Marcus Lemonis: Well, thank you for the question. We actually don’t believe we have a lot going on. We believe we have three very specific things going on, with three very specific management teams that have been assembled, world-class managers that have an acute knowledge of those specific brands. And with Chandra and Stacey and Angela all leading the charge at Bed Bath & Beyond and its related properties, I have the highest level of confidence that the execution will be flawless, that the curation will be flawless, that the vendor relationship model will be flawless and it will have its own AOV targets. Those AOV targets are going to be materially lower than Overstock’s because it will not encompass some of the larger ticket items that Overstock has.
But I will tell you one thing, that company’s ability today to outperform its historical AOV, which was down in the 70s and 80s, is exceptional. This team’s ability to capture some higher ticket items like mattresses, like beds, like kitchen stools and kitchen lighting, that’s abnormal for Bed Bath & Beyond, but the customers have responded in a way where it’s logical to them. As we move over to the Overstock brand, we have very specific managers who understand that off-price value proposition, crazy good deals. And the DNA of that business and its management team is very different. And she separated it out with a bright line from Bed Bath & Beyond, because Bed Bath & Beyond is there to inspire, inform, give ideas. Overstock is there to cast a wide net in the marketplace, to find very specific vendor relationships that are going to provide the value proposition of 30% to 70% off every day, not a gimmick like some of our competitors have, but a very clear value proposition, combined with some off-price liquidations and logistics inside of it to bring value to the average customer.
As I move to the third stack, which is very clear, we have a clear management team that is hyper-focused and has experience. And whether that’s from Saks Fifth Avenue, Bergdorf, Zulily themselves, or any other off-pricer, have a specific and acute focus around fashion and beauty for the working mom. Are there going to be other products there? Of course there are. We’re capitalists. But each one of those brands has an acute awareness. And the only shared service, the only through line between those things, is the credit card, over time, the reward system, our accounting, HR, technology, and legal infrastructure. And other than that, those are three distinct big, bold silos that are being tasked with running their company with an iron fist SG&A model, with the goal to have profitable growth quickly, but not recklessly.
Josh Reiss: Thanks so much for all the color. Best of luck.
Operator: Thank you. One moment please for our next question. And our next question comes from the line of Peter Keith with Piper Sandler.
Peter Keith: Hi, thank you. Good morning, everyone. I was wondering, I know – I believe it was Anna asked earlier about some of the profitability target. I guess I’m also curious just around the $2 billion revenue target for 2024. As you’re getting a Bed Bath & Beyond growing and ramping Overstock, now you have Zulily, how do you feel about that $2 billion target for this year at this point?
Marcus Lemonis: I, early on myself, nobody else, on February 2nd, felt like a $2 billion annualized revenue goal was something that was possible. As I dug in deeper and understood more clearly how to best manage our cash, best manage our vendor relationships, best manage our human capital, and most importantly, manage this business to drive towards profitability, I’ve revised my outlook and no longer want to spend recklessly to try to get there. Quite frankly, in the first 100 days, I learned a lot. And while I believe this company could get to $2 billion, the cost of doing it does not seem prudent. And if I was managing this business as if it was my own personal business, I would not make the leap to spend money recklessly.
As a capitalist, I understand how hard it is to make a dollar, and to watch people in other companies and in other industries burn money as if it’s okay is just something we’re not going to do. Now, is there an outside shot that Overstock hits the moon and takes off? You bet. Is there a chance that Zulily outpaces our expectations? You bet. But what we’re not going to do is pour gas on it and light it on fire while cash is burning just to be able to hit a number that we don’t believe builds foundational stability for the long term. Do I believe that $2 billion, $3 billion, and $4 billion are possible? You bet. And quite frankly, that’s the only reason I’m here working for free. I have my time and my reputation on the line, and I only make money when this company hits a certain level of performance, which would indicate that the stock would go to a certain place.
And I will invest as many hours and as much time as I need to because I truly believe that I see green shoots everywhere, everywhere, in monetizing the brand, in finding new ways to make money, in finding new ways to cut costs. I’m confident that the proclamation that I made in February, we could do, but as a management team, we look at your capital differently. We do not want to be the company that gets to $2 billion and $3 billion by taking on billions of dollars of debt. We’re debt-free, other than the mortgage on our building, $256 million in our bank account. We do not want to be the company that has to take on more equity holders and dilute our current shareholders just to hit a temporary number. If I was a shareholder of this company, which I am, I don’t want to be diluted.
I want the management team to earn and work hard to receive their compensation, to earn and work hard to grow my investment without diluting me, without taking on debt, and I want them to do it prudently and smart. And that’s my vantage point as an investor, as a person who’s working here for free, and as a good capitalist who understands how hard it is to make a dollar.
