responses to your questions reflect management's view as of today, February 21, 2024, and may include forward looking statements, including without limitation, regarding our future goals, performance, profitability and financial results. Actual results could differ materially from such statements.

Speaker 1

Additional information about risks, uncertainties and other important factors that could potentially impact our financial results is included in our Form 10 ks for the year ended December 31, 2022, and in our subsequent filings with the SEC. During this call, we'll discuss certain non GAAP financial measures. Our filings with the SEC, including our Q4 earnings release available on our Investor Relations website at investors. Beyond.com, contain important additional disclosures regarding these non GAAP measures, including reconciliations of these measures to the most comparable GAAP measures. Following management's prepared remarks, we will open the call up for questions.

Speaker 1

With that, let me turn the call over to our Executive Chairman, Marcus Lemonis.

Speaker 2

Well, good morning and welcome to the 1st Beyond earnings call into 2024. I am really honored to be here and I understand the gravity of this opportunity. Over the last 75 days, we have made substantial progress laying the foundation for material growth, a differentiated business model and improved customer retention and an affinity focus with our customer. Our goal is to take a simple commodity transaction and turn it into a trust transaction. We realize that's going to take time, but we are going to lay the foundation for it.

Speaker 2

Positive transactions with frequency with our Bed Bath and Beyond brands will create trust and trust will create our ability to sell the bigger ticket items from Overstock to more complex products and services from Beyond Plus. As many of you know, we've gone through both a management and company restructure in the last 75 days. Yesterday, we announced management changes, which provide clear direction on the 2 brands and position us with a leadership team that is now aligned with shareholders on incentives and driving value. Adrian, Chandra and Dave are the 3 leaders whom I trust to lead the day to day operations with full P and L authority and responsibility. They bring expertise, vision and the change management skills that this company needs to drive results and evolve this business.

Speaker 2

You'll be hearing from each of them today in both prepared remarks and the Q and A. One thing you can count on going forward is better communication, especially related to our vision, better results and the clear path forward. That vision lands squarely on providing our customers ideas, inspiration and information in addition to the products and services they need to unlock the value of their household. That focus is centered around the four walls of their home extending to the four corners of their property. To begin this transformation, we feel like we have an unbelievable amount of low hanging fruit at this company.

Speaker 2

As an example, we know the most valuable tangible asset we own is our database of consumers. We know that improving the quality of that database drives up conversion and brings variable costs down. Much to my delight, our database is massive with over 150,000,000 records. However, to improve efficiency and profitability, we're going to invest in cleansing, de duping it by household and instituting a more efficient segmentation strategy. We have brought in both external leading firms and subject matter experts to create our gold standard of that database now.

Speaker 2

The implementation of that database across the modern day CRM will improve conversion and materially reduce inefficient marketing spend. I believe this simple strategy will reduce the company's marketing expense as a percentage of revenue by anywhere from 0.5% to 1% annually, better than last year, a number that we know we have to reduce materially over the next 24 months. Beyond will have one purpose, to unlock the home's potential for both homeowners and renters, giving us a chance to expand the lifetime value of each customer we establish as a relationship. We believe this will drive growth and profitability. While a Utopian state would be to create the AAA of the home, a true affinity model, providing both products and services that grow the lifetime value, Expanding and growing our core business is where our laser focus is.

Speaker 2

That starts with generating core revenue and delivering better margins. Our primary focus this year is to achieve $2,000,000,000 in sales, a material increase from 2023 and follow that up with achieving a run rate of $3,000,000,000 by the end of 2025, all while sequentially improving margins over that period back to the 20% margin plus level. Those two factors, coupled with material SG and A reductions will result in a profitable run rate by year end 2024. We believe the bridge and building blocks to achieve that are clear and the team is going to walk you through that bridge shortly. Before I turn the call over to the team, I wanted to provide a short summary on our 16 company Medici portfolio, a non core asset that many holders have requested an update on.

Speaker 2

As a reminder, in April of 2021, our company entered into a limited partnership agreement with Pelion Ventures in Draper, Utah to manage the Medici portfolio. This partnership came with an annual management fee in addition to upside deal economics in exchange for them nurturing these companies and building value. While we are wildly excited by the prospects of a few of them, the overall performance has not been as good as we think it could be. We intend to increase our communication with these respective companies and work closely closer with Pellion to modify the relationship in a way that singularly unlocks value and hold parties accountable. We do believe there are a few companies that could surprise and delight all of us.

Speaker 2

We're firmly committed to delivering updates quarterly. I'll now turn the call over to Dave.

Speaker 3

Thank you, Marcus. 2024 is a pivotal year for the company as we lay the groundwork for our new strategic vision and work toward a return to profitability. We have a roadmap to launch new home centric websites and value add services over the course of the year to acquire new customers, improve our retention of them and ultimately drive down the cost of customer acquisition. As a proof point to the above strategy, this dynamic was evident in Q4. Leading up to and during the holidays, we saw a higher number of repeat customers compared to the same period last year.

