I want the Barbie one.
Yeah. All right. We have 15 seconds, so. You get okay last night?
No, I just got here.
Okay. All right. Okay, well, let's kick it off. All right, so thanks, everyone, for coming. My name is Peter Keith, Senior Research Analyst at Piper Sandler, covering retail and specifically hard lines, broad lines. Very happy to have Beyond here. Representing Beyond is Marcus Lemonis, who is Executive Chairman. Quick background, Beyond was formerly known as Overstock, and today it's an e-commerce platform company with brands such as Overstock, Bed Bath & Beyond, and Zulily. Many of you might know Marcus. He grew Camping World to be the largest retailer of RVs in the country, and he's also had a couple of successes on TV as well. Thank you for coming, Marcus.
Absolutely.
Yeah.
Thank you.
The stock's trading well today. In a moment, I want to dig into the press release to have you unpack that a little bit, but I just want to take a step back and kind of ask you big picture. I looked up, you joined in October 2023.
I joined as a.
Board member. Yes, yeah, as a board member, and then you became Executive Chairman in February of 2024 .
Yeah.
This is the timing. So kind of what intrigued you about the opportunity to come on, to join the board, and then to take on further responsibility as executive chairman?
Yeah, you know, when I look at the business overall, I like to build businesses that have moats around them. And retail, particularly this type of retail, isn't typically a moat-driven business because there's other folks that can commoditize products just the same and sell them. But when I took a step back and I really understood what IP the company owned, and more importantly, with the lack of debt in the company and the cash on the balance sheet, what was the opportunity to build something where I thought there was a lot of white space? And when I look at the home space overall, I think most of us revert back to selling just goods and services that are going to arrive at somebody's doorstep and have them installed or they're going to use them.
And I look at the goods and services that are sold across not only this business, but other businesses inside of the home space, and I see something totally different. I see a holding company that becomes more of a data and a fintech company, using a much lower cost of acquisition to monetize that consumer in a different way after you build affinity with them.
Okay.
So that's. It's really kind of going back to my original playbook of how I built Camping World 20 something years ago, is that I knew that there was a lot of white space in the market, the ability to consolidate. There were distressed assets that were out there. I also knew that in order for that business, which tends to be cyclical in nature, I needed to build a giant moat around data, and then once I did that, to try to find an affinity-type model that would allow the company to monetize off of products and services that have no inventory related to them, that have high levels of recurring revenue.
Okay.
So IP monetization and data monetization were really what was most attractive to me.
Okay, so I guess maybe just we'll kind of dig into that a little deep, more deeply, so you have the three key brands right now with Bed Bath, Overstock, and Zulily.
Yeah.
How do you manage on running those separately? You talked about building an affinity program. Do you think about them all stacked together? Help us understand the strategy by having three distinct separate brands.
I think before we do that, you have to take a step back and understand how we got to today.
Yep.
Overstock has been out there for several decades, actually, and it's had iterations of ownership and management and iterations of strategy. And over $400 million was spent by the company in the previous decade investing in blockchain and cryptocurrency, and we still have those assets today, and we're hopeful that they provide the value that our shareholders expect, but it's not a core business. But in the summer of 2023, I think the company made an acquisition that they thought was going to be a silver bullet.
Mm-hmm.
And as I tell people very candidly today, it was more of a bullet to the head because you took a well-oiled Overstock.com machine, and you had enough arrogance to shut it off and rebrand it overnight, paint it blue, and call it Bed Bath & Beyond, and expect that the category assortment that Overstock had historically done well in, which was large format furniture, patio, rugs, for the most part, compared to what Bed Bath & Beyond had, which was smaller AOV, soft goods, textiles, small appliances, gadgets, and made this assumption that the consumer was the same. And when you merged those two assortments together, you created a marketplace. So when you created a marketplace, your point of view about who you were and what you were going to do was broken.
Mm-hmm.
I came into this role in February 2024. The month prior to that, convinced the board to make certain changes to bring Overstock back as a subdomain. In the course of my history, because there's always an elephant in the room, on my first call in the role that I'm in, covering the fourth quarter that I had nothing to do with, I made a tremendous mistake. In a matter of two weeks, looking at the math, saying, "Overstock did this on a TTM. We're going to open these two things up," both Zulily, I knew I had in my mind, "and we're going to restart Overstock, and one plus one plus one is going to equal $2 billion.
Mm-hmm.
As I got deeper into the numbers, and I got deeper into how broken the technology became and how broken the taxonomy was, a matter of like three and a half weeks later, or four weeks later, or whatever it was, I had to walk that back. So I take full responsibility for giving this idea of where I thought the company could go this year, and then, you know, a month or so later, having to pull that back. That's been a bit of a challenge, for sure. As I sit here today, we've made a lot of progress. Overstock is trending at about a $170 million run rate. It's only been open since April.
