Bed Bath & Beyond Inc. (BBBY) Q1 2022 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Q1 2022 Overstock.com Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your host of today's call, Mr. Lavesh Hemnani, Head of Investor Relations. Please begin.

Thank you, operator. Good morning, and welcome to Overstock's First Quarter 2021 Earnings Conference Call. I'm Lavesh Hemnani. Joining me on the call today are Jonathan Johnson, CEO; and Adrianne Lee, CFO. Additionally, Dave Nielsen, President of Overstock, will be available for Q&A. Please note that we are conducting today's call remotely. Next slide, please. Let me remind you that the following discussion and our responses to your questions reflect management's views as of today, April 28, 2022, and may include forward-looking statements. Actual results could differ materially from such statements. Additional information about factors that could potentially impact our financial results is included in our Form 10-K for the year ended December 31, 2021, and in our subsequent filings with the SEC. A slide presentation accompanying today's webcast has been posted to our Investor Relations website and is available to download. Please review the important forward-looking statements disclosure on Slide 2 of today's presentation. During this call, we'll discuss certain non-GAAP financial measures. The slides accompanying this webcast and our filings with the SEC contain additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures. Finally, instructions to ask questions during our Q&A session are also available in the slide presentation. With that, let me turn the call to our first speaker for today, Jonathan Johnson. Thank you.

Thank you, Lavesh, and Good morning, everyone. During today's call, we will follow the agenda on Slide 3. Next slide. This morning, Overstock reported first quarter 2022 results. We were profitable for the eighth consecutive quarter with adjusted EBITDA margin at 4% of revenue, the low end of our stated targets. Revenue in the quarter declined 19% compared to the first quarter last year. For home-only revenue, the decline was 16% compared to last year. Later, Adrianne will share more on how our non-home exit efforts are impacting active customer counts and revenue. Our 2-year revenue growth rate was up 58% Q1 2022 compared to Q1 '20. The operational improvements we have made during the pandemic have made a difference and are sticking. We anticipated the first quarter would be challenging, considering the significant acceleration in sales last year, driven by pandemic-related factors. What we didn't anticipate when we last spoke with you, was the level of impact that macroeconomic factors would have on the business, such as consumer sentiment and spending resulting from a steep rise in inflation, coupled with various impacts of the war in Ukraine. Even though our sales performance was not what I anticipated, I am pleased that based on third-party data, we held our market share in line with fourth quarter levels, and we continued our 2-year track record of profitability. We are focused on delivering annual revenue growth outpacing the market while generating profits and improving our healthy balance sheet. While much has changed from a consumer and macro standpoint, we continue to execute against our 2022 initiatives. Our monthly sales trends improved sequentially from December through February, including Overstock's largest Presidents Day in the company history. As I have mentioned before, our team has developed an expertise in eventizing key shopping holidays. However, March was much softer than we anticipated, in part driven by the removal of non-home SKUs from our site and pandemic period comparisons and in part driven by macro and geopolitical events. The U.S. consumer is navigating a 40-year high inflation rate, which is having an immediate adverse impact on discretionary spending. Additionally, after 2 years of pent-up demand, consumers are spending at higher levels on travel, dining and entertainment. Over time, we anticipate consumer spending will return to a more normalized mix of goods and services. We think this will continue to include a shift to more online shopping compared to pre-pandemic levels, a belief that is supported by third-party forecasts. Over the near term, a challenging macroenvironment could continue to drive volatility in performance as we experienced in the first quarter. I remain calm. I am confident in our business as our model continues to position us well to navigate jolts in the market and consumer behavior and to deliver profitable results. We have a strong balance sheet with very little debt. We are asset-light, allowing us to be nimble when market challenges arise. And our Smart Value brand pillar delivers real price value, something of growing importance for more and more consumers as their wallets are stretched. Slide 5, please. Now for a brief update on recent corporate events. In March, we announced plans to simplify Overstock's capital structure. At our Annual Shareholder Meeting next month, we are seeking shareholder approval for the conversion of both our Series A and Series B preferred stock into common stock. The Overstock Board of Directors fully supports this conversion. Following shareholder approval, each preferred share will be converted into 0.9 shares of common stock. Additional details and information related to this proposed conversion are available on our website and in our proxy statement filed with the SEC on March 23. We expanded our $100 million share repurchase program to include the ability to repurchase preferred shares in addition to common shares. During the first quarter, we repurchased approximately $25 million of our equity, consisting predominantly of common shares, but also including some Series A-1 preferred shares. Earlier this month, Overstock officially kicked off its future of remote work and reentry design or forward plan. As part of this plan, we held a 2-day homecoming event that was attended by almost all our employees. Teams gathered at our campus headquarters in Utah to connect, collaborate and celebrate the Overstock culture. We view the event at the beginning of a new and bright chapter for Overstock. The forward plan design has allowed us to expand the geographic locations from which we are able to recruit employees. We are already benefiting from access to a deep and diverse talent pools across the country to help drive long-term growth for Overstock. In fact, many of our recent senior hires work remotely from states other than Utah. We are attracting and retaining top-tier talent that will help us continue to improve and grow the business. While the pandemic is still expected to impact day-to-day life to some extent, our employees remain highly motivated to work hard to achieve positive results. I'll now ask Adrianne to review our first quarter financial results in more detail.

