Bed Bath & Beyond - Earnings Call - Q1 2025

Transcript

Operator (participant)

Good morning. My name is Aaron, and I'll be your conference operator for today. At this time, I would like to welcome everyone to the Q1 2025 Beyond Incorporated Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session, and at that point, if you would like to ask a question, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question at any time, simply press star followed by the number one again. With that, I'm pleased to turn the call over to Melissa Smith, General Counsel and Corporate Secretary. Melissa, you may now begin.

Melissa Smith (General Counsel and Corporate Secretary)

Thank you, Operator. Good morning and welcome to Beyond Inc.'s Q1 2025 Earnings Conference Call. Joining me on the call today are Executive Chairman and Principal Executive Officer Marcus Lemonis and President and Chief Financial Officer Adrianne Lee. I'm also joined by Leah Putnam, Chief Accounting Officer, and Alex Thomas, Chief Operating Officer.

Today's discussion and our responses to your questions reflect management's views as of today, 29 April 2025, and may include forward-looking statements, including without limitation, statements relating to our future business strategy, goals, financial performance, outlook for the remainder of the quarter or any other period, anticipated growth, stock price, profitability, macroeconomic conditions, and the value of our brands and investments, relationships with third parties, agreements we are entering into with them, margin improvement, expense reduction, marketing efficiencies, conversion, customer experience, changes to brands or websites, product offerings, blockchain efforts and strategies, tokenization efforts and strategies, and the timing of any of the foregoing. Actual results could differ materially from such statements. Additional information about our risks, uncertainties, and other important factors that could potentially impact our financial results is included in our Form 10-K for the year ended 31 December 2024, and in our subsequent filings with the SEC.

During this call, we'll discuss certain non-GAAP financial measures. Our filings with the SEC, including our Q1 earnings release, which is available on our investor relations website at investors.beyond.com, contain important additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures. Following management's prepared remarks, we will open the call for questions. A slide presentation with supporting data is available for download on our investor relations website. Please review the important forward-looking statements disclosure on slide two of that presentation. With that, let me turn the call over to you, Marcus.

Marcus Lemonis (Executive Chairman and Principal Executive Officer)

Thank you. Wow, that's a lot of stuff. Just to make sure that we are crystal clear, on our investor website, we have put together not only a robust release that has financial information as part of it, but a very robust slide deck that will give you a really simple illustration of how we actually think about the business. The reason that we would encourage you to go through that slide deck is that those are really a highlight identification of how we think about the key guideposts and metrics that all of us as a management team use on a daily basis.

As we think about this business, and we are really excited to be here today, as we think about this business here in talking about our Q1 results, we really feel like the Q1 was the Q1 of a brand new business. It's been about a year that this restructuring had started. When I first arrived, I anticipated that it was a little more of a transformation. We all know the story about the first six months of the company since I've been here and how we had to learn a lot together. As we move into 2025, we feel like we have restructured and rebuilt and reimagined an entirely new company. Both the employees that work here today, in fact, about 65 to 70% less of them, have a different mindset.

We have built a real organization solely around winners, waking up every day, seven days a week, working on the websites, thinking about the customer, making sure that the customer experience is solid. While we're not fully done with our transformation on the websites, the team's working every single day to improve site experience, add new technology, find new third-party vendors to lay over our websites and plug into our websites. We know that the road ahead seems to be filled with tons of green shoots. I think the important reason that I want to really focus on the Q1 of this year being, in our opinion, the Q1 of a new business is because we have in our possession some really valuable assets that didn't exist before: the resurgence of the Overstock.com brand.

We encourage you to visit that website to see how different it is. Never in a million years did people expect to see Overstock selling Gucci bags. It is doing so, and it is doing so successfully while it is also selling furniture and other high-brand, high-ticket items that customers are looking for. They are looking for value. We have really reimagined the Bed Bath & Beyond site. We have cut almost 8 million SKUs off of that site. To say that we are done would be an understatement. At this point, while we are continuing to eliminate vendors that we do not think fit our ethos or products that do not meet our margin profile, we want to start getting into adding new categories and thinking about new things. I would not have imagined years ago that Bed Bath & Beyond would become a very large furniture retailer: patio, rug, furniture.

It has changed the name of the business. We have had to learn how the taxonomy works and how to make it more efficient while never forgetting the core items that Bed Bath & Beyond built its brand on: kitchen, bed, bath. As we think about the future, we want to continue to build those up, and we will do so. We also want to have people learn, get comfortable, have a positive experience, and return to the site in categories that Bed Bath & Beyond never sold. We recently acquired Buy Buy Baby, an asset that I felt needed to be part of this company at all costs. Bed Bath & Beyond and Buy Buy Baby were known synonymously by consumers. Those two brands really set the table for what that company was, which was a life events company. We have gotten away from that.

You could expect us to lean back into that again as we think about everything from the birth of a child to the first home to the wedding to the going to college and everything in between. We know we have to excel. As part of excelling in that particular area, we know we have to meet the customer in different places. Selling online is a very complicated business, and few do it very well. We want to be one of those few. We also know that we have to lower our cost of marketing. We have to increase the size of our retained database, and we have to figure out how to build basket size over time. Part of our investment thesis around doing that is the investment that we made in Kirkland's, a 330-store home decor business based out of Nashville, Tennessee.

What we liked about it as a management team was small format, low risk, low expense, low real estate costs, and high margin products inside of them. While we've seen those results of that company continue to improve, we know that the future of that business through our investment and the future of our business requires us to work together far more. About six months ago, we put a collaboration agreement in place that showed the idea behind how we would bring our powerful brands to market through another company. Beyond is not prepared today to go open a bunch of stores, nor would anybody in this room ever vote for spending $1 on CapEx to build out, take out locations, build out things.

