Beyond Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 26, 2023

There are 11 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Q3 2023 Overstock dotcom, Inc. Earnings Conference Call. At this time, all participants are in a listen only mode. Please be advised that today's conference is being recorded.

Operator

I would now like to hand the conference over to your speaker today, Lavish Hemnani, Head of Investor Relations. Please go ahead.

Speaker 1

Thank you. Good morning and welcome to our Q3 2023 earnings conference call. Joining me on the call today are CEO, Jonathan Johnson CFO, Adrian Lee and President, Dave Nielsen. Today's discussion and our responses to your questions reflect management's views as of today, October 26, 2023, and may include forward looking statements. Actual results could differ materially from such statements.

Speaker 1

Additional information about factors that could The impact of 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 will discuss certain non GAAP financial measures. Our filings with the SEC 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, will open the call for questions. A slide presentation with supporting financial data will be available for download on our Investor Relations website After the call has ended, please review important forward looking statements disclosure on Slide 2 of that presentation.

Speaker 1

With that, Let me turn the call over to our CEO, Jonathan Johnson.

Speaker 2

Thank you, Vibhash, and good morning, everybody. Today is an exciting day as it marks the start of something new. We're pleased to share details about our path forward and how we are capturing the many opportunities we see ahead, while also addressing areas of the business where we need to see improvement. This morning, we reported Q3 financial results that included the performance under the Overstock brand through July 31st and performance under the Bed Bath and Beyond brand beginning August 1. While there were many things in the quarter that we felt good about, Including the launch of the new Bed Bath and Beyond and the 6% growth in our active customer file, We fell short of our revenue goal.

Speaker 2

We will discuss what steps we are making to improve revenue growth. Over the last 3 months, we have accelerated our efforts to build a company with a bigger, brighter, Boulder future. On June 28, we acquired the Bed Bath and Beyond brand and IP, A brand ranked in the top 5 most recognizable home brands in the United States alongside titans like Target, Walmart and Home Depot. Within hours of closing the deal, we revived the brand in Canada. And in just 33 days, we launched the brand in the U.

Speaker 2

S. Under our unique asset light operational model. I'd like to take a step back to provide insight into how we view the deal and discuss How we intend to monetize it going forward. Just a few years ago, when we first considered acquiring the Bed Bath and Beyond business, it would have cost us close to $2,000,000,000 We chose not to pursue a deal at the time and subsequently watched and continued to monitor as it struggled with declining same store sales and overwhelming debt. We saw 4 valuable assets in the business if the right opportunity presented itself.

Speaker 2

1st, the number 5 most recognizable brand in the home space And as an aside in that same ranking Overstock was number 25. 2nd, and over 100,000,000 person customer file. 3rd, vendor relationships with some of the biggest home category brands in the world and 4th, valuable intellectual property. We were thrilled when that opportunity presented itself and we pounced on it. To strengthen the clarity of the economics of this deal, We break down this opportunity into 2 buckets totaling up to approximately $175,000,000 First, the approximately $25,000,000 paid to the bankruptcy state for the brand and related IP and acquisition related fees.

Speaker 2

And second, approximately $150,000,000 of additional investment to launch the brand, reignite the customer file and expand and create new categories while working to maintain our company's core customers. That $175,000,000 is less than 10% of the cost Bed Bath and Beyond would have been just a few years earlier. A lot of this $175,000,000 purchase price is included in our future operating plans. This strategic spend is expected to run through our P and L over the next 15 months or so. Rest assured, profitability is and always will be a key metric and tenant of our company, noting that we are intentionally and strategically spending more for this time to take advantage of the Bed Bath and Beyond brand and grow our customer file.

Speaker 2

Earlier this week, We announced our new corporate name, Beyond. This new corporate identity builds on the value of our iconic consumer brand. It also recognizes our ability to transform into more than just a single brand e commerce retailer. Our goal is over time to transform the company into a house of brands, providing a mix of products and services across categories. Think of this as a bigger, better, bolder beyond.

Speaker 2

Today, we provide a broad selection of on trend furniture and home furnishing products through a single e commerce website, Bed Bath and Beyond. In due time, we plan to reimagine the Overstock brand with a standalone website It offers what the brand originally was, the site selling a broad array of clearance products at remarkable prices. We plan to begin initial work on this cross category, Overstock branded, liquidation only website with a goal to launch it by the end of 2024. We will work with former, existing and new supplier partners to provide an outlet for clearance merchandise and deal seeking consumers. We feel strongly that our tribal knowledge and the white space around this business model makes this the right move.

Speaker 2

We will not stop there. Taking a disciplined approach, we are opportunistically and patiently looking at other targets across the consumer space to grow our brand portfolio. Our ability to execute on our beyond vision is backed by a strong balance sheet. Because we have been careful stewards of capital, we can play offense Amid a weak macro backdrop to differentiate ourselves in the marketplace for the long term. Our new corporate name was a very thoughtful and strategic choice.