We started from a dead stop, an absolute dead stop, because Bed Bath & Beyond hijacked the domain authority that Overstock had, and that's what Bed Bath is functioning on today. When those two brands merged together in the fall of 2023, and they noticed that conversion on the site and transactions on the site started to drop precipitously, the reaction of that management team at the time was, "Let's increase site sales," so that's margin compression, "And let's increase spend," that's SG&A increase. And when those two things happen at the exact same time, you end up with a P&L that looks like Q4, Q3, Q2. That's kind of what it looks like . I don't ever like to make excuses, and as you get to know me better, I will always tell people exactly what I think, sometimes to my own peril.
But the machine was broken, and we are starting to see the repair of that with sequentially improving margins and sequentially decreasing SG&A. We soft launched Zulily today, so that's kind of the state of the union as things may be. Okay. My, my short-term vision and my long-term vision, ironically, happen to be one and the same. And that is, if you could visualize a holding company up top, also known as Beyond, as the owner of the data, the owner of all the customer files, the owner of all the intellectual property, and the businesses down below, and the management inside of those as renters of the IP, their job is to generate positive contribution margin transactions, and ultimately have a positive EBITDA at the bottom line in each one of those brands individually. Don't ever look at the aggregation of them.
We don't currently break them out, but our goal is to, in future years, show people the revenue that exists inside of those. But the purpose of all that is to accumulate consumer data, not just name, address, phone number, but name, address, phone number, size of the property, size of the home, when you bought it, your mortgage balance, who your mortgage lender is, what your credit score is, and everything in between those chalk marks, so that we can start to do what I feel like I know how to do pretty well, which is create affinity products and services up top. So if you visualized up top, that's home warranties, shipping insurance, mortgages, HELOCs, credit cards, and a global loyalty program, much like you think about Bonvoy or Star Alliance.
Down below, those brands are meant to do nothing but be profitable, but feed that data up to the holding company, so that holding company has a zero cost of acquisition to be able to monetize that data. What I realized in that entire process is that, Beyond's ability to be profitable to a level that works at my standards as purely an e-commerce-only business, without another affinity type model or some other form of monetization, was going to deliver a bottom line that was never going to give me the multiple, that would ultimately allow the options that I have at 45, 50, and 60 to materialize. As a reminder, as you know, I'm working for free.
Yeah.
Which is happy to do it, but I'm playing for options.
And so for me, building shareholder value and giving people a path where they can see how their value and our - my value, together, our value monetizes, is all that I'm focused on. We've made a lot of changes. The more I learn about the business, the less I put up with bullshit at the company. And I say that as respectfully as I can. We are a Salt Lake-based business. We will always be a Salt Lake-based business, because that's where the nuts and bolts come from. We sold the building, so we finally signed the APA on the building. That'll remove $34 million of mortgage debt and bring in about $18 million of cash. We announced this morning the first of our licensing deals, and there are many working as we sit here today.
With PEM America, we think that's a multimillion-dollar. Just that transaction alone is a multimillion-dollar piece. But if I take a step back from all of that, the reason for licensing and the reason for these partnerships with companies like Allstate are to really understand how to garner more customer data. And when I look at the cost of delivering e-commerce revenue in a vacuum, the cost of acquiring customers and the cost of converting customers is unprofitable. And so how do you do that in a way that brings more cash flow and keeps the company in an asset-light model? So as you think about those three brands down below, Bed Bath & Beyond, focusing on bedroom, kitchen, bath, and patio. If you think about Overstock, focusing on the off-price market, the liquidation market, and the clearance market, of which there's a lot of white space.
And if you think about Zulily, doing really the same thing that Overstock does, but in the apparel side, all we're really building is predictive data, primarily targeted around women. Because I don't know about your house, but in my house, I don't make a lot of decisions about much. And so the more predictive information we have on all of those customer bases, the more we'll be able to build affinity. As part of that challenge, though, Peter, I started to think about how Bed Bath would come back to life in a different way. And I have no interest.
Mm-hmm.
In taking on leases or opening up stores or spending CapEx, or worrying if somebody showed up on time at 11:00 A.M. for their shift. But I do have an interest in bringing the brand back to life on the corner of Main and Main. And so we are going to be announcing over the next several weeks, three specific transactions that do not put us in the ownership position of any business, but put us as a partner in multiple businesses, extracting both value on the equity side, data as part of that transaction, fully dumped into this global loyalty program, and fees and revenue associated with the usage of the IP. The first deal we've talked about several times, it's with a liquidator who operates off-price and reverse logistics stores. I'm waiting for the final.