We want our dollars to be built on technology, investing in the customer experience, figuring out how to exploit and get more out of our blockchain assets, and look to acquire other valuable IP in the same family and home space so that we can then take those brands to our investment vehicle of Kirkland's and see those brands come to life. Shortly, people will learn that Kirkland's will start transforming a number of their locations. In the early stages of that discovery, we have made the decision that we're going to open up at least four Overstock stores, geographically placed so both that our vendors and our customers can ship product to and return product to in a more efficient manner, which over time will improve our financial performance, primarily through margin improvement and returns.

Secondarily, we will be launching in a very, very low CapEx way, Bed Bath & Beyond Home. Let me be clear. That is very different from the true blue store that all of us have known for years, which focused on bed, bath, kitchen, and small accessories. Bed Bath Home looks a lot like Kirkland's and incorporates a lot of the products that Bed Bath & Beyond is selling today successfully online: small furniture pieces, a little bit more textiles, a little bit more decor. The purpose of those stores is to meet the customer at the value proposition we're looking at. If you look at Kirkland's today, they truly are a very well-merchandised, very well-curated attempt to do a lot at what HomeGoods does.

We believe that the assortment coming from Bed Bath & Beyond and potentially Overstock into those Bed Bath Home stores and in the future some of those Kirkland's stores starts to level the playing field and makes the Kirkland's stores and the Bed Bath Home stores real players in the off-price, highly curated, well-merchandised, non-dumpster-looking environment that we believe customers are looking for. A lot of value for a very low price. That is our customer base. As we also look at that store footprint, we're looking at ways to bring Bye Bye Baby back to life. We have authorized one store, just one, to be opened and tested. More than likely, that will happen in the Nashville market because we believe that's a great demographic to understand all of the different spectrums, including really every new customer that's coming to that market and every existing one.

It is a really thriving market. When we think about our core business, we think about a few basic principles. I'll call them guideposts for this discussion. We believe that in the short term, and I'll say the short term is the next couple of quarters, we believe that our margin profile is going to range on the product side from 24% to 26%. You saw the arrival at 25.1%. I have to wonder once in a while when you're testing different elasticity and different promos and different offers, are you doing enough to capture enough customers? As a reminder, our company pays its bills with gross profit dollars, not just gross profit margin.

While we need that margin to continue to improve towards our goal of 27%, we know that we also need to start in the next 60 days thinking about building the customer file again, getting better at retaining the ones that we have, getting better and more efficient at finding new ones, and then getting them to return. There are often times, particularly when you're doing that, where you have to use a great deal as bait. That will either come from increased spend on promotion, and we think that's going to range from $13.5 to 14.75 in the short term, or it can come from extra discounting, which could cause the margins to range from 24% to 26%. One strategy that we have tested, and we hope you see it on the balance sheet, is our ability to continue to be asset-light but asset-smart.

You'll see about $25 million of inventory sitting on our balance sheet. We have eliminated our distribution center, which was about $2 million in fixed costs on an annualized basis, and have gone to what we call an accordion-style 3PL, which means we pay for what we use. We love variable models, including starting to disseminate variable pay plans. As we do that, we're doing that for a couple of reasons. We're looking for ways for us to exploit the liquidation or the misstabilization of other retailers or other manufacturers by taking on product at 30%, 40%, 50%, 60%, 70% off the original wholesale value. Part of what we're doing is we're just testing out how effective can we be and where can we effectively do that. We're not opposed to testing.

I want to be clear that already through April, we'll have already wound that number down by about half as we sit here today. We may wind it up a little bit more from time to time. You should think about $25 million as what Adrianne describes to the merchants as the authorized playbook, what you're allowed to test into. We can get into it quickly, but we have to be confident we can get out of it quickly. In some cases, it's been the way that we've had to attract certain vendors that we want, particularly some of the larger appliance vendors on the Bed Bath & Beyond side who did not want to participate in dropship. We felt that the connection between their brand and our brand made sense, and they treated us very fairly on the first-cost side. That was an extra incentive.

As we look at marketing expense, you can see that there was a massive pullback year over year. That is not because we did not spend money this year. That is because the way that the company was marketing a year ago is just not sustainable. I did not really think, I did not really believe, that the spend that we were generating to find new customers was being put into a data lake that gave us confidence that we can extract that information, retain that information, expand that information because we did not have the systems in place. I am proud to announce that Salesforce has been fully integrated, and we have brought on an entire new, what I would call, direct-to-consumer marketing team.

Some of the efficiencies that we saw in the end of Q1 were a product of that new team, trying new things, recognizing that we need more performance out of our email channels, more performance out of affinity relationships, more partnerships with our vendors, and that Beyond on its own and its Google spend can't continue to be the only source of information. Again, that's why we also like the relationship with an omnichannel retailer, the ability to pick up names at an almost zero cost. As we look towards the next quarter, the one that we're in today, the one that we'll report shortly, we are finding that April is turning out to be a pretty consistent month. I wanted to dispel any notion for anybody out there that there is this tremendous amount of pull-forward demand.

We have not seen a tremendous acceleration in site visits because we're not spending more. We haven't seen a tremendous increase in AOV other than the normal patio increases that we see. Any notion that the customer's out there trying to buy as much as they can to hoard it in their garage in anticipation of tariffs, at least in our company, we don't believe to be true. We may see that in the future, but we don't believe to be true. One of the headlines of our press release is that we believe that we are 60 days away from transitioning from a restructuring company to a growth company. That doesn't mean that we think we're going to make a bunch of money in 60 days.