Thank you, Jonathan. Slide 6, please. I will begin with a summary of our first quarter financial results, including a review of key customer metrics and performance indicators. Next slide. Revenue declined by 19% year-over-year, but as Jonathan mentioned, increased nearly 60% on a 2-year basis. Adjusted EBITDA margin remained in the mid-single digits at 4%, a decline of 113 basis points versus 2021 and a 593 basis point improvement versus 2020. We reported adjusted diluted earnings per share of $0.21, a decrease of $0.35 versus 2021 and an improvement of $0.55 compared to 2020. This excludes an immaterial impact from our proportionate share of the Medici Ventures fund performance and from our direct minority interest in tZERO. A quick note on our tax rate during the quarter. For the quarter ended March 31, 2022, our effective tax rate was 17.1% compared to 0.7% during the same period in 2021. This increase was primarily because we no longer maintain a valuation allowance on most of our federal and state deferred tax assets, which led to a lower effective tax rate in the past. For modeling purposes, we believe that a tax rate in the mid-20% range would be appropriate, noting there can be fluctuations quarter-to-quarter based on discrete items. I will now speak to these quarterly financial metrics in greater detail in the following slides. Next slide. We posted revenue of $536 million in the first quarter, a decrease of 19% year-over-year and an increase of 58% compared to the same period in 2020. The first quarter was impacted by a difficult comparison to last year, macro and geopolitical uncertainty and our strategic actions to remove non-home products from our site. While year-over-year revenue performance decelerated sequentially, our business continues to perform well relative to pre-pandemic levels, illustrating the operational progress we have made and that the shift to purchasing furniture and home furnishings online is sticking. Revenue performance was positively impacted by a 21% year-over-year increase in average order value and an improvement in order frequency, both driven by our strategic shift to home. I will discuss these metrics in greater detail later. Our operational metrics continue to support that exiting non-home categories is the right move for our business. It's increasing Overstock's brand association with home and our home customers spend more and repeat at a higher frequency. Next slide, please. Gross profit came in at $125 million in the first quarter, a decrease of $28 million versus the prior year and an increase of $51 million compared to the first quarter of 2020. Gross margin was 23.4% in the first quarter, essentially flat to last year and an improvement of 151 basis points versus the first quarter of 2020. Year-over-year margin results were impacted by a more normalized promotional environment offset by operational efficiencies. We were able to maintain gross margin in line with last year while navigating various cost increases and continue to provide smart value to our customers. Next slide. This chart illustrates G&A and tech expenses over the past 9 quarters in both absolute dollars and as a percentage of revenue. G&A and tech expenses increased slightly year-over-year. The sequential step-up was due to increased compensation and benefits, mainly driven by our enhanced equity programs. As a percentage of revenue, G&A and tech expense was 10.1% in the first quarter, a deleverage of 203 basis points compared to the first quarter of 2021. Compared to 2020, G&A and tech expenses were flat, while revenue increased by 58%, driving over 570 basis points of operating leverage. Our goal maintains to be extremely disciplined in managing our expenses. But as I mentioned on our fourth quarter earnings call, our tech and G&A expense plans for 2022 include higher staff-related expenses, some of which are non-EBITDA impacting. In fact, excluding our increased share-based compensation, our expenses would have been lower versus last year. Next slide, please. In the first quarter, we delivered adjusted EBITDA of $21 million, which is down $12 million versus a year ago, but a significant improvement versus the comparable period in 2020. Adjusted EBITDA margin was 4% at the lower end of our stated target and an increase of 593 basis points versus 2020. We again focused on maintaining our profitability commitment through disciplined marketing spend, operational efficiency gains and a laser focus on expense management while making progress towards our home strategy. Next slide. This slide shows active customers and order frequency. We measure active customers on a trailing 12-month basis. Our active customer base declined to 7.4 million at the end of the first quarter, a decrease versus 2021, but an increase of almost 43% or 2.2 million customers versus 2020. The first quarter decline in active customers was driven by 3 key factors: Online penetration receded from the all-time highs experienced during peak pandemic restrictions, our strategy to exit non-home categories, as previously shared, this is the right long-term trade-off and macroeconomic and geopolitical events impacting consumer sentiment. Orders per active customer was 1.67x in the first quarter, essentially flat sequentially and a slight improvement year-over-year. We see this as a positive proof point of our home-focused strategy. It's important to point out that while active customers decreased, we have been able to partially offset this decline with an increased average order value, which I will discuss in greater detail in the next slide. Next slide. This slide shows average order value and orders delivered. Average order value improved 21% year-over-year to $221 and was primarily driven by mix. AOV also improved sequentially as we shifted from more seasonal and home giftable sales in the fourth quarter to Home Furniture. Orders delivered were 12.3 million for the trailing 12-month period. This is a decrease of 25% compared to the prior year and an increase of 41% or 3.6 million orders compared to 2020. The year-over-year decline was an acceleration compared to the fourth quarter as the magnitude of non-home removals was greater. The first quarter includes non-home exits from Q2 and Q3 of 2021 and the removals during Q1 of this year. Our AOV results are an important proof point of our continued focus on home. While orders are declining, the value of each order is improving. It's a strategic trade-off and reflects the purchase behavior of the customers we are targeting, home customers who trust us with higher value items and have a higher propensity to make a repeat purchase. Next slide, please. As we near the completion of non-home category removals from our website, I want to provide some perspective on our home-related performance for better comparability versus our home furnishings peers. On this slide, we show our active customer base and revenue metrics adjusted for the impact of non-home customers, leaving our ecosystem and the related impact on revenue. Note, we classify a non-home customer as one that has purchased only in a non-home category over the last 12 months. As you can see on the chart on the left, at the end of the first quarter, our comparable home-related active customer base would have declined 23% versus the reported 26% decline. The chart on the right illustrates what Jonathan said earlier. During the first quarter, our comparable home-only revenue would have declined 16% versus the reported 19% decline. Jonathan, would you like to add anything further on this slide?