Speaker 3

This is important as we work to improve our marketing efficiency and build loyalty among the new acquired customers. Some may say our repeat rate increased because of the categories we leaned into like bed, bath, kitchen and dining and that may be true. But we see this as a benefit to the home centric portfolio of businesses and see Bed Bath and Beyond as a flywheel to power customer acquisition for the entire portfolio. On the 3rd quarter earnings call, we told you that we would relaunch Overstock in September of 2024. Our team found a way to pull that launch date up significantly working with my new best friend, Harley Finkelstein, President of Shopify.

Speaker 3

We are planning to relaunch Overstock in roughly 5 weeks. This is significant because relaunching it will mean we can immediately begin to build accretive business with the Overstock customer in furniture, area rugs, patio and outdoor among other categories. We're also planning to relaunch the jewelry business, which was once $100 plus 1,000,000 business annually among other product lines that the Overstock customer was drawn to over the years. Pulling up the relaunch of Overstock has the potential to drive higher average unit retails, improve overall margins and meet customers where they are shopping for the items we know they want, which is a far more efficient way to leverage each of our iconic brands and drive marketing spend efficiencies. Adrienne will outline our targets as she walks you through our margin improvement plan for 2024 later on the call.

Speaker 3

As we look to the future, we believe we can maximize profitability with a larger e commerce revenue stream underpinned with multiple brands, layering value added services and operating a more variable cost model. While we have a lot to improve, there is also a lot of good work happening. We are thrilled with the fact that we exceeded our expectations and are sitting today at nearly 6,000,000 active customers, a 20% improvement over last year. November through today, revenue growth has remained positive, the first time since 2021. We're encouraged to see our work to improve vendor relations begin to bear fruit.

Speaker 3

Vendor partners are recognizing our improved sales performance in the Bed Bath and Beyond power categories of bedding, bath, kitchen appliances, cookware and dining, just to name a few, and are working with our merchandising teams to increase breadth and depth of assortment to help us drive sales and improve margins. During Q4, our new partner additions grew by 74% with more than 200 new partners added. In fact, as we turn the page on 2023, more than 100 additional partners were under various stages of contracting. As you can appreciate, there is an incredible amount of work being done by our team. They are excited and engaged.

Speaker 3

Our strategic vision is aimed at increasing our engagement with customers by staying connected with them beyond a single sales transaction. It is our mission to help customers unlock the potential of their home. We believe these actions will enable us to achieve our long term aspirational goals or what we internally refer to as our North Star, 10,000,000 active customers, dollars 2.50 average order value and a 2 times annual order frequency. Before I wrap up, I want to give a warm welcome to Chandra. I'm thrilled we've added such a terrific leader and experienced retail professional to our team.

Speaker 3

With that, Chandra.

Speaker 4

Thanks, Dave. I joined the company because I'm passionate about Bed Bath and Beyond and I'm driven to reestablish its category dominance. It's my goal for Bed Bath and Beyond to be a leader in unified commerce. We aim to create a customer experience that is more seamless than today's traditional omnichannel retailers. We also plan to introduce tailored experiences for purchase occasions that are adjacent to our core Bed Bath and Beyond offerings such as Baby and Beyond, Kids and Beyond, College Living and 1st better.com.

Speaker 4

Baby and Beyond is expected to be our 1st specialized experience and we are excited about the upside because we know many Bed Bath and Beyond customers frequently cross shop the baby category. Lamsutta is another exciting initiative. At its peak, Lamsutta was a top bedding and tech sale brand in the U. S. In the coming weeks, I plan to partner with suppliers and designers to set the new vision for Wamsutta.

Speaker 4

I look forward to modernizing the marketing and creative processes through a partnership with a powerful and influential female leader that will serve as the Creative Director and will be announced at a later date. Across all brands, we seek to build and curate assortment to improve quality and provide unprecedented value for our customers. We have significant opportunities ahead of us with our robust portfolio of brands, and I look forward to leading the charge in positioning the business for growth and interacting with our investment community. I will now turn the call over to Adrienne.

Speaker 1

Thank you, Chandra. I'm going to start by reviewing some key financial results to provide context into how we're thinking about our path forward. Revenue declined 5% year over year in the Q4 and grew 3% sequentially. Improvement in our revenue trend was led by 9% growth in active customers driving 35% growth in orders. Average order value declined 30% year over year due to sales mix skewing to lower AUR categories.

Speaker 1

November December revenue combined was up year over year and we have seen that trend continue. There is measured progress being made and we are focused on carrying the momentum through this year as Chandra leads our team in curating a better assortment for our Bed Bath and Beyond brands and Dave leads the relaunch of our once $1,000,000,000 plus Overstock site. Gross margin landed at 15.6 percent for the quarter, a 6 50 basis point decrease versus the same period last year. We believe this result is somewhat transient and was primarily driven by reigniting old customers, attracting new customers and educating and enticing them on a wider assortment. Increased discounting drove about 400 basis points.

Speaker 1

Welcome Rewards redemptions drove about 160 basis points and increased shipping costs drove about 170 basis points of pressure. We are taking the following actions that are within our control to improve our gross margin profile: renegotiating freight rates improving vendor relations for more favorable product costs relaunching overstock.com, which we believe will drive higher AOV providing integration add ons like product warranties and shipping insurance reintroducing Ramsuda and other owned brands to complement the superior name brands we have assembled and eliminating inefficient discounting.

