Beyond, Inc. (NYSE:BYON) Q1 2024 Earnings Call Transcript May 7, 2024
Beyond, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Hello, and welcome to the first quarter 2024 Beyond, Inc. earnings conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there’ll be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. It is now my pleasure to introduce Vice President of Investor Relations and Public Relations, Alexis Callahan.
Alexis Callahan: Thank you, operator. Good morning, and welcome to Beyond’s first quarter 2024 earnings conference call. Joining me today on the call today are Executive Chairman, Marcus Lemonis, Chief Financial and Administrative Officer, Adrianne Lee, CEO of Bed Bath & 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, May 7, 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. Additional information about risks, uncertainties, and other important factors that could potentially impact our financial results, is included in our Form 10-K for the year ended December 31, 2023, 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 fourth quarter earnings release, which is 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 for questions. A slide presentation with supporting data is available for download on our Investor Relations website. Please review the important forward-looking statements disclosure on Slide 2 of that presentation. With that, let me turn the call over to you, Marcus.
Marcus Lemonis: Good morning, and thanks, Alexis. Today, we’re going to review our first quarter results and the significant progress we are making as we work to build something bigger and better. My mission in being part of the company was to quickly reframe, reposition, and retool the company so that the next several years look materially different than they did before. And early on, I see green shoots everywhere, and where I don’t, we will correct. During my first 100 days at the company, I spent a great deal of time studying the last 10 years, looking at capital allocation, revenue swings, stock price swings, brand positioning, vendor relationships, customer experience, and how to improve each of them. I believe that while it takes time to build the right foundation, we have three individual brands that have the potential to become billion-dollar revenue brands, brands that drive growth, worth investing in, growth driven by customer retention and lifetime value, and growth to make a profit.
A spacious living room showcasing the upholstery and case goods furniture of the Ethan Allen brand.
That growth and leverage of our scale and infrastructure requires an assessment of talent, technology, and process. And while that assessment continues, last week, we announced both the addition of new leadership across key roles, as well as the internal movement within our management team. Additionally, we announced a new and wide scoping relationship with Salesforce, along with other new technology partnerships. I believe we now have the best players on the field. As you look specifically at the first quarter, nearly 100% of the 2.2 million transactions were done through the Bed Bath & Beyond website, with explosive growth in categories like soft home, kitchen and the legacy Bed Bath care categories, which just proves that the brand is very strong.
As we look to monetize this brand and its acquisition, you can expect us to leverage the power of the brand both domestically and internationally. Recently, we completed the sale of Wamsutta, a legacy textile brand inside of Bed Bath & Beyond, for $10.25 million, nearly half of the original purchase price of the acquisition of the entire Bed Bath & Beyond intellectual property pool. Additionally, we are currently working on the start of a four-store test in the UAE with one of the largest retailers in the region, as well as an agreement to license the Bed Bath & Beyond brand on an omnichannel basis in Mexico. We’re pleased to see the power of the legacy brand and categories through both licensing opportunities and our solid performance in our Canadian Bed Bath & Beyond website, which has done well in the first quarter.
Going forward, our goal is for Bed Bath to have a highly curated and largely brand-recognizable assortment to its 30 plus million unique customers. This assortment, we believe, will maximize profitable revenue, with an aim to grow it sequentially for years to come in its core categories and all around life events. We want to make sure that we have everything for the bedroom, including bedding, pillows, mattresses, bedroom furniture, rugs, lighting, closet organization, and decor. It will own the bathroom, including towels, rugs, curtains, vanities, mirrors, lighting, accessories and beauty and wellness. In the kitchen, it will continue to grow by focusing on small appliances, tabletop, kitchen furniture, and lighting, as well as kitchen accessories.
And as extension of the house, particularly the kitchen for entertaining, we will focus on patio through furniture, grills, smokers, heaters, games, lighting and other backyard toys and accessories. Average order size finished at $173, materially higher than traditional Bed Bath & Beyond, but lower than what Overstock had previously experienced with larger and higher ticket furniture categories. That delta was caused by an increase of mix on traditional Bed Bath categories, and the decrease of penetration in the historical furniture, rugs, and large patio categories, a slight mismatch of mixing apples and oranges, propelling our strategy of relaunching Overstock sooner than we originally planned, and returning Bed Bath to its historical categories, but enhancing them with room-specific furniture being sold as an understandable adjacency, just like selling mattresses and beds around top of bed.