Yes, I would. Everyone should know that our strategic decision to remove non-home categories shop by a portion of our active customer base was intentional. Yes, there is some short-term pain, but our data continues to support that a home customer spends more as a higher average order value and repeats more frequently than other customers. Simply said, we are investing in our most valuable customers, and that should be good for the business in the long term.

Thank you, Jonathan. Next slide. I will wrap up my discussion on the financial section by highlighting our strong balance sheet. We ended the first quarter with $493 million in cash and only $37 million in debt. We have no significant debt maturities until March 2030. At the end of the first quarter, our net cash position of $456 million was down only modestly from fourth quarter levels. I want to highlight 2 key items to aid in comparability relative to the fourth quarter. We returned $25 million to shareholders via the share repurchases, and we invested $7.5 million in tZERO in the first tranche of its Series B funding round alongside ICE and the Medici Ventures fund, which was announced in February. Notably, we were able to maintain a solid financial position following these transactions. A quick reminder that our share repurchase program is authorized through December 31, 2023, and we currently have about $75 million available on it. We will continue to be opportunistic in making future share repurchases. To sum it up, we are proud of our strong financial position as it provides us ample opportunity to evaluate strategic options to enhance shareholder value. With that, back to you, Jonathan.

Thank you, Adrianne, for highlighting our healthy balance sheet. Unlike others, we are not highly leveraged. I'm encouraged by how the team continues to execute against our home strategy and maintain strong financial discipline, generating profits quarter-after-quarter. We continue to see that our opportunity lies in increasing Overstock's brand association with home. The home-only customer metrics and financial performance that Adrianne shared with you, validate just that. And I like our strong balance sheet with almost no debt and a good amount of dry powder for strategic opportunities. In my view, many of the headwinds should be temporary as we steer the company towards long-term success. I remain optimistic about Overstock's future -- about the future for Overstock. Slide 16, please. Next I'll provide some key insights into our business, including where our focused home strategy is paying off and where we are targeting and driving growth. Next slide. Overstock is the fourth largest online retailer of home furnishings in the United States. Based on third-party forecasts, about a 1/3 of furniture and home furnishings purchases in the U.S. are expected to be transacted online during 2022. This continued migration online, combined with a growing and highly fragmented total addressable market of $390 billion and our planned growth in home SKU assortments means there is significant opportunity for Overstock to gain market share. Slide 18, please. I'd like to show this slide to remind investors that Overstock has significant white space available in the quadrant where home goods meets -- home goods expertise meets smart value. This quadrant is the right place for Overstock. We have been strategic about choosing to focus on it. Our target customers, those who seek smart value or simply the highest quality and style for their dollar, already have a greater propensity to shop with us. We purposefully play to our natural strength. These customers represent roughly 40% of the market. Overstock has ample growth opportunity in this space and with these target customers. As I mentioned earlier, our target customers seek smart value and when wallets are stretched, more consumers turn into savvy shoppers seeking smart value. As in the past, I will now talk to each of our 3 brand pillars, each of which are key to our continued growth and help define Overstock's customer value proposition. Slide 19, please. As we continue to execute our home focused strategy, the merchandising team is executing on specific goals to grow both breadth and depth of home assortment on our platform. In the first quarter, the merchandising team exceeded its goals. 97% of our sales were in home categories at the end of the quarter. We continue to add new SKUs and onboard new partners to our platform. We expect Overstock's growing brand association with home will translate into a bigger share of customer wallet, ultimately driving market share gains. Let me share an example with you, which gives us reason to believe that our home focused strategy is the right one and that it's working. Mattresses is one of our fastest-growing categories. Entering 2022, we worked with our partners to expand the breadth and depth of the mattress assortment available on our website. At the same time, we've been improving category navigation, intuitive browsing and product content, including better photos and more robust descriptions to enhance the overall customer experience. These efforts drove positive year-over-year revenue growth in the mattress category. And based on third-party data, we believe this translated into market share gains for Overstock in this category. This is how we win. This execution plays right into the strengths of our unique business model. Our capable merchandising team was able to focus and deliver this value-generating result by leveraging our asset-light model requiring no additional capital requirements or inventory purchases. Slide 20, please. Our second brand pillar is smart value. We strive to offer the highest quality products at the best price. Our promotional model is intentional and critical to attracting and retaining customers. In the past, I've shared with you the expertise we have developed to deliver strong performance in our key shopping events. This continued in the first quarter of 2022. And we continue to do well with the mobile app. During the quarter, mobile app downloads increased 54% sequentially versus the fourth quarter of 2021 that had included record performance over the Cyber 5 period. This 54% growth was