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Overstock.com, Inc. (NASDAQ: OSTK) Q2 2022 earnings name dated Jul. 28, 2022
Company Individuals:
Lavesh Hemnani — Head of Investor Relations
Jonathan E. Johnson III — Chief Govt Officer
Adrianne Lee — Chief Monetary Officer
Dave Nielsen — President
Analysts:
Seth Sigman — Guggenheim Companions — Analyst
Rick Patel — Raymond James — Analyst
Peter Keith — Piper Sandler — Analyst
Anna Andreeva — Needham & Firm — Analyst
Thomas Ferris Forte — D.A. Davidson — Analyst
Curtis Nagle — Financial institution of America — Analyst
Presentation:
Operator
Good day, and thanks for standing by. Welcome to the Overstock.com, Inc. Second Quarter 2022 Earnings Convention Name. [Operator Instructions].
I’d now like to show the convention over to your speaker in the present day, Lavesh Hemnani, Head of Investor Relations. Please go forward, sir.
Lavesh Hemnani — Head of Investor Relations
Thanks, operator. Good morning, and welcome to Overstock’s Second Quarter 2022 Earnings Convention Name. I’m Lavesh Hemnani, Head of Investor Relations. Becoming a member of me on the decision in the present day are Jonathan Johnson, CEO; and Adrianne Lee, CFO. Moreover, Dave Nielsen, President of Overstock, might be out there for Q&A. Please notice that we’re conducting in the present day’s name remotely. Subsequent slide, please. Let me remind you the next dialogue and our responses to your questions mirror administration’s views as of in the present day, July 28, 2022, and should embrace forward-looking statements. Precise outcomes might differ materially from such statements. Further details about elements that might doubtlessly affect our monetary outcomes is included in our Type 10-Ok for the yr ended December 31, 2021, and in our subsequent filings with the SEC. A slide presentation accompanying in the present day’s webcast has been posted to our Investor Relations web site and is on the market to obtain. Please evaluate the necessary forward-looking assertion disclosure on Slide two of in the present day’s presentation.
Throughout this name, we’ll talk about sure non-GAAP monetary measures. The slides accompanying this webcast and our filings with the SEC comprise necessary extra disclosures concerning these non-GAAP measures, together with reconciliations of those measures to essentially the most comparable GAAP measures. Lastly, to take part throughout our Q&A session, please use the registration hyperlink out there underneath the Occasions part of our Investor Relations web site. Subsequent slide, please. Throughout in the present day’s name, we’ll observe the agenda on Slide three.
And with that, let me flip the decision over to our first speaker for in the present day, Jonathan Johnson.
Jonathan E. Johnson III — Chief Govt Officer
Thanks, Lavesh, and good morning, everybody. Let me begin by saying how proud I’m of the complete Overstock staff for reaching our ninth consecutive quarter of profitability, and doing so in a very tough atmosphere. Our second quarter efficiency mirrored the headwinds referring to weak shopper sentiment due largely the macroeconomic and geopolitical volatility. This week has began to grow to be extra pronounced in late Q1 and continues via in the present day. Whereas we can not management the macro atmosphere and the affect of excessive fuel costs, growing rates of interest, document inflation and uncertainties surrounding geopolitical occasions has on shopper sentiment and rivals’ habits, we are able to management and have managed many components of our enterprise. In reality, our asset-light enterprise mannequin is very advantageous throughout instances like these. We don’t have costly logistics operation with excessive mounted price base or considerably owned stock on our stability sheet.
We are able to and do proceed to supply sensible worth to our prospects as their wallets are stretched. 9 straight quarters of profitability with assorted prime line efficiency is a testomony to this staff’s potential to run a worthwhile enterprise for our shareholders. Whereas I’m not happy that our prime line income is down 34% versus the historic excessive of final yr, I’m happy that we have been in a position to keep inside the construction of our monetary recipe card to ship adjusted EBITDA margin of three.9%, close to the decrease finish of our acknowledged targets. We elevated share repurchases throughout the quarter displaying additional dedication to shareholders. Overstock stays in a good money place with a powerful stability sheet, effectively outfitted to navigate via ongoing macro instability. Subsequent slide. Since I turned CEO in late 2019, we’ve got operated our enterprise underneath vastly totally different macro circumstances. Throughout 2020, the world plunged right into a pandemic and e-commerce penetration serves to over 40% in comparison with the 33% vary in the present day. Within the first half of 2021, shoppers have been largely restricted to their houses and had extra cash to spend on discretionary objects.
In 2022, shopper sentiment round home-related purchases has moderated with rising rates of interest and inflation monitoring at 40-year highs. Spend on companies is just not but absolutely normalized, which is able to doubtless proceed to exert stress on goods-related spending. Contemplating these information in our document second quarter performances in every of the final two years, I consider it’s necessary to mirror on our current efficiency as in comparison with our efficiency within the pre-2020 timeframe. Over this era, we gained market share and did so profitably. The chart on this slide illustrates effectively the advantages we’ve got realized from the targeted operational enhancements we’ve got carried out. In comparison with 2019, we’ve grown 44%, which has outpaced the market. In reality, should you have been to take a look at our development only for our home-related enterprise, we’ve got grown 60% versus Q2 2019. That’s vital. Our energetic buyer base, though smaller than the pandemic ties, remains to be monitoring forward of pre-pandemic. And our broader product as sure and an improved cell app expertise are being acknowledged by our prospects. Primarily based on third-party information we evaluate, our change in retention fee versus final yr was similar to different friends within the class.