What that means is that we feel at this moment in time that on the 60th day from today, to be very specific, we will have done what we needed to do with our SKU count. We will have done what we needed to do, at least for the most part, with new technology being implemented, new platforms being initiated, new layers being laid on top of on the technology side that make us more efficient. We want to move away from cutting, cutting, cutting. You do not cut your way to a profit. You sell your way to a profit. That is why I came here. In order to do that, you had to understand what the base was. You had to build the foundation so that you could understand that we are building a company that can last in the worst of times.

As a reminder, we're dealing with a terrible, terrible economy today. Interest rates are at a 20-year high. The 10-year Treasury bounces around from 4.3-4.6. We know what that does to mortgage rates. We know what home sales were in March. Our belief as a management team is that if we could make it, we could survive, we could find our way to the neighborhood of profitability in this environment, then what we were really setting ourselves up for is the ability to be so nimble that no matter how tough the economy could get, we could survive. We could be very much prepared to participate and, quite frankly, accelerate when the tailwinds start to come, which we believe they will. Tariffs are always the elephant in the room these days.

Any company that tells you that they know exactly what's going to happen has absolutely no idea what's happening in their own business if they say that. The tone-deaf nature in which people are making prognostications about what's going to happen is something that this company will not do. What we can tell you is that we are in a unique position, unlike a lot of other companies, to be able to deal with tariffs. As a reminder, we're debt-free. We're not chasing these massive interest payments that scare the crap out of us. We want to continue to stay that way to the best of our ability unless there's a reason to do it, and it's accretive for our shareholders. We have continued over time to diversify our offering.

If you visit our websites today, you'll see all the things that are built in the USA, even if it's parts and pieces assembled here. We believe that we have a great strategy, and we're continuing to expand that strategy of built in the USA. We're also not naive to think that everything in the USA can satisfy all the categories. It cannot. We're working with a number of companies who have, in the last four or five years since the last tariff scare, adjusted their own sourcing. When you look at our vendor concentration, we don't have as much risk as others may, but that doesn't mean that we aren't susceptible to something, which is partially why we also create that margin band of 24-26%. We have to be realistic. We're not exempt from everything.

We have seen in the last couple of weeks a number of partners come to us asking for price increases. I know, they know, you know that none of them have actually experienced those tariffs. Those are anticipatory price hikes. Oddly enough, most of that has existed in the jewelry space on our Overstock business, which continues to do very well. We have not seen a big rush on the furniture side, but we anticipate that we are going to see, like many other retailers, an increase in some furniture pricing. We are going to work with those vendors, and we are going to tighten down our belts even more to ensure that our customers and our shareholders do not take the brunt of that. It is true that everybody is going to be playing by the same rule book.

If that means that furniture sales are going to slow down, the odd thing for us is that I don't know how much more they could slow down. We believe that even if they slow down on a macro basis, the TAM is still big enough, the market is still big enough for us to get our fair share and still experience revenue growth in the Q2 of 2025 compared to the Q1 of 2025. We also believe that we could experience revenue growth in Q3 of 2025. We expect some revenue growth in Q2 from Q1, some revenue growth in Q3 from Q2 while we continue to work on stabilization of every other part of our business.

We'll turn the rest of those mic points over to the Q&A, but I'm going to turn the call over to my partner and President, Adrianne Lee.

Adrianne Lee (President and CFO)

Great. Thank you, Marcus. Just wanted to start off with, as a result of our previously disclosed decision to eliminate non-contributory SKUs and vendors and prioritize efficiencies in our marketing channel, revenue declined 39% year over year in the Q1. These actions drove fewer orders and fewer new customers. However, I am very pleased that Q1 AOV increased to $194, a $21 increase year over year, and units per order increase as we increased a bigger basket size. Order frequency continues to hold as we reestablished spend guardrails. We made significant progress on restoring our margin profile and are imminently shifting to a growth mindset. As Marcus outlined, aiming for sequential revenue improvement quarter-over-quarter.

Growth will be driven by offering customers value on a vast array of home products, trusted brands, and deep discounts on designer items while improving our site experience, findability, storytelling, and addressing assortment gaps. The acceleration in our gross margin expansion exceeded our internal target. Gross margin landed at 25% for the quarter, a 560 basis point improvement compared to the same period last year. You may recall we targeted a 25% gross margin at our October 2024 investor event, and we achieved that goal. Sequentially, we delivered a 210 basis point improvement as we were disciplined in our pricing and merchandising actions and improved rate costs. Important to note, and as Marcus discussed, we are testing opportunities to purchase inventory in an effort to improve SKU economics. We will be disciplined and opportunistic in these efforts.

We have shown consistency in improving our margin profile over the last four quarters as we worked the six-part plan I outlined at the beginning of 2024. I expect the team to maintain our margin guardrails and disciplined approach. Sales and marketing decreased by $37 million or 430 basis points as a percent of revenue versus last year and improved 380 basis points versus the Q4 of 2024. This decline was mainly driven by the intentional reduction of less efficient spend while improving channels that are more contributory. We know we need to balance our efforts between acquisition and retention. The team is committed to doing this day in and day out while improving the site experience and sharpening pricing to support conversion.

