BBBY - NASDAQ

Good day, and thank you for standing by. Welcome to the Q2 2023 Overstock.com Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference call over to your speaker for today, Lavesh Hemnani. Lavesh, please go ahead.

Thank you, operator. Good morning, and welcome to our second quarter 2023 Earnings Conference Call. Joining me on the call today are CEO, Jonathan Johnson; and CFO, Adrianne Lee. President, Dave Nielsen will be available for Q&A. A slide presentation accompanying today's webcast has been posted to our Investor Relations website and is available to download. Next slide, please. Please review the important forward-looking statements disclosure on Slide 2 of today's presentation. The following discussion and our responses to your questions reflect management's views as of today, July 27, 2023, and may include forward-looking statements. Actual results could differ materially from such statements. Additional information about factors that could potentially impact our financial results is included in our Form 10-K for the year ended December 31, 2022, and in our subsequent filings with the SEC. During this call, we will discuss certain non-GAAP financial measures. The slides accompanying this webcast and our filings with the SEC 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. Next slide, please. During today's call, we will follow the agenda on Slide 3. With that, let me turn the call over to our CEO, Jonathan Johnson.

Thank you, Lavesh, and good morning, everyone. Let me begin by quoting something I said on our June 29 special investor call. "I have never been more excited about what's going on at our company". I want to re-emphasize that today because it is truer today than it was then. Overstock has had a great business model, but weighed down with a boat anchor of a name. Bed Bath & Beyond is an iconic consumer brand, but weighed down by a boat anchor of an outdated business model that got worse over time. This acquisition drops both boat anchors. With the great Bed Bath & Beyond brand so naturally tied to home products, in our advantageous asset-light business model, this sleek boat should sail anchor-free and allow us to meaningfully grow and scale our business. It is exhilarating to see the hard work and high energy across the organization that has resulted from our exciting new strategic direction. Everyone is focused on ensuring we are successful in our repositioning of the company to attract and acquire customers and increase market share. Suppliers are more eager to sell their products on our website. Since the acquisition, the headwind that came with the Overstock brand is being replaced by the tailwind of the Bed Bath & Beyond brand. Later, I will share some details on our successful launch under the Bed Bath & Beyond name in Canada, something which makes me optimistic as we get ready to launch in the U.S. This morning, we reported our Q2 financial results with revenue slightly ahead of the preliminary performance update we shared last month. Our adjusted EBITDA was positive for the 13th quarter in a row. We ended the quarter with a strong balance sheet. Our consistent and solid financial track record is allowing us to play offense and execute a transformative re-branding of our business. That will include a larger-than-normal promotional and marketing budget for the next few quarters as we attract and retain loyal Bed Bath & Beyond customers. Our team's commitment and focus and our asset-light business model is delivering results. We continue to execute against our strategic growth drivers. Our strong Independence Day performance was better than our internal expectations. For the month of July, thus far, our home-only revenue trend has improved slightly relative to June. This is encouraging when you consider a highly competitive environment and the key sales events held during July by larger players in the industry. Next slide. Now for a brief update on recent corporate events. On May 31, Pelion Venture Partners hosted Medici Ventures Day. The event featured interviews with the leadership of t

Thank you, Jonathan. Next slide, please. Revenue declined 20% year-over-year in the second quarter, while this is an improvement in the year-over-year trend relative to the first quarter, results continued to be impacted by weakness across the furniture and home furnishings industry, which is a result of lower consumer engagement in the category, a shift in spending preferences and a weak housing market. Our gross margin performance was in line with our targeted range of 22% for the quarter. This was a solid result as we were able to offer our customers Smart Value during a highly promotional period. We delivered positive adjusted EBITDA of $8 million at a 2% margin during the second quarter and positive free cash flow for the first half of 2023. Our reported EPS loss of $1.63 was primarily driven by a noncash, nonoperating expense associated with a change in value of our equity securities and the associated tax impact. The change in value of our equity securities reflects the reduction in valuation for our direct investment in t