Speaker 2

It has only been 3 months since we launched Bed Bath and Beyond in the U. S. We have learned a great deal as we launched this top 5 consumer mega brand. We intend to implement these learnings as we aggressively move forward. Remember, we are just getting started in the efforts to engage with the customer file we acquired.

Speaker 2

Our objectives from this acquisition were fourfold. 1st, own a top 5 consumer brand within the home category that we acquired at a deep discount. 2nd, leverage the brand's intellectual property to expand our breadth of offerings, including launching a registry business, expanding our nation's trade business and enhancing supplier relations 3rd, access a bigger portion of the total addressable market and 4th, importantly, grow our active customer file. Growing our customer file is critical to our long term vision and is the primary metric we are using to measure the initial success of this acquisition. The interaction we can have with our vast customer file will provide valuable insight to our customers' needs inside and outside of their homes.

Speaker 2

This will enable us to expand our current financial service offerings and even explore additional service offerings. We are essentially trying to build a business that can grow through frequent customer touch points, one that allows our operational model to scale and excesses alternate revenue sources less impacted by economic cycles. Now for a brief update on some strategic decisions and learnings since we acquired the Bed Bath and Beyond brand. I mentioned earlier the launch of the Bed Bath and Beyond brand in the U. S.

Speaker 2

Was done in just over a month after closing the deal. Before we launched, we evaluated whether to run both the Overstock and the Bed Bath and Beyond sites or a single e commerce website. The more we studied the options, it became clear to us and to those We consulted with that running 2 nearly identical websites was not a viable choice. It would have severely damaged search engine rankings on Google and other search engines and taken several months to complete. Additionally, it would have created confusion for our supplier partners and required challenging operational workarounds, which would have resulted in negative impact to the customer and delivery experience.

Speaker 2

Thus, we elected to run a single site. However, as I noted earlier, we already have plans in place to stand up and overstock e commerce site again by the end of next year in a way that will differentiate the brands. In terms of learnings, We are gaining knowledge about the purchasing behavior of our newly acquired customers and insights about our legacy Overstock customer base. We are learning what products and promotional and marketing strategies resonate with each group. We have learned that many new supplier partners are eager to engage in our newly acquired brand and see the importance of growing and improving our relationship with our loyal legacy supplier base.

Speaker 2

We intend to increase our engagement with our supplier base. We believe that it's important to protect these partners' investment in this relationship and leverage their historical knowledge. With the acquisition of the Bed Bath and Beyond brand, we are combining a well recognized consumer brand Synonymous with home with an advantageous asset light operational model, but We are not alienating our legacy Overstock customer. Our initial launch strategy was a 3 pronged approach. 1st, drive downloads of our new mobile app.

Speaker 2

2nd, transition as many legacy Overstock customers and legacy Bed Bath and Beyond customers to our new Welcome Rewards loyalty program. And third, warm up the newly acquired legacy Bed Bath and Beyond customer email list, a necessary step prior to launching personalized and automated email campaigns. As a reference, we have more than doubled our customer database with the Bed Bath and Beyond acquisition to over 250,000,000 files. We will spend the next year accelerating CRM efforts with the following focus areas augmenting our CRM stack, enriching and bringing our customer database up to optimal hygiene, applying predictive logic and using that data to better map and personalize customer journeys and activating marketing activities leveraging this database to drive customer acquisition and improved retention. These moves will allow us to further entrench our team into the connected points, overall active file size and increased average order and frequency of visits.

Speaker 2

These moves will allow us to further entrench our team into the connected points overall active size and increased frequency of visits. That's important. We also believe these actions can help us drive AOV from under $200 to an aspirational $2.50 level over time as we work to reverse any downward furniture trend without slowing down soft goods sales. We also expect that Over time, this will help increase our annual order per active customer. We are laser focused On getting that number closer to 2 and believe that with the aggressive, but strategic use Of the famous Bed Bath and Beyond coupon, increased mobile app engagement and an increased number of people In our welcome rewards loyalty program, we will be on the right trajectory.

Speaker 2

The actions we have taken are all ready starting to drive results. Our active customer base grew sequentially to 4,900,000 customers at the end of Q3, increasing by nearly 300,000 customers in the quarter. 4th quarter to date, we are tracking at just under 5,000,000 customers. Our goal is to add another 150,000 customers by the end of the quarter. The increase in our customer base enabled us to return to year over year order growth for the first time in over 2 years.

Speaker 2

The bed, bath and kitchen categories led the improvement in our orders performance And furniture remained one of our top categories as we see potential for further upside. We continue to do well in Canada. Our average monthly sales trends are up 3 times compared to Q2 and the business is on a solid trajectory to scale. Our Canada team has been able to drive this growth Even without a mobile app or loyalty program, both capabilities which are on our 2024 product roadmap, We expect Canada to scale faster with these platform additions. Moving to an update on the Medici Fund.