G&A and tech expenses of $41 million decreased by $9 million year over year as a result of our commitment to reduce fixed costs by an annualized amount of $80 million. I am pleased to report we have identified the entire commitment and have realized 93%, allowing us to reinvest a portion of savings to support growth initiatives and innovation. With our more focused, agile org structure, I expect us to deliver a quarterly run rate of $38 million of tech and G&A expense, excluding special items going forward. All in, adjusted EBITDA came in at a loss of $13 million, a 72% or $35 million improvement versus the Q1 of 2024, and an improvement of $15 million versus 4Q 2024. Reported GAAP EPS was a loss of 74 cents per share for the Q1.

Excluding losses recognized from our equity method securities, adjusted diluted loss per share was $0.42, an $0.80 improvement year over year. We ended the quarter with cash, cash equivalents, restricted cash, and inventory balance of $166 million. In the quarter, we funded our $8 million commitment to Kirkland's and purchased Bye Bye Baby for $5 million, which was mostly offset by $19 million of net proceeds from the sale of common stock. Cash used in operating activities increased year over year by $16 million, mainly driven by a $15 million cash use for our inventory program previously discussed. As Marcus mentioned, with the majority of our restructuring behind us, our teams are organized to be agile and laser-focused on delivering on our key operational guideposts with the intensity I expect.

We made progress throughout 2024 and accelerated in the Q1 of 2025, creating a foundation to deliver both profitability and growth. With that, back to you, Marcus.

Marcus Lemonis (Executive Chairman and Principal Executive Officer)

Great. We'll turn it over to the Q&A, and Operator, we'll open it up to our first question, please.

Operator (participant)

Great. Thank you very much. Ladies and gentlemen, if you would like to ask a question today, remember it is star followed by the number one on your touch-tone keypad. Our first question for today is from the line of Seth Sigman with Barclays. Your line is live.

Seth Sigman (Senior Equity Research Analyst)

Hey, good morning, everyone. Marcus, you discussed restructuring and reimagining the business over the last year. Part of that was rebasing the business. You've refocused, you rationalized the inventory and the offering. I guess I'm focused on revenue specifically. Can you talk about the confidence level that this is the bottom and you're guiding to revenue growth sequentially through this year? What gives you confidence in that? Thanks so much.

Marcus Lemonis (Executive Chairman and Principal Executive Officer)

Thank you for the question. I feel like the revenue that was achieved in Q1 is the floor, and none of us are happy with the revenue. I want to be super clear. We have been really working towards getting to profitability, and we understand what the levers are. The levers are very simple. The margin needs to be in a range, the tech and G&A needs to be in a range, and the sales and marketing expenses needs to be in a range. Under no uncertain terms is revenue not the absolute most important driver of getting to profitability and getting above that zero number that we all are adamant on getting to. I'm confident because we know how to pull the levers now, and we understand how the marketing infrastructure works.

Every single day we're getting better at email efficiency, we're getting better at ad spend efficiency, we're getting better at site conversion. Because I see those things moving, it literally is very simple. We could spend a dollar and get a positive ROAS. We haven't been spending the kind of dollars because we weren't confident that we would get the positive ROAS out of it. There are still parts of our business that do not perform up to our standards, and we don't lean in yet. There are still things about our website that don't perform the way we want to, and we don't lean in yet. What we've learned and created a culture of is you don't spend unless you're sure.

The way you're going to tell me that you're sure is you're going to show me small sample sizes, and you're going to show me the efficacy and the proof points. Absent that, you don't spend. What we've given the team permission to do is in those areas where they have excelled, like retargeting emails late at night when we have cart abandonment, which we've started to really perfect, or picking a specific campaign and building a beautiful funnel around it and understanding how to chase the funnel and get positive ROAS.

Those are the things that give us confidence that once you build that floor, which we tried very hard to tell everybody we were going to get to, once you build that floor, building the blocks from there becomes far easier because everybody's mindset is around you don't spend a dollar unless you're sure, and that dollar better have a positive ROAS. That is why we're confident that the base of Q1 of 232 will have growth in Q2 and growth in Q3. I will reserve my judgment for any quarter after that until I understand the general macro and what's happening with the consumer and how tariffs have affected the customers.

Seth Sigman (Senior Equity Research Analyst)

Okay. Thank you very much. Appreciate it. Good luck.

Marcus Lemonis (Executive Chairman and Principal Executive Officer)

Thank you.

Operator (participant)

Thanks for your question. Our next question is from the line of Jonathan Matuszewski with Jefferies. Your line is live.

Jonathan Matuszewski (SVP)

Great. Good morning, and thanks for taking my questions. Marcus, the first one was just on the roadmap to break even EBITDA. Obviously, some drivers ahead in terms of eliminating some more vendors and rationalizing some more SKUs. You have a streamlined kind of G&A base as well. I guess when we put together all the margin drivers, is there a way to help kind of put a stake in the ground in terms of maybe a roadmap or a milestone for reaching break-even EBITDA in which we can then sequentially grow for positive EBITDA dollars? Thanks.

Marcus Lemonis (Executive Chairman and Principal Executive Officer)

Yeah. Yeah. I, like you, Seth, like to think about the modeling around how investors should understand what the cash uses are, how we're going to get there, and really build it. We don't provide guidance, and we're not going to, particularly in light of this. We are going to do a better job of giving people very specific guideposts that will help us get there. The simplest math that I can give you is that at 25% margin and 13% marketing expense, both which are not totally locked in yet, I think the margin has that range of 24% to 26%, and the sales and marketing is 13.5% to 14.75%.

I think that in order for us to get to where we want to get to, which is positive, we would need to do $1.2 billion annualized at a 25% margin with 13% sales and marketing. Once you start from there, you can toggle things up and down. You can move your margin up to 26. You could pull your revenue down. You could take your margin down. You have to take your revenue up. You could move those numbers all around, but that's actually the abacus that we're using in our business. As we wake up every day, if we feel like we're short contribution margin, we'll pull back spend, and we'll pull back promotion. If we feel like we're not acquiring enough customers, we're going to increase spend.