Thank you, Adrianne. Let's flip to the next slide. I'll next provide an update on our Bed Bath & Beyond integration time line, some early reads into our performance in Canada and the progress we've been making to the launch in the U.S. Next slide. Bed Bath & Beyond name is synonymous with home products. From early August, we will re-brand as Bed Bath & Beyond in the U.S. We expect this to be a seamless transition for the Overstock customer base and the Bed Bath & Beyond customer base. Our new website will have a familiar brand [ SPACs ]. The customer experience will be consistent with the great customer experience we have been providing. We will offer tens of millions of customers the opportunity to browse and purchase quality furniture and home furnishings products at Smart Value. Phase 1 progresses on schedule. We successfully went live in Canada within hours of closing. We are making significant progress in onboarding new partners and growing our assortment of quality home products. Since early June, we have added 600,000 new products to our site, many of them well-known name brands. This will be a continued and sustained effort as we expand the breadth and depth of our home product offering. We have also developed strategies to target the most loyal customers in the Bed Bath & Beyond and Overstock customer databases with the re-branding of our Club O loyalty program as welcome rewards. I will share more on that shortly. As we are at the end of July, our focus is now on Phase 2. We continue to target an early August launch in the U.S., now that the Bed Bath & Beyond brick-and-mortar stores are expected to close this weekend. We executed the Canada launch well. We are confident we will replicate that success with our U.S. launch. The next 60 days will be critical and exciting for the company. We have the right strategies, the right action plan and the right people in key positions to execute a transformational re-branding of our business. Next slide. Our technology and digital product teams did an outstanding job of launching in Canada on June 29. We finalized this within hours of the completion of our acquisition of the Bed Bath & Beyond intellectual property assets. The launch was well-planned and executed over many weeks. This is a team that knows how to execute. And thus far, we have not encountered any real setbacks in Canada. Let me provide some additional color for our Canada business across certain key metrics comparing our performance there pre- and post-launch. We expect a direct traffic, meaning customers who type bedbathandbeyond.ca into their browser to increase given Bed Bath & Beyond strong brand association with home. Direct traffic visits to the new bedbathandbeyond.ca site has increased substantially. We are taking advantage of the vast Canadian customer file we acquired, a file that is orders of magnitude larger than our previous Canadian customer file. Our e-mail marketing campaigns, which we were careful to roll out slowly to avoid being caught in spam filters have seen an increase in click-through rates driving further traffic to our Canada site. This channel has been a key driver of our growing Canadian business. The increase in visit has accelerated our rate of new customer acquisition. As we shared with you a few weeks ago, the growth in the number of our active customers is how we will measure the success of this transaction. Our product assortment is resonating with the Canadian customer. Bedding, bath, and kitchen categories have been our strongest growth categories. This is impressive when you consider as a company, we still have some work to do to add products in these categories. By continuing to have more SKUs, we can grow wallet share within the existing customer base, attract new customers and capture incremental market share. As expected, our average order values have decreased slightly due to a combination of product mix shift and promotional offers. Our value proposition, quality and style for less is clearly resonating with customers. In short, the Canadian business is off to a strong start post-launch. We are optimistic about the future of our company under the new brand, acknowledging that Canada is still a small part of our business. We still have work ahead of us to win the customer, something that is never easy in a highly competitive marketplace. And I note that the awareness gap between the Bed Bath & Beyond brand and the Overstock brand is larger in Canada than in the U.S. So the results of our launch in the U.S. may not be as pronounced or as quickly materialized, but I am eager to see. Next slide. We remain on track to launch in the U.S. in early August. We are meeting all our pre-launch targets. Our teams have made a lot of progress to ensure success. I'll provide some details by business segment. First, Merchandising and Supply Chain. The merchandising team is clearly seeing the tailwind from attaching our business model to the well-known and much loved Bed Bath & Beyond brand name, that ranks much higher than the Overstock brand name in its association with home. Within Bed Bath & Beyond's historical vendor base, we have an 80% overlap across the brands, which represent most of its revenue in addressable categories, meaning product categories we offer. However, in the past, some partners -- some of our partners have not offered us their entire catalog of these branded home products. That is now changing in a meaningful way. Since we already have an existing relationship with so many of these brands, we have been able to quickly add new SKUs from these partners as they open their catalogs of products to us. The total number of SKUs we've added since early July when the media first reported the news of our acquisition is now 600,000. Importantly, all these SKUs will be fulfilled on a drop-ship basis aligning with our asset-light model. When we measure our delivery metrics, we look at click-to-delivery or the time between a customer placing an order and receiving delivery. Our small parcel click-to-delivery time is more than a full day faster than Bed Bath & Beyond historically was. We are faster. Our supply chain team is keenly focused on ensuring we continue to deliver products to our customers quickly and on time. Prospective partners are now more willing to work with us. Our partner funnel conversion success rate has increased by 60%. This metric tracks the merchandising team's success when we reach out to prospective partners. Simply put, knowing we will be operating as Bed Bath & Beyond has made us more attractive to supplier partners. The merchandising team is onboarding new partners faster. With the acquisition of the Bed Bath & Beyond brand contracting time has decreased by 50%. New partners are more willing to onboard SKUs and give us access to a broader and deeper product offering. Moving to an update on our marketing plans. Like we did in Canada, we intend to launch in the U.S. using both the Bed Bath & Beyond and Overstock logos for an initial co-branded period. Over time, we will sunset the Overstock logo on brand. Customers and suppliers like the Bed Bath & Beyond brand, so do we. That