My final twist on the transaction to be agreed to-
Mm-hmm.
Because I tend to be one that will negotiate to the last hour. I'm not, I don't ever, like, hide that fact. I'm gonna get the best deal for our holders. But it's a transaction where we would become a secured lender to this company, and we would garner between interest and fees, about $4 million a year on a $15 million senior secured loan, as well as have all of their inventory plugged into Overstock, where we will make money in addition to that.
Okay.
So that's transaction one.
Let me just stop there for a second. So this, I guess, this is all associated with the licensing, in effect. Is it?
In that particular transaction, we are making a senior secured loan. They are going to be converting stores to Overstock.
Yeah. Okay.
So that will be the first time you see the Overstock name on buildings that we don't operate. We don't have any lease liability, we have no labor liability, and no inventory liability, and we are charging a joint venture fee. That's what I'm calling it.
Mm-hmm.
Because I don't know what else to call it. It's a cost of capital for doing business with us. And in addition to all of that inventory being available at Overstock, our primary vendors at Bed Bath will have the ability to sell their off-price goods through that channel as well.
Okay. Okay.
There's lots of different financial moats for us as we look at just that $15 million transaction.
Okay.
So I think about money. I give you $1, what are you giving me back? And that's how I want our shareholders.
Okay
To see these transactions.
So in that case, that's an existing retailer. I think I know who it is. I won't say the name, but you're - they will convert some of their existing store footprint to Over-
It's a private company.
Yes, right.
Channel Control Merchants.
Yeah.
Partially owned by KKR and Hilco. Wonderful people, but they need Overstock's help.
Yep. So let's think about the Bed Bath licensing. So you've mentioned, I think, it's PEM.
Yeah.
So, are there Bed Bath & Beyond stores gonna be opening up now? And let's understand how that licensing works.
We have agreed to terms with another company to make an investment in combination of senior secured debt. You'll notice a theme. I always like to be in that capital stack to protect my shareholders and myself, as well as take on equity in a public company that operates hundreds of retail locations. Hundreds. They are a borderline unprofitable today. Borderline. We know the reason they're borderline unprofitable. They're a well, well-merchandised company that got a little ahead of their skis in COVID, in a category that we have a lot of knowledge in. Our goal is to announce that transaction here in the next couple of weeks. We will be a senior secured lender. We will be a very, very material shareholder without having a VIE problem, and we will charge a fee for those two things.
And then we will license.
Mm-hmm.
The Bed Bath & Beyond brand to that retailer to start converting stores, and then over time, maybe all of them will convert, we don't know. But that is in a small format, so 5,000-11,000 sq ft. I'm calling those neighborhood stores.
Okay.
We should expect Bed Bath & Beyond to be back with its, with a store presence by February or March of 2025. I did not want to disrupt the holiday season. In addition to that, their whole, supply chain of inventory will be plugged into Bed Bath when it's less than a certain amount of days in stock. That's a mandate, and plugged into Overstock.
Mm.
When it's over a certain number of days in stock, also a mandate. So we want to help them turn their inventory, not only as a licensing partner, but we'll own a massive chunk of that company at the same time.
Okay, so that it's moving to omni-channel, which we like.
We're not omni-channel.
No. The brands are.
We are leveraging other people's balance sheets.
Yeah. Okay.
Keeping our balance sheet crispy and clean.
Okay
So that we could use capital and deploy it in a way where we can extract maximum value with minimum risk.
Okay.
We'll also be taking over and partnering with them on the management of their e-commerce business, and we are financially incentivized to grow their e-commerce business from where it is today to where we think it can go. So there are four or five different stacks of income that come from that transaction.
Okay.
As well as them giving us all of their data.
Yep.
All of the time.
Okay. So then we'll round this out. My question is, you're saying it's low risk, which I agree. It sounds like there's not any investment risk. But I think there's brand risk. I want to be clear about that. So you're looking at putting your brands on stores that you don't operate. So how are you going to control it so that the brands aren't damaged by an unfavorable customer experience that's out of your control?
The current operator that I'm speaking of, in my opinion, for more than forty years, has operated an excellent business. Their customer service scores are off the charts. Their inventory turns are spectacular. They had a foot fault when they got into furniture, and that's not really their core competency. I trust the CEO of that business to the point where one of my deal requirements is that that CEO be given a little more authority. I have a high level of confidence in that merchandising and management team, and so we're going to give them a playbook of what our expectations are.
Not like a franchise, because we don't want to be in that regulated environment, but it'll feel like a license with lots of structure. So if you walked into one of those stores in February, it would optically look like Bed Bath & Beyond, just the right size format, because 30,000 sq ft is. That's insanity, in my mind.