We're going to continue to map out very, very scientifically on a dot plot exactly what happens when we do those things so we can build our own mental algorithm of when we do this, this is what happens. We need to prove out that thesis over and over again. I would use $1.2 billion on an annualized basis, which is what all of our goals were. We just did not know what that was, to be able to figure out, okay, when you say you want to get in the neighborhood of profitability, what does that look like? You have to do an average of $300 million a quarter average, some quarters more, some quarters less, if your margins are going to be 25% and your sales and marketing is going to be 13%. I'm not telling you whether I think those numbers work or not.

I think the margins need to strive for 27%. We're going to work our fannies off over the next many quarters to get there. We think that the marketing expense, candidly, as Adrian smacked me around a little last night and said, "Hey, we could get to 11%. We could get to 10%. Stop saying 12% and 13%. We have to find that balance. We got to get to 13% before we think about 12%." I think this company has to set realistic goals.

Jonathan Matuszewski (SVP)

That's helpful. Thanks. Just a quick follow-up question on Bye Bye Baby. Maybe just some quick thoughts on brand activation strategies to kind of reestablish consumer awareness, and are those embedded in kind of the advertising spend framework that you provided?

Marcus Lemonis (Executive Chairman and Principal Executive Officer)

We are going to be very careful and very steadfast in not allowing any initiative of our company to cause us to unnecessarily lose money. The inverse of that is that we have to be very mindful that to generate revenue and to bring that business back to life, we have to spend money. The core business in my mind has to be in that 13-14 and 14.75 range right now, and we have to get to 13. When we launch a new brand or we acquire something, there is a separate and conscious spend on what that is going to look like.

What we are going to do very well as a company is to disclose those things going forward that when Bye Bye Baby launches on May 8 and has its token get launched and has its grand opening on the same day, there is money that is going to be spent to reintroduce and remind people and restart that amount. We expect that revenue to have a nice growth over time. We are starting from a $30 million most recent trailing 12 months revenue base on Bye Bye Baby. Over time, we know we can do a lot of damage to that number. What we do not want to build is we do not want to build the model that solely relies on PLA. We want to build content. We want to find moms in communities closer to them.

We want to work with organizations like Baby2Baby that really are out there doing good things for families and for children. We want to make sure that the voice of Bye Bye Baby is very much female-dominated and mom-dominated and community-oriented and thoughtful-oriented, and most importantly, addresses every potential mom, every expecting mom at the income level that they're able to be at and that the Bye Bye Baby offering satisfies a product and offering for everybody. That takes time. The assortment that we acquired from Dream On Me that bought it out of the bankruptcy state did not have that same ethos. They were focused on selling baby furniture. That's what they did. We can't do that. Together with our partners at Kirkland's and the merchant team there, as we think about the store, we're going to be starting from the base.

We've been working with JLL, the big national firm that designs retail concepts, to think about what it looks like and make sure the website works, build the assortment out so that it addresses that. We're going to go slow, we're going to be smart, and we're going to build a brand that can last forever. I know that was a lot around Bye Bye, but I want you to understand that we think about our core business, and we think about initiatives, and we'll be disclosing those separately going forward.

Jonathan Matuszewski (SVP)

Thanks, Marcus.

Operator (participant)

Thank you for your questions. Our next question is from the line of Thomas Forte with Maxim Group. Your line is live.

Thomas Forte (Senior Research Analyst)

Great. Marcus, just one for me. Marcus, as a longtime follower of the company and the stock, I appreciate your efforts to position Beyond for sustainable profitable sales growth. I also appreciate your efforts to show value for the blockchain investments. Can you compare and contrast the tokenization of Overstock versus Bye Bye Baby? What are you trying to achieve, and what does success look like, including the valuation of those investments?

Marcus Lemonis (Executive Chairman and Principal Executive Officer)

The blockchain assets have become very crystal clear to me. In the first seven months of being here, I really couldn't understand why a company like this would have ever invested hundreds of millions of dollars into things that have no direct correlation to their core business. It was our mandate from our shareholders and a lot of big investors who had some very tough calls with me that they expect the blockchain assets to be fully monetized and fully realized. As we spent the holiday, Christmas to New Year's time, crafting out work paper after work paper after work paper of what needed to happen, it really became clear that we needed to do one thing first. We have two primary investments in our blockchain assets that we believe have a tremendous amount of value. The first one is GrainChain.

The GrainChain asset for me is probably the most underrealized, undervalued, under-recognized asset out there. I blame part of that, quite frankly, on the founders' and leaders' ability to clearly articulate in different ways how amazing the business he built is. I think part of that is he's busy building his business, and that's why they've had revenue growth year after year after year after year. I look at that business, which most people think as an agriculture supply chain business. That's why it's called GrainChain. As I tease Luis all the time, it's really to be called supply chain because the technology that I've learned about that business has the portability to do far more than just agriculture.

Whether that's manufacturing parts or that's 3PL goods moving across the country through real supply chains or whatever that may be, I think we're about to see some really solid things and some big announcements coming out of GrainChain that I'm aware of, but I don't want to spoil his story. I think over time, we as a company want to utilize our direct interest in GrainChain and our direct interest in tZERO at ways of understanding how to build value and how to set markers. Part of setting markers is by showing that things work. People, including myself, have been very critical of tZERO, very critical of its lack of revenue and lack of items on the platform. We decided to take the ball out of Pelion's hands because we're continued to be disappointed by their management of our portfolio and do the job ourselves.