is who we are becoming. We have robust strategies to engage with and acquire the Bed Bath & Beyond customer base. These strategies will drive our marketing and promotional budget higher than our recent run rate and higher than our financial recipe card targets. However, we expect to benefit over time from this marketing investment as we increase active customers and gain market share. We intend to target the loyal, welcome rewards customer base, a cohort that is in the high single-digit million range. We think this represents a real opportunity to grow our loyalty program in a meaningful way. We will leverage our hugely popular mobile app to acquire and retain customers. Our mobile app has been a big success for us. We will re-brand it as the Bed Bath & Beyond app. We have strategic plans to incentivize those who love the Bed Bath & Beyond Brand to download our mobile app with specific promotional call to action. The coupon loving Bed Bath & Beyond customers will love our mobile app promotion. We acquired a Bed Bath & Beyond customer file that substantially exceed the 20 million active customer base. We have separate plans to target these customers over time and bring them back to the new Bed Bath & Beyond. For an update on customer experience and technology team efforts we are doing the following. As I shared earlier, our technology and digital product teams have a road map to ensure that the U.S. launch progresses as smoothly as the Canada launched it. The customer experience in Canada has been impressive so far. In fact, our post-incident NPS in Canada has improved since our Canada launch. With the pending U.S. launch, we are confident we can handle the expected incremental traffic in the U.S. As a reminder, as part of the acquisition of the Bed Bath & Beyond Intellectual property we did not acquire any website, back-end systems or architecture. The relaunched experience will continue to run on our current web architecture, which handled pandemic era order volumes of more than 2.5x current order volumes without a hitch. Since then, our technology team has upgraded our infrastructure. We have a solid technology stack. As I mentioned, the merchandising team has done a great job of adding new product assortment. We know we need to make it easy for customers to find just what they are looking for with our increased product assortment. As a result, our product and technology teams have been working to improve search and navigation on both our website and our mobile app. I hope this update gives you an insight into the amount of focus and work our teams are putting in across the organization. As I mentioned earlier on the call, everyone at the company is focused on repositioning the company with this iconic consumer brand within the home category to capture market share. Next slide. We expected the acquisition of the Bed Bath & Beyond brand intellectual property to positively influence our growth flywheel and help accelerate some of our work. Even before the U.S. launch, this is already happening. As you can see from the shaded items on this slide, nearly all elements of our growth flywheel are directly benefiting from our association with an iconic consumer brand. This acquisition gives us a greater opportunity to grow our presence and gain market share within the large and fragmented total addressable market that exceeds over $440 billion. Our opportunity is real. Unlike the Overstock brand, the Bed Bath & Beyond brand is and always has been all about home. That was the primary strategic rationale for purchasing it. As I've mentioned, we've added 600,000 SKUs since early June. I expect the merchandising team to continue adding SKUs. As I noted on an earlier slide, our Canada business is already benefiting from being associated with a brand that has a much better association with home. Regarding category management, the acquisition of Bed Bath & Beyond's vast customer data, coupled with the subsequent customer interaction will allow us to learn more about which categories and subcategories resonate with our new and expanded customer base. This will inform our long-term strategy of assortment expansion and pricing optimization to position us favorably to market share growth. I talked about our plans to leverage our mobile app to acquire and retain customers. If you logged the Bed Bath & Beyond mailed coupons, you will love engaging with our new mobile app, which will be available to download with the U.S. launch. We believe that the Bed Bath & Beyond brand will drive stronger customer retention over the long term. It is a well-known and beloved brand. We believe marketing our assortment under the iconic Bed Bath & Beyond brand will help us deliver a better return on our marketing expenditures. We've already seen that in Canada as our return on ad spend has significantly increased since we launched there, even as we spend more on search engine marketing. We plan to launch a new -- we plan to launch an improved search -- I'm sorry, we plan to launch an improved internal search experience before launch in the U.S. We expect this will enhance the overall customer experience and increase conversion. As I've noted, product findability is paramount as we continue to add more SKUs to our slide -- our site. Next slide. Before we take your questions, I'll provide some color on quarter-to-date trends and our expectations for Q3 and beyond. As I indicated previously, we've seen a slight improvement in our year-over-year revenue trend in July compared to June. Quarter-to-date net revenue has slightly improved with a negative high teens range. The U.S. launch of Bed Bath & Beyond is on track for early August. We expect our revenue trends to improve post-launch. These expectations do not making any improvement in the poor macroeconomic environment or weak consumer spending in our industry, both of which are uncertain and difficult to predict. We expect to benefit from operating our advantageous asset-light model -- business model with the much loved Bed Bath & Beyond name in the furniture and home furnishing space. The early performance in Canada is encouraging. I'm eager to see what happens in the U.S. Moving to adjusted EBITDA. Based on our assumptions for customer acquisition, we expect to see adjusted EBITDA margins moving into negative territory for a few quarters. We will spend more on discounting and marketing to win customers during this unique window, including those in the large Bed Bath & Beyond customer list we acquired. We have a range of planning scenarios for the top line. And as a result, at this time, we will not provide more specific guidance on profit or margin targets. As a management team, we intend to take advantage of this unique opportunity to grow our customer base. we will be purposeful and agile and our plans for incurring higher discounting and marketing expenditures to attract customers for a few quarters. I have mentioned previously, our measure of success for this transaction is growth in the number of active customers. We are focused on significantly increasing the number of our active customers. Now operator, let's take some questions.

