Is the Worst Case Scenario Price into Overstock?

Key Points

• Overstock acquired the IP assets of Bed Bath & Beyond for $21.5 million in bankruptcy and rebranded and relaunched it as an online-only retailer.
• Overstock misses analyst EPS estimates for five consecutive quarters with its Q2 2023 earnings release.
• Camping World CEO and celebrity investor Marcus Lemonis of the CNBC reality show The Profit joined the Overstock Board of Directors and purchased 31,800 shares during the first week of October 2023.

Online retailer Overstock.com Inc. NASDAQ: OSTK sells home décor and products at a discount. It renamed its online presence after acquiring the IP rights to Bed Beth & Beyond for $21.5 million in June 2023 from bankruptcy. The purchase included the Bed Bath & Beyond brand name, customer database, websites, and brand name. That's why when consumers go to the overstock.com website, they are redirected to bedbathbeyond.com.

The company is attempting to reach a new retail customer base with the acquisition and rebranding. From furniture to mattresses, rugs and kitchen items, Overstock operates an online discount retail operation emphasizing its loyalty program and adopting 20% off deals that were a mainstay (arguably the downfall) with the old Bed Bath & Beyond. With online only, there's much less shrinkage (theft) than brick-and-mortar retailers are experiencing.

Integrating and Bolstering

Overstock launched its new website in Canada in July 2023 and the U.S. in August 2023. As the company continues integrating Bed Bath & Beyond partners and customers and rebranding itself and its loyalty program, it's also been bulking up its Board of Directors. Overstock currently has eight independent board members.

Then, on October 2, 2023, Overstock announced the appointment of celebrity businessman and Camping World Holdings Inc. NYSE: CWH Chairman and CEO Marcus Lemonis to join the Company as an independent director. The celebrity investor and business turnaround specialist became famous in the CNBC reality show The Profit. Lemonis also purchased 31,800 shares of OSTK stock between $15.35 to $16.03 per share. 

Five Strikes in a Row

Overstock reported its fiscal second-quarter 2023 results for the quarter ended June 2023 on July 27, 2023. Overstock missed EPS estimates for the fifth consecutive quarter. The company reported a diluted earnings-per-share (EPS) loss of $1.63, missing consensus analyst estimates by 1.50 cents. Net loss was $73 million, with an operating loss of $4 million. Revenues dropped 20.1% year-over-year (YOY) to $422 million, beating analyst estimates of $409.64 million. Active customers fell 29% YoY to 4.6 million. Average order values fell 5% YoY to $234. The company ended the quarter with $343 million in cash.

CEO Johnathan Johnson commented, "The combination of a highly recognized and much-loved consumer home brand and our asset-light operating model should meaningfully grow and scale our business in the US and Canada. We know work must be done to win Bed Bath & Beyond customers and retain our existing loyal customers through this transition."

Bed Bath & Beyond Q3 2023 Update

On September 6, 2023, Overstock provided an update on Bed Bath & Beyond. Its active customers were 4.8 million in the past twelve months. The company gained a mid-single-digit percentage increase in customers since the U.S. launch. Revenues show a mid-teens percentage revenue decline YoY. Average order value showed a high-teens percentage decline YoY. Gross profit was 18% of revenues, and sales marketing expense was 15%.

Analyst Actions

On September 21, 2023, BTIG initiated coverage of OSTK with a Neutral Rating. Analyst Marvin Fong noted that the Bed Bath & Beyond brand names carry a higher brand awareness than Overstock. This creates a stronger association with home goods with consumers. Conversely, the Bed Bath & Beyond brand also comes with much "baggage." In the past, Bed Bath & Beyond customers have been trained to wait for 20% off coupons before making any store purchases. He pointed out that the real challenge is the competition for mid-level home furnishings from the likes of Walmart Inc. NYSE: WMT, Target Co. NYSE: TGT and even Amazon.com Inc. NASDAQ: AMZN.

Overstock analyst ratings and price targets are at MarketBeat. Overstock peers and competitor stocks can be found with the MarketBeat stock screener.

Daily Bear Flags

The daily candlestick chart on OSTK illustrates two bear flag breakdowns since September 2023. Shares plunged on the bear flag through $26.23 to collapse to $19.69 on Sept.6, 2023. OSTK would proceed to sell off to a $14.83 low by October 4, 2023, before triggering the daily market structure low (MSL) buy trigger breakout to peak at $17.79. The second bear flag would trigger on the breakdown back under the $16.07 MSL trigger. OSTK is back to retest the swing low area. The daily relative strength index (RSI) peaked at the 40-band but is attempting to stabilize above the 30-band. Pullback support levels are at $13.94, $13.03, $12.33 and $11.22.