Beyond, Inc. (NYSE:BYON) Q4 2023 Earnings Call Transcript

Beyond, Inc. (NYSE:BYON) Q4 2023 Earnings Call Transcript February 21, 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: 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'll be a question-and-answer session. [Operator Instructions] Please be advised that today's call is being recorded. I would now like to turn the conference over to Adrianne Lee, Beyond's Chief Financial and Administrative Officer. Adrianne?

Adrianne Lee: Thank you, operator. Good morning, and welcome to Beyond's fourth quarter and full year 2023 earnings conference call. Joining me today on the call are Executive Chairman, Marcus Lemonis, 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, 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. 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, 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 fourth quarter 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. With that, let me turn the call over to our Executive Chairman, Marcus Lemonis.

Marcus Lemonis: Well, good morning, and welcome to the first 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. Positive transactions with frequency with our Bed Bath & Beyond brand, we'll create trust and trust will create our ability to sell the bigger ticket items from Overstock to more complex products and services from Beyond+.

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 two brands and position us with a leadership team that is now aligned with shareholders on incentives and driving value. Adrianne, Chandra and Dave are the three leaders whom I trust to lead the day to day operations with full P&L authority and responsibility. They bring expertise, vision and the change management skills that this company needs to drive results and evolve this business. You'll be hearing from each of them today in both prepared remarks and the Q&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. 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 million records. However, to improve efficiency and profitability, we're going to invest in cleansing, deduping 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. 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.

That starts with generating core revenue and delivering better margins. Our primary focus this year is to achieve $2 billion in sales, a material increase from 2023, and follow that up with achieving a run rate of $3 billion 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&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.

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 Pelion 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. We're firmly committed to delivering updates quarterly.

I'll now turn the call over to Dave.

Dave Nielsen: 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. 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 & Beyond as a flywheel to power customer acquisition for the entire portfolio. On the third 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. We are planning to relaunch Overstock in roughly five 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 million-plus 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. Adrianne will outline our targets as she walks you through our margin improvement plan for 2024 later on the call. 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 million 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. Vendor partners are recognizing our improved sales performance in the Bed Bath & 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 turned 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. 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 million active customers, $250 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. With that, Chandra?

Chandra Holt: Thanks, Dave. I joined the company because I'm passionate about Bed Bath & Beyond and I'm driven to reestablish its category dominance. It's my goal for Bed Bath & 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 & Beyond offerings, such as Baby and Beyond, Kids and Beyond, College Living and wamsutta.com. Baby and Beyond is expected to be our first specialized experience and we are excited about the upside because we know many Bed Bath & Beyond customers frequently cross shop the baby category. Wamsutta is another exciting initiative.

At its peak, Wamsutta was a top bedding and textile brand in the U.S. In the coming weeks, I plan to partner with suppliers and designers to set the new vision for Wamsutta. I look forward to modernizing the marketing and creative processes through a partnership with a powerful and influential female leader that will serve as a 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 and positioning the business for growth and interacting with our investment community. I will now turn the call over to Adrianne.

Adrianne Lee: 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 fourth quarter and grew [3%] (ph) 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 the sales mix skewing to lower AUR categories. November and 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 & Beyond brands and Dave leads the relaunch of our once $1 billion-plus Overstock site.

Gross margin landed at 15.6% for the quarter, a 650 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. Welcome Rewards redemptions drove about 160 basis points, and increased shipping cost 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 Wamsutta and other owned brands to complement the superior name brands we have assembled; and eliminating inefficient discounting.

The G&A and tech expense increase of $7 million was primarily driven by us booking approximately $6 million of discrete one-time item costs, primarily associated with expense reduction actions announced in December. All-in, adjusted EBITDA was a loss of $49 million. On a margin basis, this was a negative 12.7%, an almost 1,500 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&L. We have identified a total of $45 million of annualized cost savings, which is expected to be fully annualized in the first half of 2025. This includes the $25 million cost reductions committed to in December and $20 million of incremental savings.

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 billion 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 fourth 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.

Our balance sheet remains strong. On a net basis, we ended the year with a cash balance of $268 million. On our third quarter earnings call, we shared that we expected to spend $175 million on the purchase of Bed Bath & Beyond brand and subsequent customer acquisition strategies. We have spent about $100 million through the fourth quarter, and I expect that we will invest less in large part due to the key learnings Dave mentioned from the fourth quarter. 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. So, as far as expectations, we expect revenue to be positive year-over-year in Q1 with the goal of $2 billion 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, I'll turn the call back to Marcus.

Marcus Lemonis: Thanks, Adrianne. Before we get into the Q&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&A.

Operator: Thank you. [Operator Instructions] Our first question comes from the line of Rick Patel of Raymond James. Your line is open.

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