Overstock (NASDAQ:OSTK) Misses Q2 Sales Targets

Radek Strnad /
2022/07/28 6:08 am EDT

Online home goods retailer Overstock (NASDAQ: OSTK) fell short of analyst expectations in Q2 FY2022 quarter, with revenue down 33.5% year on year to $528.1 million. Overstock made a GAAP profit of $7.14 million, down on its profit of $309.9 million, in the same quarter last year.

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Overstock (OSTK) Q2 FY2022 Highlights:

  • Revenue: $528.1 million vs analyst estimates of $600.7 million (12% miss)
  • EPS (non-GAAP): $0.19 vs analyst estimates of $0.42 ($0.23 miss)
  • Free cash flow was negative $14.5 million, down from positive free cash flow of $29.9 million in previous quarter
  • Gross Margin (GAAP): 22.9%, up from 22% same quarter last year
  • Annual Active Customers: 6.5 million, down 2.7 million year on year

"Our disciplined execution and differentiated asset-light operating model allowed us to remain profitable for the ninth consecutive quarter, even with weak consumer sentiment, ongoing macroeconomic and geopolitical volatility, higher inflation, and significant competitive pressures including competitors liquidating their excess owned inventory," 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 strong, averaging 23.2% annually. The initial impact of the pandemic was positive for Overstock's revenue, pulling forward sales, but quarterly revenue subsequently normalized, year over year.

Overstock Total Revenue

This quarter, Overstock reported a rather lacklustre 33.5% year on year revenue decline, missing analyst expectations.

Ahead of the earnings results the analysts covering the company were estimating sales to grow 2.25% over the next twelve months.

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Usage Growth

As an online retailer, Overstock generates revenue growth by growing both the number of buyers, and the average order size.

Over the last two years the number of Overstock's active buyers, a key usage metric for the company, grew 24.1% annually to 6.5 million users. This is a strong growth for a consumer internet company.

Overstock Annual Active Customers

Unfortunately, in Q2 the number of active buyers decreased by 2.7 million, a 29.3% drop year on year.

Key Takeaways from Overstock's Q2 Results

With a market capitalization of $1.2 billion Overstock is among smaller companies, but its more than $442.6 million in cash and the fact it is operating close to free cash flow break-even put it in a robust financial position to invest in growth.

We struggled to find many strong positives in these results. On the other hand, there was a decline in number of users and the revenue growth was quite weak. Overall, it seems to us that this was a complicated quarter for Overstock. The company currently trades at $27.79 per share.

Overstock may have had a tough quarter, but does that actually create an opportunity to invest right now? It is important that you take into account its valuation and business qualities, as well as what happened in the latest quarter. We look at that in our actionable report which you can read here, it's free.

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The author has no position in any of the stocks mentioned.