And while Bed Bath has some success selling into historical Overstock categories, like family room furniture, large area rugs and case goods, the performance didn’t meet our team’s KPI goals around margin contribution and the cost of acquisition, the way we believe Overstock can perform and return to its historical performance in those categories. Those results reaffirmed our conclusion during the quarter around the specific muscles that both brands can thrive separately while complementing each other. We are optimistic that in its full mature state, that Bath has the potential to be north of a billion-dollar brand, with positive contribution and a higher frequency of visits, driven by our focus of life events like baby, wedding, home purchase, home renovation, college, et cetera, all the things everybody’s always known Bed Bath for.
As part of that continued learning and reframing, we also believe Overstock has a clear path to return to its billion-dollar plus revenue performance. For the last several decades, Overstock has been one of, if not the premier name in broad category online value shopping. And while it veered in and out of products over time, its reputation always remains strong as the place to get a crazy good deal. We, largely led by Dave Nielsen, fought hard to bring this brand back sooner than later. We were dually focused on the reestablishment of revenue and gross profit, as we were convinced that the brand was not only strong, but could do more. The soft launch of Overstock on March 28, was on the new platform, literally starting from scratch, since the historical technology used by Overstock.com had been given to Bed Bath last fall.
We collectively chose to push forward six months earlier than previously anticipated. The team spent nights, weekends, and days they didn’t have, to create a brand-new platform, integrate new and existing vendors, learn to integrate a new system into Supplier Oasis, and all the new sales and reporting functions, to my amazement. They also collectively made the decision to build it carefully, adding layers as the former ones solidified. The launch requires proper ramping of SKU additions, transaction volume, and email and marketing deployment, and I am very pleased with the steady ramp and the early numbers are encouraging. Now, positioning for Overstock is simple. A wide array of products at crazy good deals. Now, obviously, the core categories are anchored in furniture throughout the house, rugs, patio furniture, apparel, footwear, jewelry, and a variety of other vendor-supplied special buys, closeouts, and excess.
As we continue to think about the power of this brand built over 20 years, we realized we can get more out of it. We intend to further leverage the Overstock brand as the leader in excess, factory-direct liquidations and reverse logistics businesses. We are currently in discussions around the final term sheet for a partnership with one of the largest liquidators in America. We believe there is a moat to be established if you create a circle that provides wins for the vendor community. The first half of the circle is a true traditional relationship to consumers built on the power of those brands you sell successfully, coupled with a mechanism to complete the circle to help those same vendors with their domestic returns, creating a more seamless experience for the customer, processing and handling, and the remarketing of those same products that have been returned.
We believe that if we can be part of improving their supply chain for the vendors on the backend, which is where the game is often won or lost, we’ll have found another way to monetize the Overstock brand again in an asset-light way. Lastly, on March 7th, we acquired the intellectual property, consumer database, and technology platform, Zulily, the historical off-price darling of the beauty and fashion and accessory space. Over its history, Zulily ranged from year to year between $1 billion to $2 billion of revenue. Over the last 60 days, we have been successful in re-engaging with the top 10 vendors, and have started the onboarding process. Historically, margins in that business were in excess of 20%, but we see a path to a higher number, closer to 24% once mature.
We have and we’ll continue to be diligent about any expense added to this business. So far, we have identified four key leaders to run that business on a day-to-day basis. Utilizing the shared services technology team, may be the first time we’ll see real scale in this business as the revenue grows without the high level of follow-on fixed expense. Additionally, one of the very unique properties of Zulily is the way it goes to market, cost effective email marketing, not soliciting for product in an open marketplace. By the way, the vendors love that, and you spend money winning retention with great prices and great service. We anticipate launching Zulily in the next few months, and we’ll update you as we get closer and firmly believe we’re ready.
I’d like to turn the call now over to Chandra.
Chandra Holt: Thank you, Marcus. I started as CEO, optimistic about the strength of the Bed Bath & Beyond brand. And now, 90 days later, I am even more excited about the brand’s potential. During the quarter, Bed Bath & Beyond legacy categories delivered industry-leading results. GMV for Q1 was up triple digits for bedding, bath, and kitchen. I believe building on brand equity, while modernizing the customer experience, is the formula that will deliver differentiation and long-term profitable growth. As such, during the quarter, we established three strategic priorities. The first strategic priority is assortment curation. We will curate complete solutions for the most important spaces in the home, including bedroom, bath, kitchen, and backyard, and ensure every item meets our quality and design aesthetics.