We’re not alone in navigating via this tough retail atmosphere. A serious distinction for Overstock, for my part, is that our staff is dedicated to delivering profitability. Since I turned CEO, this has been our dedication to shareholders. I consider this monetary self-discipline is much more necessary throughout these unprecedented instances. I’m inspired by the progress made by the staff and the give attention to reaching our long-term strategic imaginative and prescient. This consists of growing the breadth and depth of product assortment to enhance our model affiliation with dwelling, rising cell app adoption and rising our Canadian income share. Our distinctive Sensible Worth model pillar and the market quadrant the place we compete with ample white area positions us favorably to seize demand when shoppers want to spend in our class. Subsequent slide. Now for a short replace on current company occasions.
In the course of the second quarter, we repurchased roughly $35 million of fairness. 12 months-to-date, we’ve got repurchased roughly $60 million of fairness. We proceed to be opportunistic in evaluating future repurchase alternatives. In Might, our shareholders accredited the conversion of each our Collection A-1 and Collection B most popular inventory into widespread inventory. We accomplished this conversion once more. We now have an easier fairness capital construction. We accomplished our transition to a 100% furnishings and residential furnishings retailer by exiting the final of our non-home classes in late June. As we’ve got shared previously, this was a strategic alternative. Over the long run, we anticipate to learn from an elevated affiliation of the Overstock model with dwelling. Whereas this has resulted in some short-term ache, our information continues to help {that a} dwelling buyer spends extra with the next common order worth and repeats extra ceaselessly than different prospects.
Adrianne will now evaluate our second quarter monetary ends in extra element. Adrianne?
Adrianne Lee — Chief Monetary Officer
Thanks, Jonathan. Slide seven, please. I’ll start with a abstract of our second quarter monetary outcomes, adopted by a extra detailed evaluate, together with our key buyer metrics. Subsequent slide, please. Income declined by 34% year-over-year. However as Jonathan highlighted, elevated almost 44% on a three-year foundation. Regardless of our gross sales efficiency, we managed our enterprise successfully to ship adjusted EBITDA margin of three.9%, a decline of 165 foundation factors versus 2021, however importantly, stays inside our mid-single-digit goal vary, close to the low finish. The second quarter of 2022 was our ninth consecutive quarter of profitability. We reported adjusted diluted earnings per share of $0.19, a lower of $0.54 versus 2021. The EPS decline versus final yr was pushed by decrease pretax revenue and the next efficient tax fee. Our adjusted EPS excludes the affect from our proportionate share of the Medici Ventures fund efficiency and a onetime merchandise ensuing from our fairness conversion.
Our efficient tax fee was 26.1% for the second quarter in comparison with a tax profit throughout the identical interval in 2021. Our quarterly tax expense and fee have been considerably totally different versus the identical interval final yr as we launched the vast majority of our valuation allowance in Q2 2021. As I discussed on the final name, we consider {that a} tax fee within the mid-20s vary could be applicable for forecasting functions, noting there might be fluctuations quarter-to-quarter primarily based on discrete objects. Our stability sheet stays robust. Even after executing on our share repurchase program within the quarter, we ended with a money stability of $443 million. I’ll now communicate to those quarterly monetary metrics in better element within the following slides. Subsequent slide, please. We posted income of $528 million within the second quarter, a lower of 34% year-over-year. The second quarter was impacted by weak shopper sentiment amidst macro and geopolitical uncertainty and our strategic actions to take away non-home merchandise from our website.
These headwinds have been compounded with comp being the biggest gross sales quarter in our firm’s historical past in Q2 2021. Our enterprise continues to carry out effectively relative to pre-pandemic 2019 ranges, illustrating the operational progress we’ve got made. That is evident within the 60% home-only gross sales development since 2019 that Jonathan shared with you earlier. The client we’ve got retained acknowledged our improved assortment of furnishings and residential furnishings and have robust engagement with our cell app, each of which have been key components of our technique. On-line penetration in our class continues to trace at a wholesome 33%, a rise of 900 foundation factors over 2019. Income efficiency was positively impacted by a 16% year-over-year improve in common order worth. We’re happy to report that we ended the quarter with a 100% dwelling assortment, proper heading in the right direction. I’ll talk about our key buyer metrics in additional element later. Subsequent slide, please. Gross revenue got here in at $121 million within the second quarter, a lower of $54 million versus the prior yr.
This gross revenue decline was partially offset by an improved gross margin. Gross margin was 22.9%, a 93 foundation level enchancment versus the identical interval final yr. The year-over-year improve was pushed by operational efficiencies, partially offset by increased promotions and discounting. I’m happy that we have been in a position to supply our prospects sensible worth, whereas navigating a excessive inflationary interval. Our asset-light mannequin protected our gross margin from markdown pressures that have been being confronted by different retailers with vital owned stock and/or infrastructure. Subsequent slide. G&A and tech expense decreased barely year-over-year and have remained comparatively fixed on common.
As I’ve talked about in previous quarters, we’ve got elevated compensation and advantages expense versus final yr, primarily pushed by our enhanced fairness packages. As a share of income, G&A and tech expense was 9.8% within the second quarter, a deleverage of 310 foundation factors in comparison with the second quarter of 2021. This was primarily pushed by prime line outcomes. Our aim stays to be extraordinarily disciplined in managing our bills and discovering efficiencies throughout the group. We intend to offset increased staff-related prices by discovering and eliminating redundancies inside our price construction, figuring out automation alternatives and prioritizing spend towards our development drivers. Subsequent slide. Within the second quarter, we delivered adjusted EBITDA of $21 million, which is a lower of $24 million versus a yr in the past. Adjusted EBITDA margin was 3.9% on the decrease finish of our acknowledged goal.