Take the asset, understand what it is, work with the management at tZero. We have been working very heavily with Alan, who's been an unbelievable leader in our daily activity. Take one of our assets, one of our assets that our shareholders own, the intellectual property of Overstock, and create a token, a very small token. The idea behind the token was not to raise $100 million. We did not need to raise capital. The idea behind the token was to prove out three things: prove out that the platform works, understand that it can happen in a very short period of time. We did the Reg CF offering, and we did a simple one because we did not want to go through the audit process, and we did not want to have all this crazy expense happening.

We went with a very simple, non-audited Reg CF offering just to prove out that the system worked. I also wanted to understand what about the system does not work. I went on as a user, and I was frustrated trying to log on, trying to create an account. Every single day, I would bang on them over and over again, and the tZero team did an amazing job of addressing the issues. When we went live with the Overstock token, we created a portal where people can give feedback online on X. They can go to the help desk. Over and over, day by day, hour by hour, we were addressing a number of different issues, and they are now, what I would say, fixed. We wanted to also prove out that we can take that information and solve problems.

Lastly, we wanted to show that we're going to be—we want to see velocity on that platform. We were required by the regulators to have a minimum of a 21-day offering with the O offering. The close date could be October, I think, 15th. We have made the decision that we are only going to allow the minimum number of days, 21, to pass. We will have reached our minimum when everybody's signed contracts fund, which we already have met the $250,000 number, and we are going to close it. For those folks that want to participate in it, just know that within 21 days of the launch, it will be closed. Have this be your five-day notification. We will issue that as well in a more formal setting. As we shift to May 8th, we'll be issuing the Bye Bye Baby token.

Different strategy, different audience, trying to find new ways to see if we can make that work, and quite frankly, a slightly different offering. When we launched the Overstock token, we limited the cap amount of investment to $4,000 and a minimum of 100. The number one complaint that I got over and over again on my text chain and my email mail to my house and everything in between was, "Why did you cap me at $4,000? I would have bought $50,000." In the Baby offering, we are going to modify some of our learnings, modify some of the process, and people will see that here coming on May 8th.

After that, people should expect our company to look at every asset we own, whether it's a direct ownership or an indirect ownership, and look to prove out, continue to prove out the value of that tZero platform because I believe it's worth something. I believe it's worth a lot. The only way to do that is to put your money where your mouth is. Whether it's Overstock, Bye Bye Baby, a direct interest in tZero, a direct interest in GrainChain, some other intellectual property that we buy or own, or some other investment that we have, we're going to look at every different way to show people all the different types of things that you could do on that platform while becoming the biggest cheerleader to find other companies not related to us to do the same thing.

It is easier to do a show-me program than a tell-me program. That is why we did it. As it relates to GrainChain, we are hopeful that the tokenization of that business will give us the opportunity to set a marker of what we believe that business is worth. We believe that business is worth at least six to eight times revenue. That is my belief. I am not an analyst of what these companies are worth, but when I see the growth and I see the value that these folks can create for banks, for companies, protecting asset value, I do not know how this thing is not worth a ton of money.

If you notice in our descriptor, Bed Bath & Beyond, the owner of Bed Bath & Beyond, Overstock, Bye Bye Baby, and blockchain asset portfolio, that's the first time we've ever in the history of our company included it in our descriptor. It will be the last time that it's ever missing because we believe that when you look at the market cap of this company and you look at the cash that it has and you look at the brands that it owns and you look at the blockchain assets that it has, we believe that it's materially undervalued. Yes, we do have an ATM. Yes, we have used it because we wanted to be sure that we had cash for survival until we can get to a place. Yes, we do understand that people don't like when we use that.

We ended the quarter with $166 million of cash in inventory, which is much better than $66 million. We ended the quarter with improving results. We also, just as a reminder, have a buyback program at $69 million. It has been authorized. It is ready and available. We have those instruments at our discretion, and our job is to deliver value to shareholders by utilizing our cash, our brands, our IP, our blockchain assets, our ATM, and our buyback to demonstrate that this company is worth far more than what it is showing today. We know that all that really matters are results.

Thomas Forte (Senior Research Analyst)

Thank you, Marcus.

Operator (participant)

Thank you for your question. Our next question is from the line of Steven Forbes with Guggenheim. Your line is live.

Steven Forbes (Senior Managing Director Equity Research)

Good morning, everyone. Marcus, maybe transitioning back to the growth playbook here, can you help us better understand the contribution margin mix and maybe spread of contribution margin between the brands today? On that point, has the assortment been tailored within all the brands to a point where you sort of expect all transactions on a go-forward basis to carry a positive contribution margin, or is there still a subset of transactions and/or brand itself, right, that you expect to remain dilutive as we return to this growth platform?

Adrianne Lee (President and CFO)

Hi, Steve. It's Adrian. How are you? Just to go as far as kind of the mix by brand and to set the tone here, the bulk of our transactions are still on the Bed Bath & Beyond site. We launched Overstock, obviously, earlier last year. Excuse me. I'm getting my years mixed up. We're still building that brand backup, still adding categories, merchandising efforts, and assortment. I would say the bulk of our transactions, the vast majority of our transactions are still on Bed Bath. That's actually the platform by which we've done most of our SKU, kind of I'll say remediation efforts or removing SKUs and vendors because that's the platform by which we had the, as Marcus talked about in his scripted remarks, the 12 million or so SKUs that we've now reduced by over 6 million SKUs.