Speaker 2

Because I assume we have first time listeners, I will give a little background on this. Our company currently has an investment in 16 early startup companies using blockchain technology. Those investments were made years ago. In 2021, after a thorough evaluation of options for the business, We made the decision to give our daily oversight of those investments to a well qualified venture capital subject matter expert, Helion Venture Partners. You can think of this asset as a massive piece of undeveloped real estate at the end of the bus route.

Speaker 2

In due time, that property would be parceled up with each parcel yielding varying degrees of returns. Today, we remain wildly hopeful that the property value appreciates. While we don't speculate on the future value of these assets, Pellion is doing a great job managing the Medici Fund. As I've consistently said, I'm confident Pellaeon will nurture and deliver some winners from the early stage companies in the fund. It just needs some time.

Speaker 2

As a reminder, We are only in year 3 of our 8 year partnership with Pellaeon. Our investments in the Medici Fund are an important element of the Beyond investment story. That said, as prudent stewards of shareholder capital, We are always evaluating all the investments on our balance sheet. President, Dave Nielsen We'll now share how we plan to approach brand building over the next few months and dive into some insights about our customers.

Speaker 3

Thank you, Jonathan. In the 1st 60 days following the Bed Bath and Beyond launch, Results largely met internal expectations. That said, we know there are key areas that require improvement. After launching the brand, we quickly went to work to leverage the 100,000,000 plus customer file we acquired. We executed a 3 pronged launch.

Speaker 3

First, as a test, we offered an app exclusive 25% off coupon during August To the marketplace and customer file, we wanted to reward loyalty legacy customers and welcome them to the new Bed Bath. The mobile app sales increased by 55% over Q2 and Q4 continues to track strong. 2nd, to convert the most loyal legacy Bed Bath and Beyond customers, we transferred and honored their previous accounts and reward balances To our platform, we then added an additional $25 bonus reward to their accounts, which expired at the end of September and gave them a free 1 year welcome rewards membership. These actions brought in loyal legacy Bed Bath and Beyond reactivated legacy Overstock customers. 3rd, we went through a process of warming up these new potential customer email addresses.

Speaker 3

We began the warm up in mid August and only recently finished reaching out to the entire file. With the acquisition, our addressable and contactable email population has nearly doubled And today, our daily email campaigns have increased nearly 3 times compared to pre acquisition since. The size and scale of the upcoming branding campaign in November will be the largest we have ever done. We are working with a top agency that has a track record of executing large campaigns for top consumer brands. We will be running spots on linear and streaming TV, leveraging out of home media assets in key traffic areas and partnering with influencers to create a social media buzz with accounts that have an affinity to the home and especially our brand.

Speaker 3

The holidays this year will be an exciting new frontier for us. We are eager to offer our customers incredible deals during these key events. Historically, November December have been significant sales periods for the legacy Bed Bath and Beyond as their assortment leaned heavily into holiday home entertaining and gift giving product categories. Our team has a terrific lineup of deals on key brands and we will leverage the brand to serve our customers and capture market share. Our new brand campaign will remind and educate customers Across the addressable market that we have an even bigger beyond assortment for their holiday entertaining needs, we are geared up to deliver a strong holiday season.

Speaker 3

Now I'd like to walk you through some of our learnings after evaluating the 1st 2 months of the brand launch. We have separated our customers into 3 distinct customer files. 1st, starting with the legacy Overstock customers. These are customers for which we had unique email addresses in our Overstock database. This group includes some legacy Bed Bath and Beyond customers who are already in the Overstock database.

Speaker 3

2nd, legacy Bed Bath and Beyond. These are customer accounts that we acquired with the Bed Bath and Beyond transaction that did not exist in the Overstock database. 3rd, TAM New. This is the most encouraging cohort in our view. These customers are email accounts which did not exist within Overstock or Bed Bath and Beyond databases.

Speaker 3

We include this customer as part of the roughly 440,000,000,000 total addressable market and hence the name TAM New. Let me discuss how each of these customer files behaved during August September, the 60 day period in Q3 since launching the brand in the U. S. The legacy Overstock Group was roughly 2 thirds or over 900,000 of our 1,400,000 total order volume during August September. Furniture and rugs remained among the top product categories.

Speaker 3

Our messaging around the bed, bath and kitchen product categories may have over indexed in communication to this customer file. Considering that, I can certainly see how some may think we have confused this core customer group. However, It is way too early to conclude that the legacy Overstock customer left us. We are barely 3 months into the launch And our upcoming brand campaign is focused on ensuring the brand assortment messaging is clear. The legacy Bed Bath and Beyond customer file accounted for 10% or over 140,000 orders.