I’m happy that our operational efficiencies inside gross margin, disciplined advertising spend and laser give attention to expense administration as soon as once more enabled us to stay worthwhile. Subsequent slide, please. This slide reveals energetic prospects and order frequency. We measure energetic prospects on a trailing 12-month foundation. Our energetic buyer base declined to six.5 million on the finish of the second quarter. This decline in energetic prospects was pushed by three key elements: shopper sentiment via a discretionary spend has been weak because of excessive inflation and shopper staple classes; our technique to exit non-home merchandise. As beforehand shared, that is the appropriate long-term trade-off regardless of some ache throughout the quick time period; and continued normalization of retailer versus on-line spending, coupled with a shift in pockets share to experiences and companies. We’re disciplined when buyer acquisition prices are excessive. With this managed tempo of recent prospects, our year-over-year change in buyer retention fee has been similar to friends as measured by third-party information.
This illustrates that our home-focused technique is working. Orders per energetic buyer was 1.65 instances within the second quarter, a slight lower versus final yr and comparatively flat sequentially. It is a robust end result when you think about that we’re evaluating towards our largest gross sales quarter in historical past. Whereas energetic prospects has decreased, we’ve got been in a position to strategically offset a portion of this decline with an elevated common order worth, which is extra typical of the house class, wherein I’ll talk about in better element on the subsequent slide. Subsequent slide, please. Common order worth improved 16% year-over-year to $247. It is a document excessive AOV for the corporate. AOV additionally improved sequentially as we shifted extra into out of doors furnishings throughout the seasonal interval. Importantly, whereas we proceed to expertise price pressures all through the quarter, our AOV enchancment was primarily pushed by the combination inside our dwelling product assortment.
Orders delivered have been 10.7 million for the trailing 12-month interval. It is a lower of 31% in comparison with the prior yr of 4.8 million orders. The decline was primarily pushed by weak shopper sentiment and a shift of their spending priorities, together with the cumulative affect of non-home product removals from our website that began a yr in the past. Our AOV outcomes are an necessary proof level on our purposeful give attention to dwelling. Whereas orders are declining, the worth of every order is bettering. It’s a strategic trade-off and displays the acquisition habits of the purchasers we’re concentrating on, dwelling prospects who belief us with higher-value objects and have the next propensity to make a repeat buy. Subsequent slide, please. We launched this slide final quarter, which gives a view of our enterprise, excluding non-home gross sales and is extra similar to our friends. As you may see on the left chart, on the finish of the second quarter, our comparable home-related energetic buyer base declined 26% versus the reported 29%.
The chart on the appropriate illustrates our comparable home-only income declined 31% versus the reported 34%. In reality, on a sequential and trailing 12-month foundation, the affect is bigger. That is as a result of cumulative affect of non-home prospects exiting our ecosystem. Subsequent slide, please. I’ll wrap up my dialogue of the monetary part by highlighting our robust stability sheet. We ended the second quarter with $443 million in money and solely $36 million in long-term debt. We now have no vital debt maturities till March 2030. On the finish of the second quarter, our web money place was $406 million. Having minimal debt on this unsure macro atmosphere is a superb tactical benefit. It permits us the power to give attention to bettering our core operations and strategic initiatives with out having to depend on the capital markets throughout this rising rate of interest and restrictive atmosphere.
Notably, we have been in a position to maintained a stable monetary place even after allocating capital in direction of share repurchases. We returned $35 million to shareholders throughout the second quarter on prime of the $25 million final quarter. Our present share repurchase program is allowed via December 31, 2023, and we at present have roughly $40 million out there on it. We’ll proceed to be optimistic in evaluating future share repurchase alternatives. We’re happy with our robust monetary place and the aggressive benefit it gives in a time of macro uncertainty. We proceed to ship on our acknowledged margin targets and make progress on our strategic initiatives to drive long-term worth for our shareholders.
With that, again to you, Jonathan.
Jonathan E. Johnson III — Chief Govt Officer
Thanks, Adrianne. In in the present day’s unsure market — I like this slide. Having a powerful stability sheet actually provides us extra stability and adaptability in a world of uncertainty and rising rates of interest. Subsequent slide. Subsequent, I’ll present some key insights into our enterprise, together with the place our targeted dwelling technique is paying off and the place we’re concentrating on and driving development. Subsequent slide. We shared this slide previously as an example the route of third-party forecast for on-line gross sales within the home furnishings and residential furnishings market. Primarily based on revised third-party information as of June, on-line penetration within the class remains to be anticipated to trace round 33% this yr. Nonetheless, that is now anticipated to be under penetration ranges in 2020 and 2021, which have been revised increased. These revisions are usually not stunning. It’s encouraging to see the projection for 33% of purchases to be transacted on-line.
Long run, we nonetheless consider that because the market matures, there’s enough room for on-line penetration to maneuver increased. What additionally excites me is that the full addressable marketplace for the — within the U.S. for furnishings and residential furnishings continues to develop. It’s now estimated at $419 billion, up from $390 billion primarily based on prior third-party reporting. The bigger market gives us with extra alternatives to achieve market share in a extremely fragmented area, even when on-line penetration declined barely this yr. Because the fourth largest on-line retailer within the dwelling furnishings in the USA our Sensible Worth model pillar and technique, targeted on growing the breadth and depth of our dwelling product assortment, will assist us serve this bigger and nonetheless rising market. Subsequent slide. I like displaying this slide to remind buyers that Overstock has vital white area out there within the quadrant the place dwelling items experience meet Sensible Worth. This quadrant is the appropriate place for Overstock to compete. We’ve been strategic about selecting to give attention to it. Some rivals, leveraging outsized debt and/or costly enterprise fashions, attempt to solid a wider web on each ends of the shopper worth spectrum to drive gross sales development. We consider that technique is just not economically viable over the long run.