Speaker 4

The G and A

Speaker 1

and tech expense increase of $7,000,000 was primarily driven by us booking approximately $6,000,000 of discrete one time item costs, primarily associated with expense reduction actions announced in December. All in, adjusted EBITDA was a loss of $49,000,000 On a margin basis, this was a negative 12.7 percent, an almost 1500 basis point decline year over year, with approximately 50% of the decline driven by gross margin pressure. In addition to our focus on improving gross margins, we continue to look for opportunities to reduce expenses throughout the P and L. We have identified a total of $45,000,000 of annualized cost savings, which is expected to be fully annualized in the first half of twenty twenty five. This includes the $25,000,000 cost reductions committed to in December and $20,000,000 of incremental savings.

Speaker 1

We expect to reinvest these dollars to continue to drive growth. I want to highlight that we have revised our executive team's equity compensation to align it with stock price appreciation and revenue growth. This is meaningful as it incentivizes the team to push to our $2,000,000,000 revenue goal, make progress towards getting back to a 20% plus gross margin and continue to identify cost savings. Our reported GAAP EPS loss of $3.55 for the 4th quarter was primarily impacted by establishing a valuation allowance against our net deferred tax assets due to our recent operating losses and expected near term pressure on profitability related to growing our customer file. Excluding the impact of equity securities, our building write down and the valuation allowance, we reported adjusted diluted loss per share of 1.22 dollars Our balance sheet remains strong.

Speaker 1

On a net basis, we ended the year with a cash balance of 268,000,000 On our Q3 earnings call, we shared that we expected to spend $175,000,000 on the purchase of Bed Bath and Beyond brand and subsequent customer acquisition strategies. We have spent about $100,000,000 through the Q4 and I expect that we will invest less in large part due to the key learnings Dave mentioned from the Q4. Chandra and Dave are focused on growing our anchor brands and launching new products and services. These products are under various stages of launch. Our margin and cost saving actions are well underway.

Speaker 1

So as far as expectations, we expect revenue to be positive year over year in Q1 with the goal of $2,000,000,000 for 2024. We expect gross margins to be in the 16% to 17% range in Q1 with a goal for the full year closer to 20%. We expect the second half of the year to be profitable. There is work to be done, but I'm confident in our path forward. And now we'll turn the call back to Marcus.

Speaker 2

Thanks, Adrienne. Before we get into the Q and A, I want to reiterate that we hope you hear loud and clear from us what we know the expectations are from you and what our standards are of ourselves. I'd like to now turn the call over to the Q and A.

Operator

Thank you. Our first question comes from the line of Rick Patel of Raymond James. Your line is open.

Speaker 5

Thank you. Good morning, everyone, and congrats to Chandra, Dave and Adrian on the new and expanded roles.

Operator

I just had a

Speaker 5

question on just the low hanging fruit that you touched on. So you talked about database and opportunities around the database and segmentation. Can you dig a little further on how to gain efficiency here? And when should we really start to see this initiative gain traction? Is it something that happens in 2024?

Speaker 5

Or is it more of an out year event?

Speaker 2

So this is Marcus. Thank you for the question. For me, when I look at a valuable asset like the database, understanding the construct of it and the cleanliness of it is probably 1st and foremost. And when we made the Bed Bath and Beyond acquisition, we picked up a very large database. But understanding what a large database looks like, it's important to understand quality of that database and the segmentation of it.

Speaker 2

So putting people in the right categories at the right time, offering them the right products improves efficiency. Today, in my opinion, we are basically just spraying the database with every single offer that we have. And we need to do a better job of understanding who that customer is, what their historical purchases are, creating some predictive logic around what their next purchases could be, understanding their address and their home better to understand size of property, square footage of home, number of rooms in the house and what the things are that are going to speak directly to them. Too often customers forget to curate a message or an offer specifically to an individual consumer. And when they do that, they end up exhausting the database, creating fatigue and having people either not come back and do business or opt out of the relationship because they don't feel like it's customized to them.

Speaker 2

When you do these things, you should expect to yield more from that customer over a 12 month period. As Dave mentioned, our goal is to increase the frequency of visits to 2 and to expand the offering to them by looking to generate a higher AOV. The process has already started. We've engaged with a leading database provider in Axiom. It is our expectation within 30 days, we'll have done the de duping of those households and then it will be implemented into our CRM.

Speaker 2

This is a now task, not a tomorrow task. And the primary reason for doing it in addition to growing revenue is we need to take costs out of this company. This company cannot spend north of 13% as a percentage of revenue driving revenue. Every 1% is meaningful to the bottom line and we take that seriously. In fact, at $2,000,000,000 1% represents $20,000,000 We know that when we look at a $200 plus 1,000,000 marketing budget, there has to be inefficiency in it.

Speaker 2

And it's not about just trimming that expense. It's about taking that savings and reinvesting it in growth. That is why we believe that by the end of 2025, we could be at a $3,000,000,000 run rate as we launch these other brands. So it's a now thing.

Speaker 5

And Marcus, can you talk about your assumptions for macro and the home product market as we think about the $2,000,000,000 goal for this year? Are you assuming things get better from here or does it remain very challenging? Just curious how we should think about the market relative to the self help levers that you can pull?

