Dive Brief:
- Overstock’s Q2 revenue fell 20% year over year to $422 million, the company said in a Thursday earnings announcement. The retailer posted 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. It’s Overstock’s first earnings report since acquiring bankrupt rival Bed Bath & Beyond’s intellectual property last month for $21.5 million.
- The company’s adjusted EBITDA was positive at $8 million or 2% of revenue, but down about $13 million versus a year ago. Overstock ended the quarter with $342.9 million in net cash. But active customers during the quarter fell to 4.6 million, a 29% drop year over year.
- CEO Jonathan Johnson said the company overall is in a strong financial position and positioned “to play offense and execute a transformative rebranding of our business,” which will include rebranding itself to Bed Bath & Beyond to capitalize on that retailer’s name recognition.
Dive Insight:
As part of the transition, Johnson told investors last month that a period of financial volatility was possible as Overstock continues moving through rebranding and repositioning the company in the U.S. The company had already relaunched in Canada on June 29.
“We continue to target an early August launch in the U.S. now that the Bed Bath & Beyond brick-and-mortar stores are expected to close this weekend,” Johnson told investors and analysts on Thursday’s call.
According to Johnson, Overstock had a great business model but was weighed down by a brand name that sometimes confused or disappointed customers and vendors. Bed Bath & Beyond had an iconic consumer brand name but was “weighed down by a boat anchor of an outdated business model that got worse over time,” Johnson said.
“This acquisition drops both boat anchors,” he added. Now freed from what was holding them down, the company is positioned “to meaningfully grow and scale our business.”
One of Bed Bath & Beyond’s past signature offerings, big blue printed coupons that came through the mail, won’t be coming back in that exact form. Instead, Johnson said, they’ll incentivize customers to engage with promotions and discounts by downloading Overstock’s mobile app, which will rebrand to Bed Bath & Beyond.
“We know that the Bed Bath & Beyond customer loves coupons,” Johnson said in response to an analyst’s question. “Bed Bath & Beyond historically has been a high-low retailer. So have we.”
And while the company plans to continue some discounts and promotions “they won’t be as big as Bed Bath & Beyond,” Johnson said. But during the relaunch, customers who have never shopped with either retailer “can expect to see some significant coupons,” to attract current and new customers.
GlobalData Managing Director Neil Saunders said customer erosion is one of Overstock’s biggest issues right now. “Overstock is not alone in suffering this. However, our data also suggest that Overstock has fallen off the consumer radar somewhat and is not drawing in customers, even to browse, like it used to,” Saunders said in emailed comments.
He also noted that additional strategy and investments will be required to market Bed Bath & Beyond, which will no longer have a physical store footprint. As a result, the company “will need to make much more noise to remain on the radar of shoppers. This all comes with costs attached,” said Saunders.
Adrianne Lee, Overstock’s chief financial officer, said the macroeconomic environment affected the company’s Q2 results. Consumers “continue to prioritize service-related and need-based spending, putting pressure on the demand for discretionary home goods,” Lee said.
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% year-over-year.
“The company is firmly in the red with a loss of $4.2 million at operating level,” Saunders said. “This isn’t perilous and can be turned around with some better cost management and sales discipline, but even so it is a marked deterioration over the same period last year.”