Our give attention to the white area inside our quadrant helps us maximize our advertising spend to win enterprise throughout our buyer base and accomplish that profitably. Our goal prospects, people who search the best high quality and magnificence for his or her greenback, what we name Sensible Worth, and a straightforward expertise to search out what they need, have already got a better capability to buy with us. We purposely play to our pure strengths. These prospects symbolize roughly 40% of the market. Overstock has ample development alternative on this area and with these goal prospects. And when wallets are stretched, increasingly prospects search Sensible Worth. I’ll now move to our three model pillars, every of that are key to our continued development and assist outline Overstock worth proposition. Subsequent slide. The primary model pillar is Product Findability. In the course of the quarter, roughly 99% of our income was in dwelling classes. Our merchandising staff has completed a powerful job of including breadth and depth to product assortment on our web site.
Our distinctive capital-light and asset-light enterprise mannequin permits us to onboard companions and develop product assortment at a comparatively quick tempo, a key a part of our technique to develop our model affiliation with dwelling. The enlargement of dwelling product assortment has positioned us favorably to satisfy the evolving wants of our prospects with a broader and higher providing. Not like a few of our rivals, as a result of we don’t personal any stock, we’re insulated from dangers related to adjustments in shopper demand or preferences throughout classes. Residence gross sales have slowed. An economist’s outlook level to additional discount via this yr. Nonetheless, dwelling fairness values stay robust, which is sweet for our enterprise. Shoppers are investing of their houses and backlogs for dwelling project-related spend remains to be above pre-pandemic ranges. Our enterprise has been reflecting the identical pattern. Gross sales development in our dwelling enchancment classes have been outpacing the general firm common.
In the course of the second quarter, these classes continued to ship constructive gross sales development. And as shoppers begin spending extra on dwelling merchandise, once more, we’re effectively positioned to satisfy demand and seize market share. Subsequent slide. Our second model pillar is Sensible Worth. We attempt to supply the best high quality merchandise at one of the best worth. Our high-low promotional mannequin is intentions and demanding to attracting and retaining prospects. As is broadly acknowledged throughout the second quarter, the business confronted elevated aggressive promotional stress because of a mismatch of stock and demand. Though our asset-light mannequin didn’t straight expose us to mark down our liquidation pressures, we did must navigate via a difficult atmosphere to ship Sensible Worth to our prospects and preserve margins, and we did so efficiently. We held our pricing tenants in keeping with previous quarters.
Not like a few of our rivals, we didn’t must liquidate any extra owned stock, nor will we want to take action sooner or later. Our Sensible Worth proposition is just not solely necessary to our technique, it’s one thing our prospects depend on. We delivered the second largest Memorial Day buyer in firm historical past. That is spectacular contemplating we have been evaluating towards the biggest quarterly gross sales quantity in Overstock’s historical past. It is usually necessary to match key gross sales occasions in 2022 as a result of main change in shopper sentiment for the reason that begin of the yr. Gross sales on Memorial Day this yr have been bigger than President’s Day in February, which, as a reminder, was our largest on document. Contemplating a shopper backdrop, it was considerably weaker in Might than February. It reveals that our event-driven technique continues to work, and our Sensible Worth providing is resonating. We proceed to do effectively with our cell app adoption, which has enabled us to enhance buyer engagement.
Our cell app is now our strongest conversion in buyer retention platform. In the course of the second quarter, we noticed app downloads elevated 85% sequentially, on prime of 54% sequential development final quarter. We are actually capitalizing on this bigger put in base of cell app customers. Along with our in style app unique coupons to ship extra worth to our buyer, we’ve revived game-based methods like auto provides and began utilizing the notification plan extra successfully. These methods have been delivering outcomes. Our cell app return on our advert spend has been increased year-over-year throughout key occasions, making us extra environment friendly with advertising spend. We consider we nonetheless have an extended runway for rising cell app adoption and proceed to make use of it to direct methods for additional development.
Subsequent slide. Our third model pillar is Simple Supply & Assist. Our asset-light provide chain continues to be a aggressive benefit, positioning us favorably within the business relative to others. Our provide chain is broad and distributed with an enormous and rising companion community. This reduces single-source dangers, transport bottlenecks and provide chain kinks. We personal virtually no stock, defending us from markdown or clearance threat. This distinctive provide chain mannequin is a significant benefit within the present atmosphere. Our give attention to delivering on our monetary recipe card is appreciated by our companions, who, with better and better frequency comment, that it is crucial for them to do enterprise with an organization that makes cash and who their asset backed lenders know we’ll pay them shortly. Consequently, current companions who have been traditionally underrepresented on our web site are growing allocations to us. And we’re broadening our companion base with new companions eager about working with us, notably since we are actually 100% home-focused. There’s a purpose we discuss with our suppliers as companions.
We now have an unparalleled dedication to them, which was absolutely evident within the second quarter when their stock piled up of their warehouses. There are different channels canceled orders, and so they confronted vital markdown stress. In the course of the quarter, we supported our companions by offering an improved promotional pricing instruments to allow them to promote via their different stock objects and place their stock in our advertising campaigns to assist transfer it shortly. Our distinctive flagship mannequin enabled them to remove prices tied to warehouse logistics. Many use our negotiated provider charges to decrease cargo prices. And naturally, we proceed to pay them on a daily time line, whilst we navigated a difficult prime line atmosphere. The religion that our companions have put in our partnership goes a great distance in direction of profitable achievement of our long-term imaginative and prescient. Subsequent slide. Our mantra is sustainable, worthwhile market share development. Development is and all the time might be a key element of our enterprise, one which we spend a big period of time strategizing and dealing to attain.