on top of the 80% fourth quarter increase we highlighted on our last call. Customers love our app exclusive coupons, which help drive traffic to our highest order value, conversion and retention platform, the mobile app. This execution helped us deliver on the largest Presidents Day in the company's history. We believe our smart value tenant continues to resonate not only our repeat customers, but also those that are new to Overstock. New customers are buying furniture and home furnishings with higher order values. In fact, our internal data shows an 1,100 basis points higher average order value for new home customers compared to the company average for transactions measured over the last 12 months. As we continue to make online shopping and navigation easier, add new home SKUs and enhance our overall customer experience, we expect to attract additional new customers. Now let me share some thoughts on the inflationary environment that burdens the overall customer base. As Adrianne shared with you, our year-over-year improvement in AOV was largely driven by mix shift and to a much lesser extent by cost increases resulting from inflation. We believe our pricing strategy benefits everyone that shops on Overstock and they can be rest assured they are not overpaying. We continue to work with our partners to limit price increases in response to higher costs. I see significant opportunity for Overstock to attract new customers and even reactivate customers back into our ecosystem. We expect these customers to appreciate and react as we deliver smart value to them, especially with rising inflation. While consumer spending on discretionary goods and services is normalizing, we also see a scenario where inflated travel costs and higher gasoline prices would limit demand for their services. As a result, family is choosing to spend time at home on staycations may increase. We believe that this behavior would benefit our category and, in particular, Overstock given our smart value offerings. Slide 21, please. Our third brand pillar is easy delivery and support. Our supply chain continues to be a competitive advantage, positioning us favorably in the industry relative to others. As a reminder, our supply chain is broad and distributed with a vast partner network that reduces single-source risks, shipping bottlenecks and supply chain kinks. We don't pressure our partners to lock their inventory in our distribution center. We own almost no inventory and can flex our distribution center footprint easily. As I shared earlier, Overstock ranks fourth among online retailers of home furnishings in the United States. We've been able to achieve this market share position while delivering on our profitability targets. We think this is being recognized by our partners who with greater and greater frequency remark that it is important for them to do business with a company that makes money. Our focus on delivering on our financial recipe card means less variability in cost and pricing for our partners. This helps them in their inventory allocation decisions and capital investment plans for their manufacturing facilities. As a result, existing partners who were historically underrepresented on our site are now increasing allocations to us and potential new partners are showing a keen interest in working with us. This is a validation that our strategy to move out of non-home categories is the right one and will continue to increase our brand association with home. In fact, the mattress market share gains, I mentioned earlier, are a testament to our growing recognition among home goods partners. While they have a myriad of retailers they work with, they continue to choose Overstock to drive their growth now and into the future. Slide 22, please. Our mantra is sustainable, profitable market share growth. Growth is a key component of our business, one of which, as I have mentioned before, we spent a significant amount of time strategizing. In fact, our employee homecoming event in early April, our growth drivers were the key themes of many breakout sessions. This slide includes several key drivers that we feel are critical to support continued growth. I will comment on these drivers, focusing at the end on our Canada expansion efforts. There continues to be a big opportunity to increase Overstock's brand association with home. Our focused strategy is being recognized and attracting new and underpenetrated partners who want to work with us. We've increased and we'll continue to increase the breadth and depth of our home SKU assortment. This should help Overstock enhance its relevancy for the core home customer, providing an avenue to drive further market share gains. The merchandising team is significantly improving how we manage categories. This is something we have needed to do and we are making good progress. Growing mobile app adoption is a key focus area. It helps us market more effectively and improve customer retention. The app is underpinning our successful event-driven strategy. Repeat customers continue to account for a large share of our revenue mix, and we are looking at ways to increase customer attention even further. From a loyalty standpoint, Club O membership continues to perform at its highest level in our history. We are thrilled to welcome Angela Hsu as our new Chief Marketing Officer. She started just over a month ago, and I look forward to her contributions to optimize our marketing spend and grow the Overstock brand. Following her appointment, the executive team led by our President, Dave Nielsen is in a strong position to deliver long-term success with talented leaders across each area of the business. Our efforts to improve our website are ongoing. Product findability and easy navigation continue and make a notable difference for our customers. Last quarter, we highlighted Canada as our key focus area for 2022. We remain big believers in the Canadian market and see large long-term opportunities for market share growth in the region. Our goal is for Canada to grow to 10% of our U.S. revenue over the next several years. During 2022, however, we do not expect our Canadian business to meaningfully contribute to our stated financial targets as we carefully