Our assortment curation will be a key component to our value proposition, and you’ll see us move away from our marketplace, like assortment of 12 million SKUs, to one that has enough breadth and depth to be category-leading to our suppliers, but is edited to ensure an easy shopping experience for our customers. As part of these efforts, I’m excited to share that I’ve hired a new Chief Merchandising Officer, Stacey Shively. Stacey brings 30 years of retail merchandising experience, and has held key leadership roles at companies such as Target, Container Store, and legacy Bed Bath & Beyond. The second strategic priority is life events. Bed Bath & Beyond has been a go-to retailer for life’s special events, such as having a baby, getting married, or sending a young adult to college.
In Q1, GMV for the baby category was another triple-digit green shoot, up 211%. Our thoughtful assortment, registry capabilities, new CRM platform, and inspirational marketing, will help grow our brand equity as a retailer for life events. Our new focus on inspirational marketing requires an exceptional leader. So, I am pleased to share that Angela Minor has recently started as the Chief Marketing Officer for Bed Bath & Beyond. Angela brings two decades of marketing experience to the team. The third strategic priority is experience. In order to elevate our authority as a category leader and best serve our customers during their special life events, we need to create a unique shopping experience. Delivering this experience will require us to modernize our e-commerce technology.
With that said, I am also happy to share that we have hired Guncha Mehta as our new Chief Information and Digital Officer. Guncha brings over 25 years of experience to Beyond, and will be leading our transformation technology roadmap. I am proud of the results our team delivered for Q1, including positive revenue, a double-digit increase in transactions, and positive customer growth, but I am even more excited about our strategic priorities and how we are refocusing resources to drive capabilities that will help differentiate us and drive greater customer lifetime value. I’ll now turn the call over to Dave.
Dave Nielsen: Thank you, Chandra. I am so proud of the Overstock team for recognizing the need to pull up the soft launch by six months in order to maximize both top and bottom-line performance of each brand. As you just heard from Chandra, aligning each brand with the legacy product categories each is known for, is fundamental to setting the groundwork for future profitable growth. As Marcus mentioned, it’s important to note, Overstock was soft launched without its 24 years of online history, as it was redirected for the Bed Bath & Beyond launch last August. I am encouraged, however, that even though we’re starting from scratch with Overstock, the soft launch site visits are exceeding our initial expectations. We anticipate continued visit growth as we engage our robust customer file and ramp the warmup of our email list and other acquisition channels.
We are on schedule to complete the email warmup by the end of May, addressing our total email list population email population of 31 million. To expedite the Overstock growth, we soft-launched our mobile app last week. The most loyal Overstock customers historically shopped on the mobile app, and it was our highest converting, highest average order size, and highest repeat purchase platform. We’re taking the same iterative approach we did to launching the website, and with a few more experience enhancements, we’ll be launching our mobile app download campaign within the next 30 days. Sales and conversion rates have improved each consecutive week over the first five weeks of the soft launch. Average order size and contribution margin are right in line with expectations, and customers are back to their previous purchasing habits of buying furniture, patio, and of course a wide range of area rugs, as we knew they would.
As we ramp Overstock over the coming weeks and months, it will play a pivotal role in driving higher average order size and contribution margin for the Beyond portfolio. The assortment ramp-up is progressing nicely. We’re transitioning more of our products in patio, furniture, and area rugs, from Bed Bath & Beyond, as well as actively pursuing crazy good deals. Our merchandising and our marketing leadership team is top tier, and I’m thrilled to have proven executives in place to take both Overstock and Zulily to all new heights. Over the coming weeks and months, you will see this team add new product categories in apparel, footwear, sporting goods, and tools, just to name a few. As I’ve said before, we’re going back to our roots. Turning to Zulily, we’re making terrific progress and expect to soft launch in the third quarter.