This slide reveals a number of key drivers which can be important to help continued development, one thing we’re working to leap begin. Our differentiated enterprise mannequin is permitting us to pursue these development drivers, regardless of headwinds within the general macro and aggressive environments. These development drivers are usually not capital or resource-intensive. Aside from limiting what could be inefficient advertising spend, our give attention to profitability is just not hampering the progress of any of our development drivers. We’re targeted on these methods whereas persevering with to be disciplined in managing bills. We proceed so as to add SKUs to extend our dwelling affiliation, is sharper on pricing, one thing that was tremendously examined throughout the second quarter, successfully leverage our cell app and make purchasing simpler for our prospects. With the transfer to 100% dwelling now full, we’re pursuing initiatives to reposition the model as a outstanding retailer of furnishings and residential furnishings with an extended runway for development. Transferring to a fast reminder on our Canada efforts. As we’ve shared earlier than, our aim is for Canada to develop to 10% of our U.S. income over the subsequent a number of years.
Throughout 2022, nonetheless, we don’t anticipate our Canadian enterprise to meaningfully contribute to our acknowledged monetary targets as we rigorously develop it, to scale successfully and function the appropriate template for future worldwide enlargement alternatives. Proper now the staff is concentrated on enhancing the Canadian buyer expertise by growing merchandise regionally out there to ship from Canada and bettering worth competitiveness to reinforce the end-to-end buyer journey to extend conversion. Advertising and marketing is specializing in bringing extra site visitors to the Canadian web site in showcasing our distinctive model pillars. These efforts are regressing steadily and positioning Overstock for long-term success within the Canadian market. Subsequent slide.
We proceed to direct our methods to drive sustainable, worthwhile market share development inside our monetary recipe card targets, whilst the net market contracts them. Overstock has alternatives to achieve market share as we win model affiliation with dwelling. Our annual targets for 2022 and past stay unchanged. These embrace prime line outpacing the market to ship market share development underneath numerous macro situations, pushed by our superior expertise, our unwavering give attention to the shopper and our inherently adaptable enterprise mannequin. Gross margin is within the 22% vary in order that we are able to ship on Sensible Worth, acknowledging these might fluctuate barely from quarter-to-quarter. Disciplined G&A and tech spending to ship working leverage. I’ll notice our potential to drive leverage throughout the first half of 2022 was restricted by the tough gross sales atmosphere.
We’ll, after all, proceed to handle these bills rigorously. And we proceed to do our greatest to ship adjusted EBITDA margin within the mid-single digits on an annual foundation. Subsequent slide. I’ll now talk about a number of updates on the Medici Ventures Fund. Subsequent slide. It has been over a yr since we handed over full management of the day-to-day operations and funding selections of the Medici portfolio to Pelion Enterprise Companions. As you’ll recall, throughout 2020, as we pivoted our focus to methods geared toward driving sustainable, worthwhile market share development for the furnishings and residential furnishing e-commerce enterprise, we went via a rigorous course of to guage choices via the Medici portfolio. Bear in mind, many of the Medici portfolio corporations have been and nonetheless are an early seed in Collection A investing stage and require an skilled enterprise capital fashion operator to get them to a degree to appreciate one of the best monetary consequence for all stakeholders.
After contemplating a number of skilled enterprise companies, we selected to companion with Pelion, a agency which has many years of expertise in serving to disruptive expertise corporations scale and exit efficiently. We structured the fund in order that the higher Pelion does with the portfolio firm exits. Each Overstock shareholders and Pelion will see the advantages. Pelion has confirmed to be an ideal option to actively assist advance the portfolio of corporations’ respective companies and permit the Overstock administration staff to stay targeted on the furnishings and residential furnishings e-commerce enterprise. Pelion is demonstrating its prowess in elevating corporations to the subsequent degree. Current examples are the robust management additions at tZERO and Bitt. In June, tZERO added two new members to its Board, Edward Marshall, Former Senior Vice President and Founding Chief Expertise Officer of Intercom Steel Change; and Michael Blaugrund, Chief Working Officer of the New York Inventory Change. tZERO ought to profit from their mixed expertise and monetary companies background. We stay enthusiastic about the way forward for tZERO.
Bitt has additionally strengthened its govt staff. Final week, Bitt introduced the addition of the Criteo Central Financial institution digital forex, or CBDC founding staff, together with Jim Shinn and Erik Bethel. The Criteo staff has efficiently engaged over 12 central banks in Latin America, Africa, Europe and Central Asia advancing their CBDC packages. This staff will proceed these engagements with this market-leading expertise and CBDC product suite. And so they have then additionally added a brand new Chief Product Officer, Baker Nanduru. These appointments solidified Bitt’s market-leading place within the digital forex area and set it up for long-term development. This digital forex administration system is the expertise behind many of the dwell retail CBDC deployments the world over, together with launches in Africa and Central America. Bitt has established relationships with a powerful record of companions and associations which enhanced the digital forex expertise for everybody inside a rustic’s monetary ecosystem.