Speaker 2

We expect the market to stay challenging and quite frankly have some headwinds. But what I think people are underestimating is the power that the Bed Bath and Beyond historical customer operated with. And what we learned in this entire process to be really candid is that shutting Overstock down was a fatal mistake. Because while we were able to win the buy box on selling large big items with high AOVs at Bed Bath and Beyond, we had to do that by buying the business. Overstock dotcom has built a legacy on selling those types of products.

Speaker 2

And when you try to convince people that a new brand is going to do the same thing, you lose them. Turning Overstock.com back on will not only allow Bed Bath and Beyond to expand its existing assortment and hone in on its historical legacy success, but it allows Overstock to do the same. In bringing in and establishing separate CEOs for the Overstock brand and its family of products, and we'll talk about that in a minute, and Bed Bath and Beyond and its family of products, we have an acute focus by each of them to manage their P and L, to establish their own vendors and to chart their own course to growth. The only mandate that exists in their collaboration is that I don't ever want to see the same product on both sites. They're tasked with establishing new vendors, new ideas and new pathways to find customers, all while ensuring that they're adding to the overall company database, which allows us to monetize that customer through these other products and services in the recently launched beyond.com.

Speaker 5

Thanks very much and all the best.

Speaker 3

Thank you.

Operator

Thank you. One moment please. Our next question comes from the line of Curtis Nagle of Bank of America. Your line is open.

Speaker 6

Great. Thanks very much for taking the question. I guess the first one, I just I'd just love to dig into the $2.50 AV target. Just kind of curious what I guess is assumed in terms of contribution from normalizing pricing and promotions? How much of that is contribution from new products like baby or new categories, I guess, cross selling, cross brands?

Speaker 6

And then I guess services contribution, which I'll have a follow-up question on that, just a sec.

Speaker 2

Yes. So I'm going to unpack that a little bit because I heard a question around the AOV and then I'm is that right? And then I want to separate out what we think the contribution of those other businesses are to the total top line. Did I hear that right?

Speaker 6

Just contribution to total AOV. How do all those things factor in?

Speaker 2

Their website is lower, primarily because there are larger ticket items, large furniture assortments, outdoor above ground spas, big outdoor patio furniture and larger items that overstock.com had historically really, really excelled in. When you look at driving overall revenue, you need the frequency of visits that Bed Bath and Beyond brings to the table with common items from bed, bath, kitchen and dining along with other things that Chandra is Chandra is expected to grow over time. What we really have learned is that if we can stay myopically focused on the premise that our job is to deliver products and services to everything inside of the four walls of the home and the four corners of the property, we then really understand which brand is going to actually execute that different part of each strategy. Clearly, on the outside of the house, Overstock is going to lead that process with things like trampolines, above ground spas, outdoor patio furnitures, outdoor kitchens and things like that. When you come inside, it's clear that Overstock is going to be better at delivering large ticket items around furniture.

Speaker 2

Now that doesn't mean that Bed Bath and Beyond can't sell furniture, but if you look at the historical brand attributes, the consumer didn't intrinsically think of them that way. And I believe what happened in the fall of 2023 is that when the company made the decision to shut down Overstock, it believed that it could transition that large ticket high AOV consumer to Bed Bath and Beyond. And quite frankly, it didn't happen. And anybody that had a brain would have known it wasn't going to happen. When you look at Bed Bath and Beyond and you look at those historical categories that had high margin and high frequency, it was obvious to us that we needed to lean into those things.

Speaker 2

So when you look at growing customer count, well clearly Bed Bath and Beyond does that. When you look at increasing frequency, clearly Bed Bath and Beyond does that. But when you're looking to drive AOV, you need the trust and relatability that Bed Bath and Beyond created to then have Overstock be able to convert that consumer in our database. We know that driving overall revenue and getting to this $2,000,000,000 number are essentially Lego building blocks. The core Bed Bath and Beyond business has to deliver.

Speaker 2

And you heard about adding new vendors and adding new relationships and eliminating distributors and picking up margin by having first cost dollars. But we also know that that particular consumer has life events, having a baby, getting married, going to college, buying their first home, whatever that may be. And Chandra is a world class expert and has proven over several decades that she knows how to execute that quite frankly better than all of us that are currently here. That's why we added her to the team. But when we look at driving to $2,000,000,000 we believe that Overstock is going to fill that gap up.

Speaker 2

You heard Adrian mention, Overstock was a $1,500,000,000 brand before Bed Bath and Beyond even showed up. Now it is true that there are some categories that both businesses played in. Overstock sold some bedding, off price bedding, but it sold some bedding and it sold some household items. But for the most part, for the most part, that revenue was driven by other categories. I believe that splitting these roles, giving them full P and L responsibility, giving them the resources and the tools they need to grow their companies and improving vendor relationships will drive the gap that everybody seems to be so convinced that we can't achieve.

Speaker 2

We're telling you today and you can look at our pay plans and look at our stock incentive plans. We signed up for a program we believe we can achieve as opposed to what the historical model was where management was just taking bonuses and taking RSUs regardless of what the outcome was, we've all signed up for a program that we firmly believe we can deliver. In spite of the headwinds, it is our intention to aggressively grab market share. And if you look at the P and L for the full 2024 year, we plan on returning to profitability by the end of the year on a run rate basis. We know the 1st two quarters are still going to be we're still going to be operating at a moderate loss.