Our vision for Zulily is to focus on the segment of customers who loved Zulily before, working moms who enjoy shopping for themselves and their families. Shopping is fun for them, and they like to browse frequently. They have an emotional attachment to the thrill and excitement of finding the best deals. At the same time, to bolster the P&L, we’ll provide an evergreen must-have basic assortment in a highly curated everyday shopping experience that will require customer login. We’re actively onboarding strategic brands, the focus on mom and her family. We’ve hired a team of experienced merchants who were previously with Zulily, know the Zulily customer, and have established working relationships with these brand partners. Each of these brands plays a critical role in our future success, and I look forward to coming back next quarter with the progress we’ve made with each.
I’ll now turn the call over to Adrianne.
Adrianne Lee: Thank you, Dave. Revenue increased year-over-year in the first quarter, led by 26% growth in active customers, and a corresponding 27% growth in orders delivered. Average order value remains a headwind. AOV declined 21% versus last year, primarily due to sales shifting into bedding and bath categories and out of furniture and rugs, as well as in-category trade-downs. We are acutely focused on closing the $47 year-over-year gap in AOV. To break that down, a $30 improvement on one half of the transaction, would’ve been $33 million in additional revenue. We believe providing a more curated assortment on Bed Bath & Beyond, and relaunching Overstock, will help us close this gap over time. Gross margin landed at 19.5% for the quarter, a 720-basis point decrease versus the same period last year.
Increased discounting drove about 400 basis points. Welcome rewards redemptions drove almost 90 basis points, and increased shipping costs drove 270 basis points of pressure. First quarter gross margin improved 20 basis points versus the fourth quarter, driven in part by actioning against some of the six tactics that we shared on our last earnings call. Renegotiating freight rates, this is essentially complete with our carriers, and we expect to see improvement in our run rate going forward. Improving vendor relations for more favorable product costs, this is an ongoing effort for our merchandising team. Relaunching Overstock.com. Overstock was soft launched at the end of March. Since launch, this brand has been accretive to our gross margin profile, providing integration add-ons.
As of April, customers are now able to purchase product warranties and shipping insurance from our site. Reintroducing owned brands and embarking on licensing activity. This is in the early innings, but something we continue to pursue. And eliminating inefficient discounting. We expect this to be realized over time as our brands and corresponding value propositions are clear to customers. G&A and tech expense decreased $1 million year-over-year, primarily driven by cost-cutting actions, supporting our plan to reduce fixed costs by $45 million. To that end, I am pleased to report we have delivered half of the annualized savings, with a path to secure the balance. We changed the presentation of our customer service and merchant fees to better reflect how we manage the business, and to ease with comparability to peers.
This expense was historically included in gross profit. For additional details, a historic recast was provided in slides posted to our IR site. All in, adjusted EBITDA was a loss of $48 million. On a margin basis, this was negative 12.5%, a 1,300 basis-point decline year-over-year, with approximately 50% of the decline driven by gross margin pressure. Our reported GAAP EPS loss was $1.62 for the first quarter. Excluding losses recognized from our equity market securities, we reported adjusted diluted loss per share of $1.22. Our balance sheet remains strong. On a net basis, our cash balance is $222 million. As Marcus shared, we expect to reduce spend on acquiring transactional customers and invest in our brands and corresponding customer experience to improve the lifetime value of each customer.
We will also continue to opportunistically monetize non-performing assets. As an example, we sold Wamsutta and reinvested in Zulily, a brand that has a more recent active customer file. Notably, we did these transactions with a net positive cash impact. Our headquarter building in Utah is still listed for sale, and we will continue to keep you apprised of our progress. Additionally, as it relates to Pelion, Marcus and I have been working for several months to improve the relationship with Pelion, and have engaged multiple outside advisors to evaluate all of our options as it relates to this asset. As it stands today, we are dissatisfied with the decline in value of this asset since the transfer to the portfolio. Chandra and Dave are focused on growing our three anchor brands, and as I mentioned, our margin improvements and cost-saving actions are well underway.
There is still significant work to be done, but I’m confident in our path forward. And now, I will turn the call back to you, Marcus.
Marcus Lemonis: Thank you, Adrianne. Before we move on to Q&A, I want to make one final point. I understand the P&L of this company now to its core, but I don’t like seeing when there’s a loss. The only justification for any loss running through the P&L is when each of those dollars actually provides a return on investment at some point. In the absence of that, it no longer turns into an investment. It just feels like wasteful spending, and we won’t be doing that. Let’s go ahead and take some Q&A. Back to the operator, please.
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