I hope everybody has had the prospect — I hope everybody had the prospect to attend Medici Day on Might 10, hosted by the Pelion staff, led by Matt Mosman. Matt has over 30 years of expertise with early-stage corporations and key relationships within the disruptive expertise area that the Medici portfolio can leverage. six portfolio corporations — and primarily based on suggestions obtained, attendees appreciated particulars on the companies and the way the portfolio is pioneering using blockchain expertise. For individuals who haven’t but had an opportunity to evaluate the presentation, a replay stays out there on our Investor Relations web site. I anticipate that the Pelion hosted Medici Day will grow to be an annual occasion, which is the suitable cadence given the nonetheless early phases of largely the portfolio of corporations.
Our partnership with Pelion has an eight-year time period. And in my opinion, there’s a number of excellent news nonetheless to come back. Pelion, tZERO and Bitt groups are making good progress. Subsequent slide. I’ll now briefly recap the quarter and supply some ideas earlier than transferring to Q&A. Subsequent slide. In the course of the second quarter, we proceed to reveal our dedication to profitability towards a weak shopper backdrop. We additionally returned money to our shareholders via share repurchases. Our stability sheet is robust and gives us flexibility within the present macro atmosphere. We consider that the Overstock enterprise mannequin is agile and resilient, reacts effectively to jolt out there and shopper habits and is effectively positioned to capitalize on alternatives to achieve market share. Wanting forward, we proceed to extend the breadth and depth of dwelling SKU assortment out there on our website, strengthening Overstock’s model affiliation with dwelling.
Our give attention to Sensible Worth is exclusive, particularly in instances the place shopper wallets are underneath stress. We’re efficiently leveraging our cell app to extend buyer engagement. Our provide chain is asset-light and constructed to help sustainable, worthwhile market share development. To wrap up, we like our enterprise mannequin, and we’ve got a powerful, adaptable and targeted staff that’s proving it may management the controllables. It is a staff that desires to and I consider will win. We like our place out there and our differentiated mannequin.
Now, operator, let’s take some questions.
Questions and Solutions:
Operator
[Operator Instructions] Our first query comes from Seth Sigman with Guggenheim Companions.
Seth Sigman — Guggenheim Companions — Analyst
Hey all people, thanks for taking the query. I’m trying on the EBITDA efficiency. It’s continued to be spectacular on this atmosphere. I’m simply curious concerning the sustainability of mid-single digits. If we’re fascinated about the potential for gross sales to proceed to say no from right here, particularly in Q3 in a doubtlessly decrease quantity quarter, might we begin to see the working deleverage worsen, notably fascinated about a few of the extra mounted bills like tech and G&A? Or do you’re feeling like you’ve some levers to proceed to offset that?
Lavesh Hemnani — Head of Investor Relations
Seth, thanks for acknowledging our EBITDA efficiency. Adrianne, I’ll ask you to deal with that first, and I’ll add some feedback.
Adrianne Lee — Chief Monetary Officer
Actually, Jonathan and Seth, I’d simply say, after all, as you talked about within the second quarter, with our gross sales efficiency, we have been in a position to ship on our margin targets. And we’ve been in a position to do that during the last 4 quarters, the place we’ve seen income declines. To your level, and in Jonathan’s ready remarks, we talked about our aim is to proceed to ship ends in that mid-single-digit EBITDA margin and handle our bills successfully. Jonathan?
Jonathan E. Johnson III — Chief Govt Officer
Sure. Seth, we’re all the time going to take a look at our bills rigorously. We’ve confirmed we are able to handle them, and we’ve got a mannequin that works that method. we’re — I ought to handle the opposite a part of, I feel, your remark, and that’s what are we doing to drive gross sales as a result of prime line development helps all types of issues. I’ll say a number of issues that we’re doing in merchandising and some issues that we’re doing in advertising. In merchandising, we’ve made nice strides in including breadth and depth with SKUs. The staff has aggressive plans to have SKUs via the yr and is doing effectively in assembly these plans, including SKUs from underpenetrated companion that promote via our rivals. So I feel that could be a huge deal. I’ll additionally notice, a few of the SKUs we’re including, I feel, are notably targeted for second half of the yr gross sales as we search for small home equipment and issues like that to assist in the fourth quarter when these — when persons are on the lookout for giftable dwelling home equipment.
On the advertising entrance, — we’re working to leverage our app to extend buyer engagement. Utilizing our advertising communication, you may anticipate us to make use of extra advertising communication to amplify our transfer to 100% dwelling and to reengage with our current prospects and broaden our buyer base. Now that we’re 100% dwelling, that message and that model affiliation grow to be extra necessary and it’s one thing we’ll give attention to. So Seth, thanks for the query.
Seth Sigman — Guggenheim Companions — Analyst
Thanks guys.
Operator
And our subsequent query comes from Rick Patel with Raymond James.
Rick Patel — Raymond James — Analyst
Thanks, good morning and I respect you taking my query. Jonathan, are you able to share your views on what’s occurring with pricing within the business? Plainly corporations are attempting to take up pricing given inflation, however discounting can also be up. So when you consider the larger image, do you suppose this web debt to costs being increased or decrease versus final yr for the house class? And because it pertains to your enterprise, we talked concerning the significance of getting Sensible Worth. Simply given what you’re seeing with the pricing within the business, do you see the potential to tweak your pricing favorably whereas persevering with to stay very aggressive versus others?
Jonathan E. Johnson III — Chief Govt Officer
Rick, actually cogent query. Let me present some preliminary feedback, after which I’ll let Dave add some extra coloration. In the course of the second quarter, sustaining our pricing tenant of being the low price on the Web put up promotion in our high-low mannequin was difficult. As a few of our rivals who personal their stock have publicly acknowledged they’ve an excessive amount of and are liquidating it, I assume at a loss implies that we’re competing towards folks which can be behaving, in some sense, irrationally by promoting it lots. We don’t have that stress as a result of we don’t personal stock. That mentioned, throughout the quarter, we labored with our companions to get them to decrease their first price for us in order that we might preserve their merchandise on our website, have it out there to promote at aggressive pricing inside our pricing assessments.