Speaker 2

The Q1, we expect that as we continue to build the database, as we get ready to launch Overstock, as we reengage with customers on a continued basis, we're confident that that's going to happen. Keep in mind, last fall, this company told you that it was going to take 100 and 70 up to $175,000,000 to reignite the brand. Dave and Adrian and myself prior to Chandra coming committed that there was no way, no way we were going to spend $175,000,000 We believe that we will materially improve that statistic, but we know that launching Overstock was the simple silver bullet that quite frankly was obvious to us, but not obvious to others.

Speaker 6

Thank you, Mark. That was really comprehensive. And just a bit of a follow-up on the services angle. So you talked a lot about trust, right? And driving purchases that either require, I guess, more intent or just things you're not playing in.

Speaker 6

Where do you see so I look at your site, you've got a couple of new businesses, mortgages, you've got home services business that is coming soon. In terms of plan to eventually get into $3,000,000,000 run rate, I would assume these things are kind of longer dated or just how do you see those things integrating? And I guess when do you think they'll start contributing to the revenue?

Speaker 2

Look, I have been a public company CEO now for 8 years and I have learned a lot of hard lessons. And one of those lessons is setting expectations properly around what could be achieved. And while we have an immense amount of enthusiasm about what we know we have transformed this company into, We don't want investors and the people that we work for to be confused with any lack of focus on us delivering core revenue with improved margins with reduced SG and A. But let me be really clear about one thing. I did not join this company to be a peddler of products on the Internet.

Speaker 2

I joined this company because I am 100% confident that I will turn this business into the AAA of the home business. I've done it in other businesses. And I truly understand that once you understand the fact set of who the customer is that lives inside of the four corners of that property, homeowner or home renter. We need to build trust with them. And as you build trust with them over time by delivering world class service, innovative solutions and all the nicey, nice words that everybody wants to use, you will be able to penetrate their wallet by selling them products and services that they need, not flashy products that we want them to have, that they need.

Speaker 2

We know they need product warranties, things break. We know we need to provide services to improve the installation and delivery of those products to reduce returns, which ultimately improves margin and improves the customer experience. We know that our homeowners have assets. Their most important asset is their home. We know they need to from time to time unlock value in that home.

Speaker 2

And whether that's buying a new one, refinancing one that they have, cashing out or do a cash out refine or just accessing some value that's been established in the appreciation of their home, so they can pull that money out and reinvest it in their home. Our idea of offering a $20,000 HELOC program is purely made to give that consumer the ability to grab cash from the appreciated asset and reinvest it. But let's be clear, we expect that consumer to actually reinvest a portion of that in buying the products that they need to decorate, to fulfill the balance of that renovation or expansion. I know confidently that as we merge the rewards program, as we improve the credit card program and we launched these other finer products, including home improvement loans that we will build that brand over time. I have not, we have not established any of those revenue metrics or profit contribution expectations in any standard that we have outlined for you today as it relates to achieving profitability by the end of next year or the year after.

Speaker 2

Our job is to surprise and delight with our penetration on those And we will give you an update on the complexity and the size of that when we believe it's established a level of materiality.

Speaker 6

All right. Thanks very much. Appreciate

Operator

it. Thank you. One moment, please. Our next question comes from the line of Seth Sigman of Barclays. Your line is open.

Speaker 7

Hey, good morning everyone and congrats to all on the new roles. My main question is around the pricing strategy, the pricing philosophy more from a competitive perspective. I guess the term the team used to use in the past was smart value. How do you all feel about that today? How that was executed?

Speaker 7

What does that actually mean? And as you think about Overstock and Bed Bath, how should they be positioned in the marketplace from a price perspective? And ultimately, what's the type of work you're doing right now to ensure that right value proposition? Thank you.

Speaker 3

Thanks Seth. I'm going to speak to the Overstock side of the equation and then I'll hand it over to Chandra. But I can tell you from Overstock that when you think about Overstock, I don't want you to think about Overstock circa 2022. I want you to think of Overstock circa 2016, 2017, 2009, get it back into that era where smart value was our opportunity. Think about us as surplus goods.

Speaker 3

Don't think about us necessarily as liquidation. Think about us as factory directs overruns surplus. As Marcus mentioned, products that you will not find on Bed Bath and Beyond. We will have different assortments on both product categories. We will have more than just home furnishings on the Overstock website.

Speaker 3

There is a need for this in the market. There is a need for this among our suppliers, especially after what we've just gone through. But there's always been that need. Nobody ever orders the perfect amount of sofas or nobody ever orders the perfect amount of health and beauty products. There's always an overrun here or there and an opportunity to price that competitively.

Speaker 3

So for us, something that I think is really important with Overstock for you to for everybody to remember. The Overstock customer is a higher average household income customer. This is a customer who has made a lot of money. They have a high income and they make money by saving money and they love that shopping experience. They love the treasure hunt.