develop it, to scale effectively and serve as a template for future international expansion opportunities. The team has focused on improving the Canadian customer experience by increasing local availability of assortment and improving price competitiveness to improve the end-to-end customer journey and increase conversion. Marketing is focused on bringing additional traffic to the website and showcasing our unique brand pillars to the Canadian customer. These efforts are positioning Overstock for long-term success in the Canadian market. We believe we are well positioned with a great business model and many levers to pull to continue to gain market share and do so profitably. Slide 23, please. We continue to direct our strategic we continue to direct our strategies to drive sustainable, profitable market share growth within our financial recipe card targets. Overstock has opportunities to gain market share as we increase our brand association with home. Our targets for 2022 and beyond remain unchanged. This includes top line outpacing the market to deliver market share growth under various macro scenarios driven by our advanced technology, our unwavering focus on the customer and our inherently adaptable business model. Gross margins in the 22% range, so we can deliver on smart value, acknowledging these may fluctuate slightly quarter-to-quarter. Disciplined G&A and tech spending to continue to drive operating leverage. During the first quarter, our ability to deliver leverage was impacted by higher share-based compensation expenses in a challenging revenue environment and adjusted EBITDA margins in the mid-single digits range as we delight our customers and deliver on our vision of Dream Homes for All. Slide 24, please. Now we will discuss a couple of updates on the Medici Ventures fund. Next slide. We're excited about the growth opportunities ahead for tZERO under its new leadership. The prior Chief Strategy Officer of Intercontinental Exchange, David Goone took the helm at tZERO last month. I am confident in David's ability to use his rich knowledge of and deep connections within capital markets and exchanges to accelerate growth for tZERO. The team recently celebrated its leadership in the digital innovation and the strategic funding round led by ICE by ringing the opening bell at the New York Stock Exchange. As a reminder, Pelion Ventures will be holding a Medici Ventures Day on May 10, 2022, to highlight some of the fund's top portfolio companies. This event is open to all, and we will share registration details soon. At this event, tZERO, Bitt, GrainChain, Spera, Ripio and Watchdog Capital will make presentations. Pelion has also arranged for former CFTC Chairman, Chris Giancarlo to speak about the industry. It should be a great event, particularly for those of you wanting to know more about our blockchain portfolio. To wrap up our discussion of the Medici Ventures Fund, I am pleased with our Pelion is acting as the fund's general partner, actively helping many of the portfolio companies advance their respective businesses and thus allowing the Overstock management team to focus on the e-commerce business. I remain bullish on blockchain technology, and many of the companies in the Medici Ventures' fund, particularly tZERO under David Goone's leadership with ICE's investment. Slide 26, please. I'll now briefly recap the quarter and provide some thoughts for the rest of the year, and then we'll move to Q&A. Next slide. During the first quarter, we managed to hold on to our market share in line with the fourth quarter of 2021, despite a larger deceleration in year-over-year revenue performance. The team's unwavering commitment to profitability helped us deliver adjusted EBITDA margin at the low end of our stated target. Because of our healthy balance sheet, we were able to return our -- return cash to our shareholders through the share repurchase program. We believe that the Overstock business model is resilient, reacts well to jolts in the market and consumer behavior and is well positioned to capitalize on opportunities to gain market share. Looking ahead, we continue to increase the breadth and depth of home SKUs available on our site, strengthening the Overstock brand association with home. Our focus on smart value is resonating with customers, especially in times where consumer wallets are under pressure. We are successfully executing an event-driven strategy, supported by our global mobile app adoption. Our supply chain is agile, asset-light and built to support sustainable, profitable market share growth. Before we take your questions, I would like to provide some thoughts on the rest of the year. The uncertain macro and geopolitical environment is impacting consumer sentiment and putting pressure on household budgets. This is ultimately impacting discretionary spend and is reflected in our lower-than-expected year-to-date sales trends. As a result, it has become increasingly difficult to predict our revenue performance for the year. Thus, like we did during the height of the pandemic, for the time being, we are backing off our prior revenue guidance and not giving revenue growth estimates at this time. That said, while the broader market direction is unknown, we believe our unique business model positions us favorably to take market share under almost any macro situation. If inflation runs rapid causing the industry to shrink, we are confident we will shrink less and thus take market share. If the administration and Congress decide on more stimulus checks, supporting discretionary spend and causing the industry to grow, we are confident we will grow more and thus take market share. We like our business model and think it adjusts well to jolts in the market. You should know that our mindset is to fight every day to grow market share over the long term and come the hell or high water, we've experienced over the last 2 years or may experience going forward, we intend to do just that. Taking into consideration all the uncertainty we face, we still plan to be profitable in line with our stated targets, delivering adjusted EBITDA margin in the mid-single-digit range. Now operator, let's take some questions. Operator, we're ready for questions.