We noticed that notably throughout the second half of the second quarter. We proceed to see it some within the third quarter, and I feel we’ll see it via the third quarter. The excellent news is our staff works with the companions, helps us get price concessions in order that we are able to preserve competing price-wise. Dave, what would you add to that?
Dave Nielsen — President
Only one extra level, John, I feel effectively coated. We’ve elevated our match fee share, if you’ll. It’s a really, very difficult time for pricing, and we wish to make it possible for we all know precisely the place we’re within the business. And we really feel assured that by hitting that 80% aggressive fee, plus then take into accounts our coupons or reductions, it makes us one of the best deal on the market. And as we’ve elevated that match fee, we really feel much more assured that every one of these actions that Jonathan simply talked about are resonating with prospects and can proceed to as we transfer via the autumn. Jonathan, again to you.
Jonathan E. Johnson III — Chief Govt Officer
Rick, let me add one factor. You requested will costs come down or will they proceed to rise? Right here’s my guess. For merchandise the place our rivals and/or our companions have ample stock, even over stock, they’ll come down. The areas the place they’re nonetheless ready for product to get via the ports, they’ll rise. So I imply, it’s ECON 101, the place provide is increased than demand, costs are going to come back down. The place provide is much less, then demand will go up. And I feel there are classes like dwelling — like a patio out of doors furnishings, the place provide is ample proper now, and there are a number of offers available and we’ve obtained offers on Overstock. We’re competing on the worth degree we wish to compete. I hope that addresses your query, Rick?
Rick Patel — Raymond James — Analyst
Thanks very a lot.
Operator
Our subsequent query comes from Peter Keith with Piper Sandler.
Peter Keith — Piper Sandler — Analyst
Thanks, good morning everybody. So the expense administration may be very spectacular, and you’ve got a number of issues occurring. However I did wish to give attention to the order development. You talked concerning the dwelling gross sales development of 60% from 2019. On the similar time, your AOV is up, I’m calculating, 49%. So it does appear to be about 11% dwelling order development, which is a couple of 3.5% CAGR during the last three years. It appears just a little low given all of the goodness that’s occurring. So the center of the query is, is that math about proper? And are you doubtlessly not promoting sufficient to drive your Sensible Residence worth proposition?
Jonathan E. Johnson III — Chief Govt Officer
Adrianne, I’ll allow you to touch upon the mathematics, after which I’ll speak via advertising efforts to emphasise the house.
Adrianne Lee — Chief Monetary Officer
Thanks, Jonathan. And sure, math directionally appropriate, Peter. I’d simply additionally embrace form of that order frequency element as effectively, simply that form of consistency and a few uptick there. However sure, typically, your math is in line. Jonathan?
Jonathan E. Johnson III — Chief Govt Officer
So on emphasizing our model, associating our model higher with dwelling. As I discussed in previous quarters, we felt like doing that, whereas we nonetheless had a very good variety of non-home SKUs on the positioning was untimely. If you emphasize dwelling after which folks see jewellery or watches, we felt like we weren’t getting the utmost bang for the buck. Now that we’re 100% dwelling, you may anticipate to see totally different branding campaigns being rolled out that present that we’re a house. I feel they’re going to be thrilling. I feel they’re catchy. I feel the buyer goes to know them. And as I’ve mentioned many instances, Overstock identify recognition may be very excessive. Our affiliation with dwelling is just not the place it must be. I feel that may change over the approaching quarters as you see extra, higher and extra targeted branding bringing on the market. Dave, I do know you’re working carefully with the advertising staff. Something you’d add there?
Dave Nielsen — President
No, nothing so as to add. Excited for what’s coming in at finish of the third quarter.
Jonathan E. Johnson III — Chief Govt Officer
Peter, hopefully, I addressed your query?
Peter Keith — Piper Sandler — Analyst
Sure, very useful, thanks.
Operator
And the subsequent query comes from Anna Andreeva with Needham & Firm.
Anna Andreeva — Needham & Firm — Analyst
Nice, thanks and good morning everybody. One fast one for us. You guys talked about you noticed a document excessive Memorial Day weekend, however then I feel developments slowed in direction of the top of the quarter. Might you present extra coloration on that? I feel June was good for the house business general. And curious what are you seeing within the enterprise quarter to this point?
Jonathan E. Johnson III — Chief Govt Officer
Sure, Anna, thanks. Memorial Day was good. It was greater than superb. It wasn’t fairly pretty much as good as final yr, higher than President Day this yr, which I feel is saying one thing given the place the market was going. June was just a little worse than Might. July is just a little bit higher than June. I’ll emphasize just a little bit in that sentence. It’s robust to understand how the summer season goes to play. After which what is going to occur when summer season ends and other people get again to work into purchasing. We expect we’re in a very good place. We proceed to supply sensible worth. We proceed with our excessive low promotional occasion. I do suppose that as a excessive mortgage retailer. The times when persons are purchasing on the holidays are necessary days for us to win. And we’re getting higher and higher at it. And I’m trying ahead to Labor Day, our Buyer Day, Black Friday, Cyber Monday. The second half of the yr has obtained some good occasions days that we expect we are able to capitalize on.