Speaker 3

They love that thrill of the hunt. They will spend when they see quality at a value. And that's primarily what that brand has been built on over the years. When you think of well how can Overstock drive these high average order sizes that Bed Bath and Beyond can't, it wasn't just in furniture that that was capable. We've sold $100,000 diamond rings on Overstock in the past, several of them.

Speaker 3

There are customers looking for that deal and that's the way we want you to think about Overstock. Chandra?

Speaker 4

Yes. Bed Bath and Beyond pricing is pretty straightforward. So we try to be competitive with the main competitors in our space in the market. And then our customers love coupons and discounts. And so we use those levers to drive the business where appropriate.

Speaker 7

Okay. Thank you for that. And then I'm just curious with the recent inflection that you've seen in the business, can you talk about some of the themes, types of customers, maybe the categories that you're seeing the improvement? What is working right now?

Speaker 3

Yes. For us, again, the lion's share of what's going what's happening right now is Bed Bath and Beyond. And with Bed Bath and Beyond, it's happening in the core power categories of bedding, bath, kitchen and dining, tabletop, cookware, you name it. These are all really, really important categories for us. We'll see spikes in furniture and area rugs and home improvement just like this recent Labor Day or Presidents Day.

Speaker 3

However, I will tell you it isn't at the same average order size as what you would get with Overstock. We have Overstock running as a sub domain right now. If you click on Overstock, you can see the assortment that's there. Right now, it's just as a placeholder because we had some 60,000 customers a day clicking on Overstock. They were keying in on their keyboards and on their cell phones overstock, we wanted to give them a place so we didn't let them go cold until we got this launch started.

Speaker 3

The average order size is $50 plus higher there than what you'll see on Bed Bath and Beyond. And it's just that same pricing strategy. There is an opportunity for us with the product categories on Overstock to drive a higher margin and a higher AOV. But Bed Bath and Beyond, Marcus spoke to it, the frequency, we love it. We love how often they're coming back and we love the frequency in which they're buying.

Speaker 2

I'll tell you one thing that we definitely learned as Dave and I over the last couple of months hit the road that Bed Bath and Beyond had a historical relationship with certain vendors in excess of $300,000,000 $400,000,000 $500,000,000 a year. And when we studied intently what mistakes we believe Bed Bath and Beyond made in their final days, It was really abandoning the solid brand recognition that large brands like Newell and Cuisinart and a number of other brands have established in the marketplace. And when you went to Bed Bath and Beyond, you expected to see those name brands from Dyson vacuums to Wamsutta sheets. And for some reason, the company thought it was a good idea to part ways with those world class globally dominated brands that consumers came to expect and understand. The balance in any business like that is to have a perfect balance between well recognizable brands that gives the customer the understanding that you are a credible retailer and weaving in own brands that give you the margin expansion you need to hit the levels of profitability.

Speaker 2

But that's a very fine balance. And when I started looking to hire a CEO for this business, I said to the Board, we need to find somebody that doesn't think like this. We need to find somebody that has actually done it. And so when we went out and we're blessed to find someone at Chendra's caliber to be the CEO of Vet Bath, if you look back at her previous relationships and her previous posts, she had not only executed, but every channel check that I did prior to bringing her on was not just with the people that she worked with. It was the vendors that she had relationships with.

Speaker 2

That for me was the gating principle of understanding. Does Chandra or does this candidate understand the importance of putting those world class brands up on a pedestal and then understanding through her experience of creating private labels at all those companies, how to underpin that, how to support it as a foundational piece just to prop up the overall margin. That really is a simple thing. And many people have said to me, is Bed Bath and Beyond going to have stores again? I will tell you as clear as I can.

Speaker 2

I have no idea as I sit here today. I have a feeling because Chendra has mentioned it 2 or 3 times that being in the retail business is an omni channel experience. I'd like you to expand on that a little bit.

Speaker 4

Yes. Right now within both e commerce and brick and mortar, there's white space for a category killer to come in, in bed, bath, kitchen, dining, the categories of bed, bath and beyond has always been dominant in. And when we look at how our customers want to shop, we think there's an opportunity to serve them in multiple ways. So right now, we're serving them from an e commerce standpoint. But should we look at some brick and mortar presence?

Speaker 4

Right now, I think everything is on the table.

Speaker 2

Yes. Let me be clear about sort of timeframes around that. This company is sitting with a relatively meaningful amount of cash and no debt other than the building that we're currently in the process of selling. Every dollar that we have in the bank, we think about as our last dollar. And there will be no material CapEx investments made of any kind until we have reestablished a level of profitability that is sustained.

Speaker 2

I want to really be clear. And if there is an opportunity to license the brand to somebody internationally, like we already have today in Mexico, we will explore those. In fact, Dave is heading over to Dubai here next week from an inbound call of somebody that wants to open up Bed Bath and Beyond stores in the UAE. We're open to all those things. But I would expect that we will explore partnerships, shop in shop opportunities and things that are CapEx light and brand centric around how we want to build it.

Speaker 2

But I don't want anybody to leave this call thinking that we're going to start opening stores tomorrow, next week or even next year. That is not on the runway. We just don't want people to think that we are limiting the growth potential of this business. We are open to lots of ideas, including acquisitions of other companies where maybe a Bed Bath can integrate or a variety of other things.