[Operator Instructions] Our first question will come from Peter Keith of Piper Sandler.

Just given the step down in the demand trends, I was hoping you could address what you're seeing from the competitive environment with regard to pricing and advertising? And then, Jonathan, on that note, we are hearing that it's getting a little bit more promotional, more aggressive. Have you thought any further about exploring more of a house brand strategy just to provide some differentiation and maybe make it more difficult for comparability across sites?

Peter, great question. On pricing and ad spending, I'll address it and turn to Dave, and then we'll talk about house brands. But on pricing, we continue to do well in getting price comparisons -- price for our page views. And in fact, we're much -- we have a much higher percentage of our pages that are price comparable, that's up to about 60% right now. And of those 60%, our goal is to be price competitive with plus or minus 5% on 80% to 85%, and we're right in that range. So on pricing, we continue to be very competitive. Dave, maybe you can comment on what we're seeing in the competitive ad environment.

Yes. The competitive ad environment is, obviously, when demand is off or visits are down across the industry, the level of competition for purchasing those clicks is more expensive. But it hasn't been out of control, it's been challenging. And we're tracking from a promotional standpoint, just looking at our percent of coupon, site sell promotions, about in line, very close to in line with the fourth -- with the first quarter even as we transition into April. So we're comfortable we have a handle on it and our competitive pricing is staying very consistent where it's been historically.

Thanks, Dave. And Peter, I would add to that, with Angela joining our team, she's taking a real fresh look at where we're spending our ad dollars, where we can be more efficient and where perhaps we can back off a little bit. So a good set of expert fresh eyes is a good thing for us. As far as house brand, we look at this occasionally. We've done private labels in the past without a ton of success. It's something that we continue to evaluate. And when we think we have the right expertise and the right partners, it's something we'll pursue. At this point, don't expect us to go deep into that -- into those efforts.

Our next question comes from Seth Sigman of Guggenheim.

I'm just going to start with a shorter-term question and then a follow-up. I guess, first on the top line. It sounds like you exited March a bit weaker. Any indication on April, maybe how unique were some of the factors in March? Was there a seasonal effect there, maybe weather or anything else that you would highlight? And then what you're seeing here early on? And then how would you think about seasonality of the business for the rest of the year? Are we getting closer to normal seasonality? I guess, how are you thinking about that?

