A Look at Overstock’s 3Q17 Performance

Could Bitcoin Mania Help Overstock Maintain Its Momentum? PART 6 OF 6

Sales and earnings

Overstock (OSTK) is primarily engaged in selling a wide range of merchandise such as fresh produce, home decor, and video games to customers through its online channel. The company also ships goods to international customers with the help of third-party logistics services.

The company reports revenue under two segments: direct revenue (owned merchandise sales through the company’s online and offline channels), and partner and other revenue (sales of merchandise owned by partners, mostly through the company website). In 3Q17, Overstock reported $424 million in revenue, which fell short of analysts’ estimate of $452.6 million. YoY (year-over-year), its revenue fell 4%. According to the company, changes in Google’s search engine algorithms impacted its revenue performance. Overstock has been working to resolve this issue.

In 3Q17, its direct revenue fell 20.2% to $19.6 million, while its partner and other revenue fell 3% to $404.4 million. The company’s EPS (earnings per share) of -$0.03 beat analysts’ estimate of -$0.09 and its 3Q16 EPS of -$0.12.

Margins

Overstock’s gross margin expanded 160 basis points to 19.7% due to a favorable product mix. Its contribution margin, on the other hand, narrowed 190 basis points to 9.2%, impacted by increasing sales and marketing costs. The company’s sales and marketing expenses rose as it ramped up advertising to reach more customers.

Retail performance

In 3Q17, Overstock had retail revenue of $420.1 million, down 4% YoY. The company’s loyalty membership program, Club O, saw a 30% increase in paid memberships.

The company’s gross margin expanded 170 basis points to 19.6%, and its contribution margin narrowed 190 basis points to 9.1%. Higher expenses and an intense promotional environment remain a concern.

Ever since the arrival of Amazon (AMZN), the retail landscape has changed drastically. The rise in online shopping preferences is compelling retailers such as Walmart (WMT), Target (TGT), and Kroger (KR) to invest heavily in enhancing their digital capacities, which is impacting their margins and prompting deep price cuts.

With the retail sector grappling with so many challenges, the performance of retailers such as Overstock will likely remain subdued. However, Overstock’s efforts to metamorphose into a blockchain technology company might yield impressive results.


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