I would say, again, vast majority of the transactions still on Bed Bath. Bed Bath is really the site by which we continue to tweak our SKU and vendors to have contributory transactions. I think we're really close to kind of seeing all that through and come to fruition. Alex, any comments?

Alex Thomas (COO)

Yeah. The only thing I'd add is on the brands, right, we're really focused on where the product offering is really competitive and where we can acquire new customers. I think balancing those transactions was a key piece of the Q1, and we'll continue to focus on that through the rest of the year.

Marcus Lemonis (Executive Chairman and Principal Executive Officer)

It's not unrealistic to think that we're not going to have a transaction that loses money, and not because of customer service, because we are a marketplace, and sometimes vendors can manipulate the system. We're working to create more of a closed marketplace than an open marketplace so we don't sell random things like water filters. We have some work to do there. I also think it's important that we understand how to capture growth. One of the things that I think I bring to the table that's unique to this company that hasn't had is understanding the affordability band across customer bases and how to hook people. You're oftentimes going to create these barn burner ideas, these flash price drops.

You can visit the two sites today, and they have a, and Kirkland's is coming soon, where flash price drops becomes really a brand standard for us. We use price flash drops to lure people in, to get them to buy one thing, hoping they visit the rest of the site. That does not mean that there will not be one item in a cart of six that we lost money, but the goal is to have a profitable transaction with the customer. Once in a while, Alex and some of the other merchants remind me that we are in the fishing business and that sometimes we need a little bait to do that. You are going to see those things develop over time. As a mantra, we do not sell things consciously that we lose money at.

That is like, "You will not work in this company if I find you doing that." We have evidence of that by there are certain people that do not work here anymore. If you do not understand that we do not sell things that lose money, you cannot work here.

Steven Forbes (Senior Managing Director Equity Research)

Thank you all for that. Maybe just a quick follow-up on the answer because as I think back to the investor event last year, I believe there was a comment, right, made about sort of 1,000 or so basis points spread in contribution margin around selling furniture on Overstock, right, versus the Bed Bath & Beyond website. Is the message today that that sort of has been resolved? The learnings around assortment and maybe the learnings around conversion and acquisition have really allowed you to tighten that spread in contribution margin on selling like-for-like SKUs between the two different websites to the point that sort of solidifies your confidence that you're relaying today?

Marcus Lemonis (Executive Chairman and Principal Executive Officer)

Two things. I think there are two very specific things. One is we have to deliver an assortment that speaks to the brand that people expect. Whether there is great contribution or margin or not, when you go to Bed Bath & Beyond, that assortment, which is not even coming close yet to meeting my standards, we have another 60 days to go there, really needs to address what all of us knew that I would get when I went there. It has to balance out the endless aisle that it has created and the brand extensions that it has created through patio, rug, furniture, lighting, all of those things. What I want to be sure of is that as we get into the endless aisle model, the things that are not historically native to Bed Bath, I do not want to see any experimenting when it is reckless.

If you want to test out fitness equipment, you better bring me the business case on why fitness equipment, what the TAM's going to be, what the effort's going to be, how much time it's going to take, what the margins are going to be, what the contribution's going to be, and what it's going to do to confuse people. Bed Bath & Beyond has to be locked and loaded. When we get to Overstock, that is a place that we are going to test different categories. When I look at what we did with a designer shop that's really like 60 days old, and we're not going to disclose the revenue that it does, but it's shocking how much revenue people want to spend on getting 40% off Gucci bags or watches. You can expect that category to expand materially.

We have a trip scheduled to New York where we're going to be selling very, very high luxury, top-name brand watches, top jewelry. The key for Overstock for me is that brand is all about what you want at a value you can afford. It has to feel aspirational. Again, we're not going to put things on there that do that. In that particular model, you will see us curate a little bit more when we know the margins are good. Jewelry is a great example. This company, when it had 28% margins, had a lot of jewelry in its heyday going through it, selling $100,000 rings. That may sound crazy. We know it's possible. We're seeing people start to look at those things, and we're going to lean into that. At the same time, we want to be smart about it.

We had to clean up that assortment, continuing to do that as well.

Steven Forbes (Senior Managing Director Equity Research)

Thank you all.

Operator (participant)

Thank you for your question. Our next question is from the line of Peter Keith with Piper Sandler. Your line is live.

Alexia Morgan (AVP of Equity Research)

Hi. This is Alexia Morgan on for Peter Keith. Thanks for taking our question. We were wondering how you think about the ending of the de minimis exemption, which will make retailers like Temu and Shein more expensive. Do you think that this will have any positive impact on your business? Then second, with Overstock's focus on closeout, could growth be hindered in 2025 as suppliers try to maximize margin on non-tariffed inventory, or how do you think about that?

Marcus Lemonis (Executive Chairman and Principal Executive Officer)

Yeah. Let me address your second question first. I actually think that we're going to see more opportunity rather than less. We're going to see more opportunity around big retailers really continuing to struggle. We've had more contact from banks where they're looking at ABLs that are constricted and looking at a lot of things. I think that supply chains are going to be tight. The vendors that we do business with are great capitalists. They're really, really good capitalists. They understand that turning their inventory makes sense. Now, they're tightening up their certain features and benefits that they're giving us around some of the newer stuff. On the older stuff, and price flash drops is a great example, they still need to turn stuff into cash.

I don't think we're going to be too concerned about that. Adrian, you want to take the first question?

Adrianne Lee (President and CFO)

I sure will. I think how we're thinking about it, obviously, landscape's ever-evolving with tariffs and competition. As far as your first question with the Temus of the world and de minimis, what we're seeing right now is they're not doing as much performance marketing as they have historically. There's kind of a spot for us to play there and really try to capture some eyeballs.