Yes, Seth, I appreciate those questions. April is showing slight improvement relative to March. And I wouldn't attribute it to weather, although I will say that the East Coast has been colder and that affects our patio business, but I'm not sure that's had a huge impact. I do think things like the war in Ukraine and record high inflation make a difference. We've seen in the past, whether it was 9/11 or the Iraq war or different things that major news events like this cause people to pause. And so, that seemed to have a real impact in March. April is a little better, slightly better, but it's still difficult. As far as seasonality, second and third quarters tend to be our best quarters. And we think that's what we're headed into. And so, we're looking forward to those. Last year, we won the patio outdoor furniture category, we're poised to do that again. We have great in-stock inventory with our partners and are ready to go. We are working to be better with giftables, home giftables for the fourth quarter. Fourth quarter is historically over the last few years, not been our best. We think we can do better at it. So that's how I'd address the seasonality question.

Okay. That's helpful. And then the second question is just around the pricing strategy. I want to dig into this a little bit more, because it really seems like the smart value proposition should be even more relevant in this environment. So I guess 2 parts. One is, if you could frame sort of the relative price gap today, where you are, how that's progressed? And then the second piece of it is, I'm looking at your gross margin, which is above your long-term target. It's actually one of the highest ever this quarter for Overstock and the company's done a really good job of balancing sales and profitability, but yet customers are declining, orders are declining. Could there be an opportunity to actually invest more in price at this stage, especially given how price-sensitive it seems like the customer is right now?

Seth, a lot of things that are important there. One, smart value has become more important than ever. If the savvy shopper and the reluctant refresher are 40% of the market yesterday, we expect with the inflationary environment, they will become more than 40% of the market tomorrow. So I think more people become savvy shoppers as their wallets are pinched and they're trying to stretch dollars. That bodes well for us. As far as pricing, this is something we monitor every single day. We're looking at pricing on a myriad of products, practically all our products all the time and moving them up and down to make sure we're competitive with the market. Adrianne, I'll let you comment on gross margin and where it is now versus historically, but we are not trying to maximize gross margins, as we've said before. Our goal is 22% range to provide smart value because we think our business model, at that 22% range, still lets us split out mid-single-digit adjusted EBITDA. Adrianne, any comments more on gross margin?

I'll add one thing, Jonathan. And Seth, as we looked at the gross margin year-over-year, we did increase our kind of promotional activity to be kind of in this more normalized environment in 2022, and that was offset by some great operational efficiencies that the team delivered. So we were more promotional this year than last year.

And our next question comes from Anna Andreeva of Needham.

Just a quick follow-up on the category exit. Should we expect a similar 3-point headwinds here in the second quarter? And then, secondly, we were surprised to see you guys utilize, I think, only $25 million on the buyback. I just wanted to check what's the appetite for share buyback, especially at these levels?

I'll answer those questions in reverse order. On our last quarter, I said that at the prices the stock was at, we thought it was undervalued. It's at a lower price today. We continue to think it's undervalued. I'm glad we have more buyback ability now as it's trading in the 30s as opposed to when it was trading in the 40s. So you may have been surprised, but I think that should turn into a happy surprise as we still have $75 million left in the program to purchase should the stock be where it is today or at these levels. Your other question was -- remind me.

On [ the category ] exit.

On exit, yes, thank you. So non-home exit, Adrianne, I'll let you comment on what we think the headwinds are. We should be done by the end of Q2. We have our largest non-home categories that we'll exit out of Q2, jewelry and watches. Those will have an impact. Adrianne may comment on what percent we think it may have or she may choose not to comment on that. I think that as long as it chooses -- as long as it proves to be useful, we'll continue to show that slide that Adrianne added to the deck this time. So you can see what non-home versus home is for year-over-year comparable to give you a little more color. Adrianne, anything you want to add to that?

Jonathan, I would just echo jewelry, our biggest category is yet to come off site. So Anna, take that into consideration as you're thinking about the non-home versus home that we showed in the first quarter here.

Okay. Got it. And if I may squeeze another one to Adrianne. Gross margin discipline in the business has been really good for a number of quarters now. And you mentioned being a little bit more promotional here in 1Q. But can you talk about specifically what's worked well operationally for you? How sustainable that is? And do you think you could still have gross margins up for the rest of the year?

Thanks, Anna, and not necessarily won't comment on kind of the balance of the year projections, right? We continue to target the 22%-ish range. I will say from the operational efficiencies that I noted earlier, those are sustainable improvements in our business. There are things that we've done over the last 2 years and continue to find improvements in things like customer care and our fulfillment services. So we expect to continue to find those and deliver those operational efficiencies.