Speaker 3

We expected this group to account for the lowest percent of our orders as we spent much of the quarter warming up the email list for this group. This group will grow as we roll out the brand campaign in early November. It's encouraging to see that furniture was among their top categories. Within the TAM new customer file, furniture was a bigger share of orders compared to the legacy Overstock. They accounted for 23% or nearly 325,000 orders during the period.

Speaker 3

And this is important, they had the highest AUR among the 3 groups. These customers are total home customers. This group is finding us through search engines with the Bed Bath and Beyond brand driving conversion. This is not surprising to us as we acquired A top 5 home furnishings brand in the U. S.

Speaker 3

Home furnishings market. I would like to make a point on profitability through the lens of contribution margin, meaning gross profit less marketing expenses. Through the 1st 60 days, legacy Overstock and TAM new customer files have been accretive to contribution margin at nearly similar levels. As expected, the legacy Bed Bath and Beyond file was dilutive contribution margin as we invested in significant mobile app download campaign offers and Bonus Welcome Rewards promotions to drive conversion. That combined with lower AUR orders was an expected headwind to profitability.

Speaker 3

Remember, We are still in the early stages of our branding launch. We are excited about our future with the brand and we are just getting started. I will now hand the call to Adrienne to discuss the Q3 2023 financial results.

Speaker 4

Thank you, Dave. I will begin with an overview of our financial performance during the Q3. Later, I will share our expectations regarding Q4 and the expected future investments around the acquisition of our Bed Bath and Beyond IP. Revenue declined 19% year over year in the 3rd quarter. While this is a slight improvement in the year over year trend relative to the Q2, the composition of our top line results versus our previous performance has changed.

Speaker 4

AOV declined 21% with mix of orders skewing to lower AUR categories following our brand launch. Orders increased 3%, Returning to growth for the first time in several quarters. Underlying results continue to be influenced by macro factors and weakness across the furniture and home furnishings industry, driven by low consumer engagement in the category, a shift in spending preferences and a weak housing market. Our mid quarter update outlined mid teens decline in year over year revenue, which included performance over the Labor Day weekend. In comparison, we ended the quarter with a decline of 19%, mainly driven by the timing of our customer acquisition strategies.

Speaker 4

Gross profit was $70,000,000 in the 3rd quarter, a decrease of $37,000,000 versus the prior year. Gross margin came in at 18.7%, a 461 basis point decrease versus the same period last year. The year over year decline was primarily driven by 2 factors, Higher discounting and promotional activity related to customer acquisition strategies like the FX Exclusive 25 percent off coupon and freight cost deleverage driven by orders mixing into lower AUR categories. We expect this dynamic to continue throughout Q4 as we deploy targeted offers to support holiday shopping, focus on new customer acquisition and reengagement efforts. G and A and tech expenses increased $5,000,000 year over year, which includes short term discrete costs associated with the Bed Bath and Beyond brand integration efforts.

Speaker 4

As I mentioned last quarter, we expected to incur acquisition related costs. Adjusting for these costs, our fixed G and A and tech Costs continue to track at around $50,000,000 per quarter. As a percentage of revenue, G and A and tech expense was 14.3% in the 3rd quarter, an increase of 3.80 basis points compared to the Q3 of 2022. This deleverage was mainly driven by lower revenue compared to last year. In the Q3, we delivered an adjusted EBITDA loss of $24,000,000 a decrease of $39,000,000 versus a year ago.

Speaker 4

On a margin basis, this was an almost 1,000 basis point decline year over year. Approximately 50% of the adjusted EBITDA margin decline was driven by gross margin pressure resulting from the customer acquisition strategies referenced earlier. The balance of the margin decline was associated with fixed cost deleverage on a lower revenue base and higher marketing costs compared to last year. We are purposely investing to grow our active customer file in this unique window. Our reported GAAP EPS loss of $1.39 was primarily driven by operating losses and a non cash non operating expense associated with a change in value of our equity securities and the associated tax impact.

Speaker 4

The change in value of our equity securities reflects our proportionate share of the Medici Ventures Fund, including a reduction in the valuation of our indirect investment of tZERO. Excluding the impact of equity securities, we reported adjusted diluted loss per share of $0.61 a decrease of $0.74 versus 20.22 reflecting higher pre tax losses compared to the prior year. Our balance sheet remains strong. On a net basis, our cash balance excluding long term debt was 291,000,000 This level of cash continues to provide a strong foundation for us to invest in efforts to grow our active customer file. Now moving to an update on our KPIs.

Speaker 4

Our active customer base was 4,900,000, a decrease of 15% year over year. We measure active customers on a trailing 12 month basis. This decline in active customers was driven by 2 key factors, a shift in spending preferences as consumers continue to spend on experiences and services and second, a weak macro environment and housing environment. Importantly, since launching Bed Bath and Beyond, we have grown active customers by 7% or nearly 300,000 customers. Increasing our active customer file is a key measure of success for this transaction.