Marcus Lemonis (Executive Chairman and Principal Executive Officer)

I think that's the first thing. The second thing is we don't sell that junk.

Alexia Morgan (AVP of Equity Research)

Great. Thank you.

Operator (participant)

Thank you for your questions. Our next question is from the line of Rick Patel with Raymond James. Your line is live.

Rick Patel (Managing Director and Equity Research Analyst)

Thank you. Good morning, everyone. Question on the trend lines as we look ahead. What do you see as the primary drivers of sequential revenue growth as we consider customers, orders, and AOV? Is it safe to assume that gross profit improvement is going to follow a similar path as revenue? How do we think about the potential for gross profit to even achieve overdrive given it sounds like you still have some runway left for better market expansion?

Marcus Lemonis (Executive Chairman and Principal Executive Officer)

I'm going to break the margin down into two things. I don't expect the gross margin percentage to continue to accelerate, which is why I identified the 24% to 26% band for a while, because I don't want to mess with elasticity too much and start deterring people away from our business when other people may need to be liquidating things, whether it's a company like At Home or anybody else. We don't know what that landscape looks like. I think ultimately, what we want to really do is get very smart about how we spend our money. When we talk about revenue growth, that's a conscious decision as we sit here today to know that we're going to spend the dollar with a positive ROAS because our system works.

As we get more confident and as we learn more about the customization, the segmentation, the audience building, and the journey building, and the Vercel implementation, you're going to see us lean into that. When you hear me talk about in 60 days, we're going to have a greater growth mindset, it's largely driven by the continual confidence around the data lake, around the audience segmentation, around the journey building, around the funnel creation, around the Vercel customization stack that lays on top of that. When that journey gets executed, the customer lands on something that speaks to them. Once those things are in place, which they are really starting to fall in line, we're then going to spend more. The reason we're going to spend more is because the conversion's going to work and the ROAS is going to be there.

The reason we stopped spending money is because the conversion wasn't there and the ROAS was negative. If you have good products in your assortment and you have great vendors, which by the way, less is better because you're more important to them, and you have a good email strategy, and you have a good PLA strategy, and you have a very, very solid customer data lake strategy and funnel strategy, then there really isn't a limit to the growth other than how much the market will allow you to spend in a given day based on what's happening in the world. Sometimes you could want to spend $300,000 in a day growing your business, and the market just isn't there. You don't get to the $300,000 unless you break the ROAS curve.

We are staying disciplined, and if anybody breaks that curve, they will not work here until the management team decides that it is permitted to do that. Guardrails and structure is how we are going to build this company for the future.

Rick Patel (Managing Director and Equity Research Analyst)

Thanks, Marcus.

Operator (participant)

Thank you for your question. We have time, it looks like, for one final question. This is from the line of Bernie McTernan with Needham & Company. Your line is live.

Bernie McTernan (Senior Analyst)

Great. Good morning. Thanks for taking the question. Just wanted to talk about the path to $1.2 billion of run rate revenue. Just any discussion in terms of how much of that is just continued marketing efficiency and better ROAS versus adding new inventory and channels like Bye Bye Baby, omnichannel, continuing to build out Overstock. The second part of the question is the guidance for 13.5%-14.75% sales and marketing as a percentage of revenue over the next couple of quarters. We're at the low end of that right now, implying some incremental investment, but then longer term getting to 12% or even lower. Really, how does that play out in the real world, and what's the timeframe to maybe achieving those lower targets? Thank you.

Marcus Lemonis (Executive Chairman and Principal Executive Officer)

The good news is I live in the real world, which is why I took the range higher than we are today because I did not like the customer count and the transaction count that we had in the quarter. We need to transition to a growth mode, which means build the file, learn how to retain them, get more lifetime value out of them. We cannot keep contracting and contracting and contracting. Ultimately, the way that we see revenue growth going, it comes from two very specific areas. One is the continued curation and assortment around the specific brands, including adding product to Bye Bye Baby. Those things are contributory to the growth. The more important thing to balance with that is the science and the art around how we spend money and how we create marketing efficiency.

The marketing efficiency is not where we want it to be today, and the customer file is not where we want it to be today. What I told the team from this day forward is that we're going to have a band of flexibility that they're going to be able to play in. The sandbox is going to be here. Over time, as the emails get better, as the marketing efficiency gets better, as the funnels get better, as the categories get better, that sandbox is going to close and the range is going to go from 12.5 to 13.5. Then it's going to go from 12 to 13. What I don't want to do is stop the growth. I don't want to decline the company anymore. I don't want to have revenue go backwards anymore. That doesn't serve our vendors right.

That does not serve our business right. That is not good for morale inside of our company. We have reached that point where it is now time to really think about it another way. I have given the team the flexibility to play in the sandbox because I do not want them to be scared of me or you or anything else while they are trying to build the business back to $1.2 billion, $1.5 billion, $2 billion, whatever the number is, smartly, intelligently, and profitably.

Bernie McTernan (Senior Analyst)

Got it. Thanks, Marcus.

Operator (participant)

Thank you for your question. That will conclude our Q&A for today. Marcus, I'll turn it back over to you for any closing comments.

Marcus Lemonis (Executive Chairman and Principal Executive Officer)

Thank you very much. We look forward to the one-on-one calls with our analysts, and we'll talk to you then. Thank you.

Operator (participant)

Thank you. Ladies and gentlemen, this does conclude Q1 2025 Bed Bath & Beyond Earnings Conference Call. Have a great day. We'll see you next time.