[Operator Instructions] Our next question comes from Thomas Forte of D.A. Davidson.

So for my one question, Jonathan, can you give 60-second high level on how inflation is impacting your business?

Tom, great question, and thanks for following one question. Look inflation is real. Gas prices impact everything from the cost of inputs, things that are made with oil to shipping to the U.S. to the factory -- sorry, to the warehouse and to the customer. It's real. And gas prices, when people are driving around, their wallet gets pinched. So we think it has a real impact and we think that's why March had the slowdown it did. That's the downside. The upside is we think inflation turns people into savvy shoppers looking for smart value. That's what we offer. When I go back and think about 2008, 2009, that's when our home business began to take off. 2009 is when Overstock first became profitable under my second year being the President of the company. We do well in -- we have done well in inflationary environments when budgets are pinched. So we think we're in a good place there. Inflation is tough, and it's real, particularly when we're at 40-year high levels. I will say this, people are still buying homes and when people buy homes, that's good because they then buy furniture. So we think all that's good. Home prices remain strong too.

Our next question comes from Curtis Nagle of Bank of America.

It's Dave Malinowski on for Curt Nagle. Just a quick remark on market share. I mean you referenced earlier, that you maintained share according to your third-party data sources in the quarter. Just looking at our end, it looks like you might have actually lost share. Can you please elaborate on what you're seeing on your end and what sources show that?

Yes. We're seeing just what we said that we maintain market share. And there's a lot of different sources. Ours are -- we footnote ours and it is a tough market. I think it's particularly important to note this new slide we've added that when we look at where we are in the home space, our decline was not 19%, but 16%. And when you see what our competitors report, particularly those that are home-only, look to see where they are there. Frankly, we can all predict the scores looking at market source data. But when results come out, that's what the score shows. So that's where -- Dave or Adrianne, do you want to add anything to add?

No, nothing to add.

I hope that's helpful, Dave.

And our last question will come from Brad Safalow of PAA Research.

I really had 2. First on the vendor front, can you talk about, let's say, your renewed efforts to expand your vendor count after kind of rationalizing it for a period of time, what you can achieve there? And then 2, with the new hiring of the CMO, it seems like there's a lot of opportunity to improve the messaging from a consumer perspective. You've obviously done well over the last few years without a consistent national advertising campaign, but can you explain what you plan to change about your marketing going forward?

Thanks, Brad, for each of those questions. I'll address the first on vendor. Maybe Dave, I'll let you talk a little bit about the market, and then I'll wrap it up. Vendor count. Vendor count's important as we add new vendors, but more important the vendor count is SKU count. We have a lot of vendors where we are underrepresented in their business, that we are growing. As you look at the vendor number as we reported going forward, there's 2 things to remember. We have one more quarter of exiting non-home. We have a significant number of jewelry and watch vendors. They will drop off. We continue to add vendors in the home space and SKUs in the home space, as I mentioned. And we have -- our merchandising team has goals for increasing the breadth and depth of our home SKUs. They exceeded those goals in Q1. I expect them to keep working hard and exceed the goals in each quarter of the year. So we're focused on it. And you should see some new categories we get into in the home space. But mostly, it's expanding the breadth and depth of the categories we're in, good, better, best, more products within categories where we need to grow. Mattresses, was an example we shared with you. It's one we think we want we learned to win in this quarter to take those learnings and replicate going forward. CMO, Angela is great. She's less than 2 months into the job. She's very analytical and very well connected and well respected in the industry. You can expect our messaging to improve whether that's in national campaign or not, she'll be the person who calls that out because we know how to reach our customers. And sometimes, it's not just more advertising on the cable news stations. It's being more select and direct. Dave, anything you want to add to that?

Nothing to add, Jonathan. That was spot on. That's exactly where we are focused, consistent messaging through important channels with high acquisition rates.

So Brad, thanks for those questions. I'd like to thank everyone for participating on today's call. I was going to emphasize this. I like our business. Our strategy is aimed at increasing Overstock's brand association with home that's important. I believe our business model is advantageous and resilient within economic cycles, especially with the foundational operating improvements, the operational wetsuit that we have made and continue to make. We have a strong balance sheet with little debt. We have dry powder for strategic opportunities. We pay our partners quickly never late. I believe we are in a favorable position to deliver market share growth and profits to the bottom line regardless of macro headwinds. We appreciate your interest in and ownership of Overstock. We hope you all have a great day. Thanks.

This concludes today's conference. Thank you for participating. You may now disconnect.