Okay. So, I think everyone understands the home side with Bed Bath. A lot of people know that brand have shopped there.
There's another deal on top of that.
Okay. Yep.
So there's one other transaction that'll look similar, with another known quantity, with a similar structure.
Okay.
So there will be the Overstock licensing deal and then two formats of bringing Bed Bath & Beyond back in a large way, one small format, one large format.
Okay. So I did want to talk on the Overstock and Zulily side, because that's a little bit newer, and those are distinctly closeout in effect. And so it's more around procuring and sourcing the merchandise. And could you understand how that's going to work? Because the way I've covered closeout for 20 years, and this closeout historically hasn't operated well online. The pricing transparency, the brands don't like that it has. So how are you going to procure merchandise for these two distinct brands in a way that's going to keep driving recurring customer purchases?
Yeah, so we'll start with Zulily, which is the easy one. I spent a week on the ground with the top 10 vendors that used to fund Zulily previously. Unfortunately, as you would imagine, a lot of them got burned through the ABC auction process.
Mm-hmm.
We put all of them back together, and all of them will be part of Zulily. So the sourcing with great companies from G-III all the way through the Pendulum are going to continue to be partners. It's going to be very focused on women's apparel, kids' apparel, and beauty. And we're going back to the well with the top vendors that drove that business before. So the supply chain is more than robust for Zulily. On the Overstock side, the misnomer about historical Overstock is that it was buying closeouts. But much like other off-price brick-and-mortar retailers, there is planned evergreen product that gets created. So for example, we bought twelve truckloads of mattresses yesterday from what we would call the big S's. We're not allowed to say their name, but there's only two big S's in the mattress business.
We have that relationship because of Bed Bath, and so what is uniquely happening to Overstock today is it's able to leverage its solid relationships with core vendors on the Bed Bath side, to be able to give them inventory margins and terms on the Overstock side. We're also doing a direct factory direct through GigaCloud over in Asia.
Yeah.
We're also using the CCM relationship as closeout liquidation inventory, partially leveraging Hilco as well.
Okay, great. So, in the interest of time, we'll just talk a little bit about the financials. As you mentioned earlier this year, in the Q4, you had set revenue targets.
Yep.
How do you think about it now that you've gotten deeper into the business in terms of prioritizing revenue growth over profitability? And I know you want both, but what should investors expect over the next twelve months as the higher priority?
In Q2, it was a big focus of mine to tighten down revenue and get more profitable. In Q3, which is usually our quietest quarter of the year, it's typically like the bottom of the barrel. The goal to the team was: We're going to generate as much revenue as we can, but we need to be more profitable than we were in Q2, even if it's on materially less revenue. Then Q4 will be really the first quarter where we believe we can start lapping horrific losses that started. We think we're going to start to improve on those. The key is, how do you drive margin up, which we've had margin improvement, which creates friction in demand, and how do you drive marketing spend down, which creates friction in traffic. We think we're executing on all those.
If we were all private investors in this room, and we owned the business together, I would say to you, "We need to focus on getting to zero, and then we can focus on growing." But in order for this model to work, we still need customer transactions and data. So we have to find that balance of understanding that the transactions that we're doing, we believe we can get a lifetime value out of them. We will launch a full Salesforce model that we signed up for like, a couple months ago, that will launch in the middle of Q4. The minute that the Salesforce CRM, that tells me every customer that we have, where they live, what they buy, what their propensity is, builds all the journeys out, you'll see me start to spend money again.
Because spending money is fine if I know what I'm gonna do with the customer, where they're gonna go. Spending money just to lose money on transactions to say that our database is more robust, I won't do that.
Okay. And, so lastly, I just want to squeeze in one more. Spending more money to drive the traffic, do you think about that? Is that gonna waterfall across the brands? Do you have to spend more initially with Zulily to get that off the ground? Or Bed Bath being the largest revenue base, is that the one that's most likely to see you lean in, the quickest?
I think what's happening right now is we are surgically removing SKUs off of Bed Bath, trying not to break the revenue curve too much, and when you take a look at patio and big furniture and big rugs on Bed Bath, they have negative to barely positive contribution margins. When you move them over to Overstock, they tend to perform at a much better rate, so I have to figure out, and we have, how do you move those SKUs sequentially from Bed Bath to Overstock? How do you spend less at Bed Bath and start to spend more at Overstock, and also improve the bottom line quarter after quarter after quarter? To say that we have a body on the table and we're doing surgery sounds a little too dramatic. That may have been the case three months ago.
I will now say that we've sewn the body up, and we just need to let it heal, but we still have some therapy to do.
Okay. All right. Thank you very much Marcus.
Thank you.
Pleasure speaking with you.
Appreciate it.
Thanks so much.