Speaker 4

Orders per active customer were 1.48 in the 3rd quarter, a decrease of about 9% versus last year and a decrease sequentially. In the near term, we expect frequency to remain lower than our targets as new customer orders become a larger portion of our mix of total orders. We anticipate that over time brand awareness, Growing mobile app adoption, enhanced loyalty offerings and higher engagement in the future seasonal periods will help grow order frequency. Average order value declined 21% year over year to $192 mainly driven by a pronounced order mix to lower AUR categories. While category mix shift was the primary driver of the change, we continue to see evidence of trade down across our categories.

Speaker 4

Looking ahead, we will continue to offer compelling value to our customers and pass on cost reductions that we receive. The dynamic of mix driven lower AUR will influence future AOB results. Post Q4, we anticipate signals of normalization while orders mixing into seasonal higher AUR categories. Orders delivered were $7,300,000 for the trailing 12 month period. This is a decrease of 22% compared to the prior year and largely driven by a weaker macro and lower consumer spending compared to last year.

Speaker 4

To close, I will provide our thoughts on the 4th quarter, including color on our expected future investments around the acquisition. For Q4, we expect revenue to improve modestly versus our 3Q year over year decline. We expect active customers to increase to around $5,200,000 range, supporting year over year growth offset by lower AOV. We are planning for gross margin in line with 3Q. As a reminder, 4Q is typically a lower gross margin quarter due to elevated holiday promotional activity.

Speaker 4

Our new brand campaign is expected to drive higher marketing expense as a percent of revenue and absolute dollars versus 3Q. As we look forward over the next 12 months or so, We expect to spend the balance of our $175,000,000 investment weighted more heavily over the next three quarters. With that, back to you, Jonathan.

Speaker 2

Thank you, Adrian. Today, we covered a lot. We hope to leave you with the following takeaways. Our rebranding is still in the early days. We are just getting started.

Speaker 2

Our upcoming top of funnel brand campaign is going to amplify our message as a leading Online retailer of all things home. We are acquiring customers. The most important early metric of the initial success for this acquisition. Importantly, we are extending our reach within the total addressable market. Over the next 5 years, we plan to exceed 10,000,000 active customers.

Speaker 2

Again, we covered a lot and provided more color and guidance than we usually do. In that spirit, I want to remind you that we are here today to discuss our financial results and the progress We've made integrating Bed Bath and Beyond. We appreciate you keeping your questions focused on these topics. With that, Gigi, let's take some questions.

Operator

Our first question comes from the line of Tom Forte from D. A. Davidson.

Speaker 5

Great. Thanks, Jonathan and team I'll just limit myself to one. No need for a follow-up and I'll focus on what you advise to focus on. So Jonathan, taken as a whole, what 1 or 2 things met or exceeded your expectations on the brand transition? And what 1 or 2 things fell short of your internal expectations?

Speaker 2

Yes, Tom, thanks. It's an insightful question. I think we did better than expected on our mobile app download. The Number of customers that downloaded the mobile app was great and their usage was great. We saw their usage early in that campaign in August and then of course late as the campaign ended.

Speaker 2

I would also say on the other side, it's taken longer to warm up the email file than we hoped. We knew it would take some time as we made wanted to make sure that we didn't have any email trapped in spam filters. But at this point, those pipes are warmed up and we're able to send email Anyone and everyone on the customer file. Dave, would you add up maybe what we liked and one thing that we wish we'd done a little better?

Speaker 3

I think one of the things we like was when we changed the site that we acquired this new brand with, Blue, we saw the power of this brand. We saw customers flocking to these softer categories, to the home textiles, to the kitchen. That speaks to the power of this brand. We've been making adjustments in our top nav, in our mods and our emails to better balance the mix of legacy Overstock and legacy Bed Bath and Beyond products. And we're finding that balance.

Speaker 3

But that was probably the item that I say was just disappointing. The power of the brand is really strong.

Speaker 2

Yes. And it's been strong with suppliers. The suppliers that have come to us that we've quoted for years, but couldn't get Suppliers that have opened up their full catalog now where we used to have only a smaller portion, really powerful piece of the Bed Bath and Beyond brand. I hope we addressed the question, Tom.

Speaker 5

Yes. Thank you, Jonathan. Thank you, Dave.

Speaker 3

Yes.

Operator

Our next question comes from the line of Peter Keith from Piper Sandler.

Speaker 6

Hi, good morning everyone. Thanks for taking the question. I guess just as thinking about the 1st 2 months of the brand integration, just want to talk a bit about the revenue trajectory because you're running negative mid teens in early September and then the finish down 2019 for the quarter. It does suggest quite a bit of step off in the back part of September. So wondering if you could help us understand what caused that slowdown?

Speaker 6

Did you pull back on the marketing and the couponing? And it was that kind of a temporary slowdown?

