Online home goods retailer Overstock (NASDAQ: OSTK) reported Q2 FY2023 results topping Consensus expectations, with revenue down 20.1% year on year to $422.2 million. Overstock made a GAAP loss of $73.5 million, down from its profit of $7.15 million in the same quarter last year.
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Overstock (OSTK) Q2 FY2023 Highlights:
- Revenue: $422.2 million vs analyst estimates of $409.7 million (3.06% beat)
- EPS (non-GAAP): -$0.02 vs analyst estimates of -$0.09
- Free cash flow was -$8.03 million, down from $14.8 million in the previous quarter
- Gross Margin (GAAP): 22.4%, down from 22.9% in the same quarter last year
- Annual Active Customers: 4.6 million, down 1.9 million year on year
“The acquisition of the Bed Bath & Beyond brand is the beginning of a new phase of growth for us,” said Overstock CEO Jonathan Johnson.
Originally launched as a website focusing on selling clearance sale electronics and home goods merchandise, Overstock (NASDAQ: OSTK) is a leading online retailer of home goods, primarily furniture.
Consumers ever rising demand for convenience, selection, and speed are secular engines underpinning ecommerce adoption. For years prior to Covid, ecommerce penetration as a percentage of overall retail would grow 1-2% annually, but in 2020 adoption accelerated by 5%, reaching 25%, as increased emphasis on convenience drove consumers to structurally buy more online. The surge in buying caused many online retailers to rapidly grow their logistics infrastructures, preparing them for further growth in the years ahead as consumer shopping habits continue to shift online.
Sales Growth
Overstock's revenue growth over the last three years has been unremarkable, averaging 8.7% annually. This quarter, Overstock beat analysts' estimates but reported a year on year revenue decline of 20.1%.
Ahead of the earnings results, analysts covering the company were projecting sales to grow 1.6% over the next 12 months.
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Usage Growth
As an online retailer, Overstock generates revenue growth by expanding its number of buyers and the average order size in dollars.
Overstock has been struggling to grow its active buyers, a key performance metric for the company. Over the last two years, its buyers have declined 24.2% annually to 4.6 million. This is one of the lowest rates of growth in the consumer internet sector.
In Q2, Overstock's active buyers decreased by 1.9 million, a 29.2% drop since last year.
Key Takeaways from Overstock's Q2 Results
With a market capitalization of $1.41 billion, Overstock is among smaller companies, but its more than $342.9 million in cash on hand and near break-even free cash flow margins puts it in a stable financial position.
It was good to see Overstock beat analysts' revenue expectations this quarter. The company also announced it has completed the acquisition of Bed Bath & Beyond brand and other intellectual property. These really stood out as positive in the results. On the other hand, the decline in its user base was concerning and its revenue growth was quite weak. Overall, this was a mixed quarter for Overstock. The stock is up 5.05% after reporting and currently trades at $32.63 per share.
Overstock may have had a tough quarter, but does that actually create an opportunity to invest right now? When making that decision, it's important to consider its valuation, business qualities, and what's happened in the latest quarter. We cover this and more in our full company report, and it's free.
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The author has no position in any of the stocks mentioned in this report.