Peter Keith: Okay, very helpful, Marcus. And I guess I want to ask a second question, maybe directed more to Adrianne and maybe framing up how we should think about Q2 revenues, because there’s a lot of moving pieces. I guess one point I’m a little worried about is, you’re indicating you’re going to pull back on promotions, and by my math, based on the orders that you got on promotions in Q1, that added about 8% to 9% of sales. So, pulling back on that, but you have Overstock ramping. Should we expect sales growth in Q2? Maybe some parameters on how it could shake out.
Marcus Lemonis: So, so let me address – I don’t want you to be worried about anything. I noticed that you started that you were worried. We don’t want anybody to be worried other than, are we making the right decisions as stewards of this business?
Adrianne Lee: Yes, and thanks Peter. And I think to Marcus’ point and kind of what we talked about in our scripted remarks, our goal is going to continue to improve our profitability, how we’re investing our capital, how we’re spending money. So, I would just think about one of the things we’re going to do as a management team is really focus on, how do we secure a revenue outcome, kind of similar to what we have, but doing it more profitably. And that’s going to be our goal for Q2.
Marcus Lemonis: So, said more clearly, Peter, I want to build models that we can understand more intimately, when we do a certain amount of revenue from wherever it’s coming from, how do we maximize profitability, maximize value creation with the customer base, improve transaction count, but not burn money recklessly? We, unfortunately, have laid off a ton of people. We continue to work at getting out of leases and things of that nature, but what we don’t want to do is use today’s – take away tomorrow’s investment dollars today just to hit a number. So, really clearly, our goal, and we intentionally created this goal, by the way, is to target being flat to Q1 revenue. We intentionally created a goal from being flat to Q1 revenue, but seeing how much more profitable we could be on that revenue.
So, we understand going forward where the pulls and pushes are because so many new businesses have come on and the categories have changed so dramatically that we don’t have good visibility using historical data, because the historical data is contaminated by the way the mixes have shifted with the addition of Bed Bath & Beyond. We need to get a level-set. And so, good, right, wrong or indifferent, we have made a decision to scientifically understand for our shareholders exactly what this business looks like in a vacuum. And then once we understand what that is, come back to you and show you what it is and then ramp from there so that our ramping is really logical, is very sound, is specific to each brand. And we can tell you, for every dollar we invest, this is what we get in return.
And we don’t, with certainty, with absolute certainty, have the ability to do that today, and I can’t stand for that.
Peter Keith: Okay, very helpful. Thank you so much.
Operator: Thank you. One moment please for our next question. And our next question comes from the line of Jonathan Matuszewski with Jefferies.
Jonathan Matuszewski: Oh hey, good morning and thanks for taking my question. The first one was on margin. Just wanted to follow up on Anna’s question regarding profitability. So, it sounds like you’re going to have a heightened focus on repeat ad spend. I imagine that’ll result in sequential improvement in sales and marketing spend as a percentage of sales as we move through the year. Is there just a way to help us understand the magnitude of potential improvement as the year progresses? Thanks.
Marcus Lemonis: I want to break that – unpack that in a couple of different buckets. The first bucket is on gross margin. And gross margin profiles are going to become more clear to us by business division in the coming two quarters where Bed Bath & Beyond has a pure curated assortment and we can see the margin profile, and we will report back on that. We expect Overstock – we hope that Overstock, and we believe strongly that Overstock can return back to its historical margin performance that you have seen prior to. And we’re looking at ways to expand that through the addition of apparel and other things that we think could be margin-accretive. In Zulily, we only have historical data to go by, and that historical data we believe is okay at best.
We don’t trust it. We’ve done a lot of work to believe that the margin profile could be north of 20%. The challenge that we have now, and what we’re asking for your patients in, is that each one of those individual revenue stacks has its own margin profile. And we need to have probably three to six months where we see that uncontaminated transaction count happen with that margin profile inside of them. Additionally, when you drop below a couple of lines, you’re going to see the SG&A associated with, in the case of Bed Bath, growing that installed base, in the case of Overstock, restarting that company, which has a different expense structure than a business that’s already going, and launching Zulily, which has even a more painful start. So, if I looked at gross margin across the three, they’re going to normalize over the next three to six months, and we will unpack that for you with absolute transparency.
And then when we get into the SG&A, those three things, we will report separately to the best of our ability, not from an SEC perspective, but in our narrative around why it is a certain way, what we think the improvement can be, what we think the one-time costs are going to be, because we believe that through the balance of the year, there are more one-time costs to actually fully launch Overstock because we’ve spent very little marketing money, and there will be the same launch and marketing costs associated with Zulily, which is the only reason that it’s causing our P&L to look like it has more investment than anything else in the given year. I don’t think it’s a good idea going forward for this company to report average order, gross margin, or cost of those brands combined, because it doesn’t tell the proper picture, because as you start selling dresses and shoes and kids’ clothes in Zulily, it’s going to break the global average order.