Speaker 2

Adrienne, you want to take that one?

Speaker 4

Great. Happy to. Peter, we don't generally discuss kind of our monthly kind of GMS and revenue trends, but I'll tell you a few things. One is, I discussed in my prepared remarks we had kind of a set of customer acquisition strategies. So a lot of the monthly cadence was really impacted by when we deployed our customer acquisition strategies, particularly the mobile app versus when we were able to kind of do our email the mobile app versus when we were able to kind of do our email sends for the welcome rewards folks in the balance of that customer file.

Speaker 4

And you will just kind of note if we put kind of August September together, very in line with the Q3 trend.

Speaker 2

Yes. Just to kind of add to that Peter, it's a great question. There was a lot of early promotional activity In the 1st months of the launch and when we put out our mid quarter press release, it was post Labor Day And Labor Day is a big shopping day. So to see numbers down a little bit after Labor Day, not that surprising, but certainly working to improve that trend right now.

Speaker 6

Okay. Thank you. And then unrelated, but just on the role of Chief Marketing Officer in the company. Could you just bring us up to speed? I'm not sure if you've hired anyone or are you looking to hire someone?

Speaker 6

And it seems like That would be a pretty important role with this rebranding effort. If you are looking for someone, what are some of the characteristics you'd like to find?

Speaker 2

Yes. So I'll begin the answer and turn it to Dave, who's leading that search. We've not yet hired someone. We do have great candidates and we have great vice presidents that will report to the Chief Marketing Officer and are currently reporting to Dave as he temporarily fills that role. We want to find a great one.

Speaker 2

We're taking our time. I think the team we have in place is doing a nice job during the rebrand. But it is a hole that we'll lead to and are working to fill. Dave?

Speaker 3

Yes. Thanks, Jonathan. From a timing standpoint, This is obviously the best of the CMOs are up to their eyeballs in Q4 execution for the holidays. And so we're talking with them. I've had several phone calls with some top notch candidates.

Speaker 3

We'll start post Ground shipping timeframe, we'll probably start in on real panel interviews with our executive team and evaluating the candidates. I anticipate we'll have a candidate in place the end of January or mid February.

Speaker 2

Yes. And in the meantime, I'm really excited for our top of funnel marketing campaign It's launching next week. Even without a sitting CMO, we've done a really neat job and a good job With this campaign, it's going to be broad and you'll see us far and wide. So thanks for that question, Peter.

Speaker 6

Okay. Thanks so much.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Anna Andreeva from Needham.

Speaker 7

Great. Thank you so much and good morning guys. One question and one follow-up from us. Appreciate you providing us color on how to think about revenues in the Q4. But could you talk about the trend that you're seeing in the business quarter to date.

Speaker 7

Just curious what are you seeing from the core Overstock consumer so far? And if you feel There is a need to promote even more this quarter to make sure this customer stays with the platform. And then secondly, as a follow-up to Jonathan, Really interesting to hear about the Overstock site coming back as a liquidation site. Just big picture, how do you guys think about ensuring There's no cannibalization between the value that that and what will be no doubt sharp prices at Overstock?

Speaker 2

Great question. I'll turn to Adrian to ask the answer to the first one and then we'll go I'll discuss Our thoughts about Overstock as a liquidation site.

Speaker 4

Thanks. And so I think trends continue to kind of perform in line with our expectation and kind of And kind of as we discussed with our Q4, we talked about trends excuse me, we talked about the 4th quarter having a very similar year over year decline from the Q3 and that's we feel confident saying that's what we're experiencing and that's what we expect.

Speaker 2

Thanks, Adrienne. Onna, we are excited about taking overstock back to its roots being a clearance liquidation site. And Anyone who's been in the clearance and liquidation business like the long timers at Overstock like me have been know that Retailers are always trying to avoid channel pollution. They don't want their clearance product Next to their current product. That's why we couldn't be a general retailer and a liquidator at the same time, no one can be.

Speaker 2

When we stand up, re stand up the overstock site as a clearance site, It will be very different. There will be no similar product. That's how you avoid channel pollution. The pricing will be true clearance liquidation pricing. There will be Some hurdles to get over there, but by having none of the similar product on-site, we think we can avoid the cannibalization that your question was concerned with.

Speaker 2

Hope that addresses the questions on.

Operator

Our next question comes from the line of Seth Sigman from Barclays.

Speaker 8

Good morning, everyone. I wanted to talk about the $175,000,000 of investments. Can you frame for us how much has been spent to date? And then Where do you plan to deploy that? Is that pricing?

Speaker 8

Is that marketing? Do you need to do more hiring? I guess that's the first part. And then you did say that would occur over the next 15 months. Is there a cadence to think about just so that we can appropriately manage expectations?

Speaker 8

Thank you.