Speaker 7

Thank you all and best of luck.

Operator

Thank you. One moment please. Our next question comes from the line of Stephen Forbes of Guggenheim. Your line is open.

Speaker 8

Good morning, everyone. Marcus, I realize you had mentioned working on improving the customer segmentation data, but given the ramp in 4Q orders and obviously the revenue goals for the year, any update on the mix of orders between the customer groups that we can help contextualize? And any sort of early learnings around repeat behavior differences among those groups that is worth highlighting?

Speaker 3

On the Q3 earnings call, Stephen, we talked about the legacy Overstock customers, which were customers who had purchased on Overstock and also purchased on Bed Bath and Beyond, the legacy Bed Bath and Beyond customers and then TAM new. For the Q4, relatively similar performance among all three groups. In fact, maybe a little bit more improvement and a willingness on the TAM new customer segment to lean into some of the higher price point categories in furniture and area rugs. But for the most part, the Overstock customer stayed about right where they were from a repeat function. The Bed Bath and Beyond customer, as I mentioned, we had a higher repeat frequency among those customers in the Q4 and that had a lot to do with I believe what Marcus was just touching on and what Chandra is here to do and that is reestablish these powerhouse world class brands on Bed Bath and Beyond.

Speaker 3

With even taking it to the next level, having unique collaborations with some of these major brands where we have something unique on our website that brings people to Bed Bath and Beyond. And getting back in those businesses, it took us a little bit of time in the Q3 to get those up and running with those world class brands. But by the Q4, that's where we've seen some of the momentum and it's carried on into the Q1, as I mentioned in those key categories.

Speaker 2

Look, the Overstock customer was coming to the website and asking who moved. I mean, they literally typed in the word Overstock and they came to the site and it was gone, entirely gone. It's like you're being invited to a party and then finding out that you had the wrong address. And I think the challenge with that is, is that we lost short term credibility. When that website, when that sub domain got popped up really as a reaction to what I think Dave and I believe was just a mistake.

Speaker 2

We were seeing business on a daily basis $200,000 $225,000 with no marketing, no anything. Trying to get people to buy something from a business that is intuitively not correct is cost prohibitive. And we don't have an infinite amount of our shareholders cash to spend on that, which is why we've pivoted so hard and so quickly because we need to hit that $2,000,000,000 revenue and we know Overstock is the path forward.

Speaker 8

Thank you for that. And just a quick follow-up, more of a clarification. Mark, I believe you stated that the goal is to sort of improve the marketing expense ratio by 50 basis points to 100 basis points per year. I guess first, can you just confirm that that's what you mean? And then what's sort of the base line?

Speaker 8

Is it the Q4 run rate or the full year 2023 that we should think about that improvement over the next 12 to 24 months?

Speaker 2

Yes. When I started looking at the financial statements for 2023, 14% was the marketing spend as a percentage of revenue. And I have a goal of getting us down to 11% over time. That 3% is material when you're talking about a $2,000,000,000 $3,000,000,000 business. This company cannot afford a 14% marketing expense as a percentage of revenue, nor should it be leaning exclusively on its vendors to mitigate that expense.

Speaker 2

The vendors have a finite amount of money and we need that money to show up with better first cost dollars, so we have true margins that are better and supporting the customer experience when things don't go right. That's a form of marketing. And I think too often people are focused on let's just drive more and more and more. You also need to retain what you've built. So when we look at the overall marketing spend and our goal to drop it by 0.5% to 1% this year, that would mean that we would be looking at a 13% to 13.5% number as part of that.

Speaker 2

Improving the efficiency of that database to drive that below 13%, getting retention of our customers should drive that to 12 or below and then getting more efficient with our database and being smarter about our relationships with our customers is the pathway to 11. For those people that believe it's not possible, there's no reason that you couldn't cut $30,000,000 $40,000,000 of marketing expense out of budget. The question is, which $30,000,000 or $40,000,000 do you cut? And that usually is where the devil is in the details. We believe we have the secret sauce to figure that out.

Speaker 8

Thank you.

Operator

Thank you. One moment please. Our next question comes from the line of Jonathan Matuszewski of Jefferies. Your line is open.

Speaker 9

Great. Good morning, everyone, and thanks for taking questions, and welcome to the team, Chandra. My first question is on the 2024 sales goal. Maybe if you could just break that down a little bit, the $2,000,000,000 Marcus, I think you described overstock.com as the silver bullet. So just curious how much you see overstock.com contributing to 2024 after the 1Q launch?

Speaker 9

Thanks.

Speaker 2

Yes. Thanks, Jonathan. I read your note last evening that came out shortly after we released our earnings. And I suppose I can understand why you asked or why you question our ability to get to $2,000,000,000 At this moment in time, Overstock and Bed Bath and Beyond are not separate reporting segments. We expect that in the 2025 calendar year because of the materiality of what we believe Overstock will become that we will report them separately.