Anna Andreeva — Needham & Firm — Analyst
Okay. That’s tremendous useful. And if I might observe up, that is really a follow-up on the earlier query. Simply contemplating the brand new advertising campaigns popping out within the again half to drive that dwelling affiliation for Overstock. Ought to we anticipate some step-up in advertising bills because of this? You guys have managed that line merchandise rather well.
Jonathan E. Johnson III — Chief Govt Officer
You’ll be able to anticipate us to proceed to handle it effectively. Dave, do you wish to handle how we — how we’re going to do model launch and handle return on advert spend?
Dave Nielsen — President
Positive. In order we glance to a few of the feedback Jonathan talked about about our upcoming dwelling campaigns, we’ll be shifting {dollars} between the channels, and we’re all the time doing that. And we don’t ever actually reveal or present particular particulars round every particular person channel, however we might be growing in a few of our channels to broadly distribute our model recognition of dwelling and residential furnishings. And as we do this, we’ll be growing in our influencer campaigns and remainder of the model ambassadors. Some very thrilling issues that we’ve got coming that we’re trying ahead to. In order Jonathan talked about, we’ll all the time watch the underside line bills. From a channel spend on our return on advert spend, the fashions are constructed to efficiencies and to a return degree. And you possibly can spend extra and lose some huge cash doing it and seize a buyer. However it’s such a price that it’s — the longer term worth is just not price it. So we proceed to stability these and watch our bills as we do it.
Jonathan E. Johnson III — Chief Govt Officer
Sure. I didn’t know that we’re dedicated to profitability. With our Sensible Worth, which suggests 22%-ish for the gross margin, there’s some mounted bills. We’re going to be actually cautious in ensuring that how we promote, how we model simply inside the return on advert spend metrics that we’ve got and we’re dedicated to.
Anna Andreeva — Needham & Firm — Analyst
Proper, terrific. Thanks guys, very useful.
Operator
And the subsequent query comes from Victoria James from D.A. Davidson.
Thomas Ferris Forte — D.A. Davidson — Analyst
It’s Tom Forte at Davidson. So are you able to discuss your Membership O program? How are gross sales trending there versus developments general? And do you’ve any plans to make any adjustments to Membership O?
Jonathan E. Johnson III — Chief Govt Officer
Tom, thanks for citing Membership O. 12 months-over-year, it continues to develop. It stays robust. It’s one thing we give attention to. These prospects have the next AOV and store extra ceaselessly. We’re engaged on some issues to broaden and enhance our loyalty program. I don’t wish to go too underneath the covers on these. Extra to come back. We expect it’s thrilling and can assist us develop when these are launched. However Membership O continues to develop year-over-year and an thrilling a part of our enterprise.
Thomas Ferris Forte — D.A. Davidson — Analyst
Nice, thanks Jonathaan.
Operator
And our closing query comes from the road of Curtis Nagle of Financial institution of America.
Curtis Nagle — Financial institution of America — Analyst
Good morning, thanks for taking the query. I suppose the primary one was specializing in cell, proper? So I feel you guys have completed lots to extend the performance and bettering the expertise, proper? Downloads have been growing all that. However should you simply have a look at the % of orders going via cell, hasn’t actually budged? I feel $5 fee fairly may really be increased than what we’re seeing for the enterprise as an entire. So I suppose simply why is that? Is it simply going to take just a little extra time for it to catch up? How ought to we anticipate that channel to develop when it comes to whole gross sales going via it?
Lavesh Hemnani — Head of Investor Relations
Sure. So Curtis, thanks for asking about cell. It provides us an opportunity to spotlight it some extra and really appropriate some assumptions, some flat assumptions in your query. Dave, why don’t you give just a little little bit of coloration about what’s coming via cell, what we see and why we’re so enthusiastic about it?
Dave Nielsen — President
Within the cell app, enterprise for us, that channel is, as talked about within the remarks, it’s our highest repeat fee and our highest conversion and our highest AOV. These are loyal prospects. And as soon as we purchase them and get them within the ecosystem, it’s inexpensive for us to promote to them, to market to them and work together with them. So this can be a channel, and it’s rising and rising considerably for us. We don’t reveal the person channels development publicly, however I’ll inform you this one is on a terrific trajectory. And we’re persevering with to put money into the capabilities and the advertising capabilities of remarketing efforts with the cell app.
Jonathan E. Johnson III — Chief Govt Officer
Sure. Thanks, Dave. And the opposite factor I’d point out, Curtis, is with the cell app, we’re reaching just a little bit totally different demographic — not totally different in that it’s not a savvy shopper and reluctant repressions, however a youthful demographic. And it’s necessary for us to choose that as much as talk actively with them. So cell continues to develop, and we’re enthusiastic about it. And increasingly of our gross sales are coming via it. Did I handle the query?
Operator
And I’d now like to show the convention again over to Mr. Jonathan Johnson for any closing remarks.
Jonathan E. Johnson III — Chief Govt Officer
Thanks, operator, and I wish to thank everybody for collaborating in in the present day’s name. I like our enterprise. We now have the appropriate asset-light enterprise mannequin. We’re targeted on the appropriate market within the furnishings and residential furnishings market. We’re targeted on the appropriate buyer segments, savvy buyers and reluctant repression. Prospects would have a pure tendency to buy with Overstock. We now have the appropriate staff to execute and ship each market share development and income. On the similar time, even with regular macro and aggressive headwinds, we’ve got dry powder for strategic alternatives. And we’ve got a portfolio of blockchain property being effectively managed by Pelion that I consider has enormous potential to drive worth for our shareholders. Once more, I like our enterprise and I like our future. We respect your curiosity in Overstock [Indecipherable].
Operator
[Operator Closing Remarks]
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