Speaker 2

Yes, Seth. Great question. And it's part of the more color that we wanted to provide. I'll turn to Adrian to address it, then look to Dave to maybe add some color. But As I noted, we spent about $25,000,000 on the deal between buying it and acquisition related.

Speaker 2

We've spent Some this quarter, you can see that in our results. Adrienne, you want to talk about kind of the cadence of what's The remainder?

Speaker 4

Happy to. Yes, so I think Seth kind of in total as Jonathan outlined those buckets, let's just say we've spent around $50,000,000 thus far with Q3 and kind of the acquisition activities. I talked about in my prepared remarks that we expect to see this over the next 12 months or so, likely more heavily weighted in the next three quarters. That's starting with 4th quarter, so 4th, 1st and second. And I would say we're going to deploy kind of those investments opportunistically.

Speaker 4

Some of them may hit gross margin for discounting and promotional activity. Some will hit sales and marketing as we launch our branding campaign and various other items, and certainly we'll continue to be really sharp on our pricing, As I said in my remarks as well offering our customers the best value.

Speaker 2

Dave, what do you add?

Speaker 3

So On the marketing front, we've got a really exciting brand campaign that's launching here at the 1st November that we're really excited about. That triggers a couple of thoughts. It's about a bigger, better beyond, which pushes our legacy Overstock product and our Bed Bath and Beyond product. So Customer understands the wide, the broad, the bigger, bolder assortment that we have. 2nd, it features a coupon.

Speaker 3

I will tell you the single item 20 percent off coupon, it is money. It is money to this customer. It is a trigger for them and we are using that to reactivate those customers and we're really encouraged by what that will do for us. We're also standing up, Jonathan mentioned this, our wedding registry, Our emerging trade business, these are areas with this brand we have real permission to go grab market share in. And so we're spending some money in those areas as well.

Speaker 2

And Seth, I just know you asked about hiring. Yes, we've done Some incremental hiring, particularly around standing up the registry and some other things. I don't think of hiring as being in that bucket. When we talk about that approximately $150,000,000 of additional investment, It's the launch of the brand, it's to reignite the customer file and it's to expand and create new categories. So, it's more marketing.

Speaker 2

It's not the kind of G and A headcount piece. We're always careful hiring there. We hire when we need and there's a few we need. And so we've done that and we're moving forward.

Speaker 8

Okay, great. I'll just ask for a related follow-up. In the past, you've targeted, I think, that mid single digit type of EBITDA margin. Is that still the expectation? And then if so, is that really a feeling that investments are going to roll off at some point?

Speaker 8

Or is it more about driving incremental sales, incremental volume to ultimately leverage the fixed costs in the business?

Speaker 2

So, let me talk first to the mid single digits. As I've noted before, We are taking a purposefully taking a pause as we for the next few quarters and I think as Adrian guided to Q4, we're going to continue to spend during this unique time to grow this customer file. Growing this customer profile is really important. It will help us grow top line, it will help us have information about customers we can use as we think about how we live up to the promise of our new corporate name beyond and expand elsewhere. So the goal is to grow the customer file, so the top line grows and that's how we get back mid single digits after this and that's why we're spending marketing this additional investment that we're making now is really to increase the customer file.

Speaker 8

Okay, great. Thanks so much and good luck ahead.

Speaker 2

Thanks, Seth.

Operator

Thank you. One moment for our next question. Our next question comes from the line of Stephen Forbes from Guggenheim Partners.

Speaker 9

Good morning, everyone. Jonathan, maybe just a follow-up on the last question from Seth. Obviously, active customer growth is a key focus. But I was curious if you could maybe expand on how you're thinking about the importance of repeat behavior over the next 12 months and how that sort of is part of the ROI threshold you're spending against today?

Speaker 2

Yes, for sure. And I mentioned in my prepared remarks, improving our CRM capabilities. I think that lets us personalize and send our messages in a meaningful way for repeat. But Dave, do you want to talk about I'll repeat is so important because if we acquire through a buy versus earn, it's not what we're going to be doing.

Speaker 3

Yes. The first step, Steve, in our branding launch was acquiring mobile app customers and getting them to download that mobile app. That customer is our one of our most valuable customers. They have the highest average order size. They have by far the highest repeat rate.

Speaker 3

They are the least expensive for us to communicate with, send offers to and drive business with. So we'll continue staying focused on that group. Our mobile total mobile percent of the business was the largest it's ever been this quarter. We're seeing real success there and we're counting on that mobile app and experiential work that we're doing on our website to improve that funnel shopping experience. But that mobile app is where we are placing the majority of our retention efforts.

Speaker 2

When you look at how we started our brand campaign or started this rebranding launch, it was mobile app and welcome rewards loyalty program. Those have the highest repeat rate. That's what we're trying to drive the customer by showing the customer the value of those 2 programs.