Speaker 2

But if you look at the financials for 2023 from a revenue standpoint, we were approximately at $1,600,000,000 And Bed Bath and Beyond's business did not layer into that number until the late summer, early fall, August of 2023. What happened in that moment is when Bed Bath and Beyond, when the website literally went from red to blue, you literally just changed the name of it. You not only confuse people, but I think you sent away Overstock customers. So the way that I've asked the team to think about it is if you take the Bed Bath and Beyond core segment business from August 1 through December 31 or quite frankly even through today and you annualize that and then you took the historical Overstock business that was January through July 31 and you annualize that and then took out some of the crossover categories, that's what gives us confidence that $2,000,000,000 is a clear path. Let me also add to that that we know that adding Baby and Beyond and a few other ancillary things also contribute to that.

Speaker 2

But we are not able to tell you because of SEC reporting how that $2,000,000,000 is going to be broken out. The reason I said that that Overstock is the silver bullet is there's a gap to fill. And that's about as good as I can be. There's a gap to fill. But we did use science and historical information to lay this track down.

Speaker 2

It wasn't just some wild finger in the air swag.

Speaker 9

Yes. That's very helpful color. And just a quick follow-up question. Marcus, I think you made some comments about kind of working more closely with Pelion going forward. And just some color on the cash flow statement.

Speaker 9

I think you guys had a $10,000,000 of proceeds from blockchain asset sales or cryptocurrency proceeds. Just more detail there and what's the path ahead for 2024?

Speaker 2

Yes. I'm going to have Adrienne handle the cash portion of how she wants to manage unlocking the value of her assets. And she'll go through whether it's the building or Bitcoin, things of that nature. But let me address the Pellaeon relationship. I take very seriously every dollar that leaves this company.

Speaker 2

And when I look at a P and L on a monthly basis and I see a line item of a management fee, I take that very seriously. And in 2021, this company for some reason decided that it couldn't manage a portfolio that wasn't even a non core asset. So it elected to sign up a partnership with a local corporate ventures fund to help manage those 16 portfolio companies. I've had the pleasure of speaking to a number of the leaders of those portfolio companies and quite frankly have been pleased when I have 1 on 1 dialogue with them about what they're doing, what ideas they have, and more importantly, what sorts of results they're driving. But I had to make that phone call.

Speaker 2

And what I will not stand for is anybody getting in the way of our shareholders understanding what's happening with money that has left their bank account and been invested in some other asset. And when I pay somebody a fee to manage that business, I expect results and communication. And so we're going to work with Pellaeon on improving those two things over time. And if those two things aren't going to improve at a level that meets all of our standards, then we're going to just assess what options we have in redoing it. But it is in no way an indictment on the businesses that are inside of that portfolio.

Speaker 2

In fact, we don't control them. They are proprietors. We don't have a controlling stake where we could tell anybody what to do. And whether you agree or disagree with the investment that had been made over the previous 5 years, it's water under the bridge. Our job is to understand the value of that investment and figure out how to monetize that investment.

Speaker 2

I have one goal, maximize the value of that investment, turn it into cash and then weaponize that cash to grow this company by either investing in its core business or acquiring another bolt on business that fits naturally inside of what our core business is.

Speaker 1

Adrienne? Yes, happy to. Jonathan, thanks for the question on cash. Let me just frame that up a bit. Obviously, we're always looking at our balance sheet and looking at particularly non performing assets and if there's an opportunity to monetize in a meaningful way.

Speaker 1

So the item you're seeing here in the Q4 was our decision to sell some of our Bitcoin, actually all of our Bitcoin. So we did have a holdings. If you recall, there was a point in our company history where we accepted cryptocurrency as payment, and we have decided to sell those currencies. I'll say in addition, Marcus mentioned that we do have our corporate headquarters, here in Salt Lake City pending or up for sale and we're looking to monetize that asset as well.

Speaker 2

And we've received one offer so far. That offer as much as Dave and I would like to move on, it doesn't meet Adrian's standards just yet. And we're waiting on a few other offers that we expect to come in, but it is our goal to have transacted on this building one way or the other by the middle of the year. The carry cost on this building is about $8,000,000 and that's $7,600,000 more than we're willing to invest in just parking desks and computers. That money needs to be reinvested in technology, the database, expanding brands, etcetera, etcetera.

Speaker 9

Very helpful. Best of luck.

Operator

Thank you. And that is our time for question today. I'd like to turn the call back over to Marcus Lemonis for any closing remarks.

Speaker 2

Thank you so much. I couldn't be more excited about the team that has been assembled here to manage the day to day operations. For those of you that know me, I drive a very, very hard charging mentality around serving at the pleasure of our employees and our shareholders. One thing that was not mentioned on today's call is that we will use a different tactic over time to influence the outcome of our results. We will use influencers and content and information and ideas to bring the customers closer to us.

Speaker 2

The days of buying singularly linear TV or just buying ads are over. Consumers don't react to things like that. And you could expect a whole host of influencers to not just be involved in our business, but be motivated financially by the results. A really new idea around influencers being tied to the variability of performance. We are on the cusp of announcing a few of them and believe that not only are we going to be adding them to our pool, but I'm confident that Dave and Chandra are going to be adding additional resources to their army as well.

Speaker 2

Thanks for joining us on the call and we look forward to seeing you on the next one. Take care.

Operator

Thank you. Ladies and gentlemen, this does conclude today's conference.

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Earnings Conference Call
Beyond Q4 2023
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