Beyond Inc. is still trying to find its footing as it sets a growth agenda that has at least one Wall Street analyst labeling the firm in “show-me” mode.
The key focus for Beyond and its core Bed Bath & Beyond banner is growth while keeping the operation an asset-light business. That won’t be easy unless Beyond can drive revenue growth—third quarter results were dismal—to support expansion plans and the operations of its other nameplates, overstock.com and zulily.com.
Beyond executive chairman Marcus Lemonis has a solution that was the focus of the company’s Investor Day presentation last week. In addition to a core asset-light e-commerce operation, Beyond is transitioning to include an affinity and data monetization program.
Recent layoffs of 20 percent of Beyond’s workforce eliminated some redundancy in its shift to an asset-light business. It’s also why Beyond has invested $40 million in the struggling Container Store and partnered with Kirkland Inc., as both will give the Bed Bath & Beyond banner floor space in their stores. And a global licensing program for the home banner disclosed in September allows for partners to operate the stores using the nameplate in key markets overseas, with the first slated for Mexico. The core banner now includes a soft launch of Baby & Beyond brand as part of the Bed Bath & Beyond family of nameplates. Lemonis said Baby & Beyond will launch “in the future.” Other banner categories on the site that could become separate banners in their own right include College Living and Backyard. There’s also a link to Studio4 Beyond, which is tagged as “coming soon.”
But more intriguing is the new affinity monetization plan for Beyond, and its one that’s heavily focused on data. Lemonis plans to build customer loyalty and enhance margins at the point-of-sale and checkout through affinity product offerings. They would include loyalty, credit card, warranties, shipping insurance and home services. And the additional data that will be captured is expected to enrich the expansive database Bed Bath & Beyond already has, allowing it to further segment its customer base. And while that could include learnings on purchase patterns and inventory needs, Lemonis is looking at monetization through new business models and partnerships. That could see maximizing revenue streams through a leveraging of brand assets that include consulting and support services and financial services to meet consumer needs, such as mortgages and HELOCs, as well as its new global licensing program.
Whether all these plans can actually gel into a new workable model is why Jefferies analyst Jonathan Matuszewski calls the plan a “classic ‘show me story,'” noting that restored credibility is needed before one can buy into the vision. He has a “Hold” rating on shares of Beyond Inc. The analyst noted that the 150 employees who were recently cut could “delay progress with strategic initiatives.”
Lemonis also spoke about transitioning stock-keeping units (SKU) from Bed Bath & Beyond to Overstock.com, in addition to adding back about $200 million in revenue to the outlet site by adding back the apparel, jewelry and beauty categories it had before prior management shifted the focus to just home furniture and furnishings. But Matuszewski noted that the SKU transition will take time, adding that gross margin normalization will require several quarters. He also said believability of guidance is in question, following the removal of a $2 billion sales target a few months ago and [the] third quarter sales miss.”
The fact that Beyond’s core Bed Bath & Beyond business operates in what is currently still a very distressed sector doesn’t help its growth plans. This year saw the Chapter 11 filings of home wholesaler True Value Co. LLC, home retailer Conn’s banner, flooring retailer LL Flooring, and closeout home retailer Big Lots. Bed, Bath & Beyond and Tuesday Morning were the two mega home retail bankruptcies and liquidations last year, among other home brands that include mattress maker Serta Simmons Bedding, Altmeyer Home Stores, Mitchell Gold + Bob Williams, and Z Gallerie.
For the third quarter ended Sept. 30, the net loss narrowed slightly to $61.0 million, or $1.33 a diluted share, from a net loss of $63.0 million, or $1.39, in the same year-ago period. But the operating loss widened to $43.6 million from an operating loss of $40.9 million a year ago. Net revenue was down 16.6 percent to $311.4 million from $373.3 million.
For the nine months, the net loss widened to $177.5 million, or $3.88 a diluted share, from a net loss of $146.8 million, or $3.25, a year ago. The operating loss ballooned to $148.1 million from an operating loss of $53.5 million. Net revenue was down 7.2 percent to $1.09 billion from $1.18 billion.
“Our path to profitability is not as murky as the outsider may believe, because we understand what are the principal items that will drive that,” Lemonis told investors. He explained that Bed Bath & Beyond “cannot effectively and profitably sell large-ticket furniture, rugs, and patio on its site profitably.” Because Overstock.com has historically sold those items, it can to do so at a “double or triple contribution margin from what Bed Bath can do,” Lemonis said.
Overstock relaunched this past summer, and Lemonis said it has it has “already ramped up to be approximately a $200 million run rate business. As we move things over, we think that’s going to continue to accelerate.”
He said the recent deals with Container Store and Kirkland have nothing to do with the consumer. Instead, by adding back in retail floor space, Beyond is giving itself what it really needs and that is leverage in negotiations with its vendor suppliers.
“The way that we have started to renegotiate with vendors isn’t give me a better price. It’s I’m going to give you more cash, and you’re going to give me more margin,” Lemonis said. And that’s where the recent deals come into play because ultimately “our ability to influence or exert pressure on people isn’t going to happen unless you’re handing them purchase orders, and that’s ultimately what they want,” he said.
He believes that the asset-light model is the path forward. “We want to look more like a tech and data company. But in order for that e-commerce core business to get back to the $1.5 billion plus revenue that we need, we can’t afford financially to spend what we’re spending to drive customers and to convert that customer by inducing them with the kind of discounts and the kind of spend that we’re operating with today,” Lemonis explained. “We believe it’s possible to reverse that trend by offering them the omni-channel portfolio that nobody ever replaced when Bed Bath went away.”
He also said that the legacy Overstock business is the perfect combination of both value engineered sourcing and closeouts. “Overstock is built on the value proposition, unlike Big Lots that was built on how much junk can you put in a giant box. What consumers want is they want a heck of a deal, and that’s what Overstock was known for,” Lemonis said, adding that bringing back apparel, jewelry and beauty is the right move because those categories have little cyclicality, unlike home. “Yes, the average order was a little lower, but the profitability and the margin was exceptionally higher,” Lemonis said, noting that some quarters saw apparel and jewelry margins in the range of at least 27 percent to 28 percent.