Speaker 10

Thank you. And then maybe just

Speaker 9

a quick follow-up. I think Adrian mentioned 5,200,000 active customers by year end. And you guys spent some time in the call talking about the 3 customer groups. Any way to frame how you think those 3 groups are as a percentage of the customer base By year end or how you're sort of expecting that to evolve here?

Speaker 2

Steve, it's hard to give exact numbers. I'll tell you the group I expect to grow the most and that's the legacy Bed Bath and Beyond customer. Because During that first two months of the launch, we were still warming up that massive email file that we purchased. And When I say warming up, it's really keeping them and all of our other customers out of spam filters by doing this in a very measured and programmatic way. That's now those files are warmed up.

Speaker 2

That's a group we can talk to in the total. So that should be the group that's percentage increases the most. Dave?

Speaker 3

I think that's right, Jonathan. And the second group would be that TAM new group. And what's encouraging about that, I just I have to go back to this again, I mentioned it in the remarks. This group had the highest average order size And they have found us in the initial stages of the brand launch. They found us through searching On Google, we have not had the brand campaign, the national brand campaigns that are going to be launching here in the coming days.

Speaker 3

So that group is very encouraging to us because as they grow, that will grow that legacy Overstock business as well. They were very high in furniture ranking and you'll see that on the schedules that we've provided after the call. We've laid that out so you can see the top product categories and performance based on each of those segments I talked about.

Speaker 2

Stephen, thanks for those questions.

Operator

Our next question comes from the line of Jonathan Matuszewski from Jefferies.

Speaker 10

Hey, good morning and thanks for taking my question. My first one is a follow-up on the financial recipe After this initial period of ad spend and discounting, I think the last plan communicated was returning to Kind of that pre deal financial recipe or something close to it by the end of 2024. It looks like the Street's modeling gross margins shy of that 22% range and And negative EBITDA margins versus positive. A lot's changed obviously over the last couple of months in terms of rates and housing. So just curious, is that plan still intact?

Speaker 10

And if so, what's the biggest disconnect you see with The Street's numbers in terms of the second half of next year? Thanks.

Speaker 2

Adrienne, you want to answer Jonathan's question, please?

Speaker 4

Sure. Happy to. I do think, Jonathan, I know that probably expectations are A bit across the board and right now we really haven't given any 2024 guidance or thoughts. I think our General goal is we think our business can operate within the parameters of the recipe card, and that's kind of our North Star by which we will run the business and perform post these acquisition activities, but we haven't given a timeline. In fact, today, I think it's the first time we talked about this 12 to 15 month investment period of about $175,000,000

Speaker 2

And Jonathan, I'll just note in our prepared remarks, we talked about the importance Growing the active customer file, we're seeing great success on that. We talked about our goals of Growing AOV, I think Q4 AOV tends to always be a little lower because of giftables. But with our marketing campaign and then moving into the 2024, we think we can take aspirationally looking to take AOV back to where it's been in the past. And then the other thing I mentioned is We have a goal of increasing that average orders per customer, which runs kind of 1.5 area. The goal is to get that to 2 over time and we're laser focused on working that.

Speaker 2

I don't think that happens in 2024, but over time, those are the 3 metrics that we're working on because we think those will drive top line and bottom line.

Speaker 10

That's helpful. And just a quick follow-up question on kind of going back to your roots with The clearance liquidation site, any kind of big picture thoughts in terms of how that will influence The P and L in terms of average order value, order frequency or gross margin, Any additional tech spend related to setting that up? Thanks so much.

Speaker 2

Yes. So let me give some initial thoughts and turn to Dave. It will be a different site and Probably too early to comment on what AOV looks like, may look more like the historical AOV, we had when we were a general retailer because there will be product on there that is very different And what we're selling today, as I noted, we intend for that to be a general cross category Overstock branded liquidation site. And so, I don't think modeling it as a furniture or home furnishing site is the right thing to do. We think we can do this in an asset light way.

Speaker 2

There may be some additional tech spend, but not very much. We think our Systems are evolving to get there so that we can run multiple sites well for the cost that we have. Dave, anything else you'd add?

Speaker 3

No, I think you covered it. It's all about the mix and that depends on the overstock at the time.

Speaker 2

Yes. One thing about the liquidation business is you can't predict what you're going to be selling because the vendors couldn't predict

Operator

Thank you. I would now like to the conference back over to Jonathan Johnson for closing remarks.

Speaker 2

Thank you, Gigi, and thanks for everyone who joined the call. Appreciate your time. Appreciate your interest. I love to say and I really believe that at the company, the best is yet to come. I think with our new name, we intend to live up to the promise of being Bigger, better, bolder beyond.

Speaker 2

Thank you for your ownership in our company. I wish you well as we enter the upcoming holiday Season and we look forward to speaking with you in the New Year.

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Earnings Conference Call
Beyond Q3 2023
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