The first question comes from the line of Rick Patel of Raymond James.

This is Josh filling in for Rick here. I was just curious if you could provide us a bit of an update on the couponing. Like I know you mentioned it a bit, I know -- and I know it's important for the Bed Bath & Beyond brands that coupons apply to that. So I'm curious, are you aiming to target specifically, the Bed Bath & Beyond legacy customers? And also, how should we think about the margin implications of this?

So let me talk briefly, maybe turn to Dave to add and then Adrianne can talk about margin implications a bit. We know that the Bed Bath & Beyond customer loves coupons. Bed Bath & Beyond historically has been a high-low retailer. So we have always offered great promotions and coupons. I think the Bed Bath & Beyond customer will find that our pricing is sharper and better than they've historically seen at Bed Bath & Beyond. So while we intend to continue the promotion strategies we have used in the past, they won't be as big as Bed Bath & Beyond's work. Now that said, I think during the initial launch, Bed Bath & Beyond customers, Overstock customers people who've never shop with either can expect to see some significant coupons to attract people -- to attract them to the great Overstock site. So there will be an initial, I think, push with kind of bigger than usual coupons followed by great prices with Overstock's traditional promotional strategies. Dave, I've said a lot, maybe more than I should have strategically said. Anything you want to add there?

I think you answered that question perfectly. And I think it's going to be a really exciting couple of months as we launch. I'll leave it at that for now.

Now on margins, and before I'll let Adrianne talk to that. We're not providing a lot of margin guidance because there's a lot to still be figured out. Now we have had a month in Canada, which is a great test place for us because it's a small part of our business. We're guiding to negative adjusted EBITDA for a few quarters because this is a very unique opportunity to acquire a lot -- a lot of customers, and that's important. Adrianne, I probably said what you were going to say, but what would you add about margins?

Jonathan, I wouldn't add, I'd just reiterate, as I said in my scripted remarks, we'll see pressure on gross margin. We don't expect to be in our kind of targeted 22%-ish range and as you mentioned, negative adjusted EBITDA margins. Just reiterating those 2 comments.

Yes. So Josh, great question. We're going to be very strategic here. You know Overstock. Our mantra has been sustainable, profitable market share growth. We expect to get back to that. But in getting there, it will take -- it could and it will and it should take acquiring these customers as we re-brand. And so there'll be a [ lull ] for a few quarters, a departing -- a purposeful departing from our mantra to get back to that mantra.

The next question comes from the line of Seth Sigman of Barclays.

I wanted to just follow up on the state of the business currently. So the improvement that you saw from June into July, the down high teens. Maybe just discuss some of the drivers behind that, between customer growth, frequency, AOV. Anything specific that you did to drive that? Or do you think maybe the market is just starting to see some signs of stabilization? Just any context there would be great.

So -- first thing I would say is, I'm really proud of our team for running our business and running it well while we're doing a ton of work to get launched in Canada, be prepared to launch in the U.S., there's this excitement in the building for what's new and next. But even with that, the team has not taken their eye off the ball of running the business every day. I'll turn to Dave, after I say, I don't see a lot of macro change. The macro still feels very hard. Interest rates went up again yesterday. Consumers are still spending on experience, [ what these ] are spending a lot on going to concerts around the country. People aren't buying for the home like they did during the pandemic. That said, I think the team is focused on doing well. Dave, you want to talk about particulars?

Yes. Just a couple of items I would add, Independence Day, our 4th of July promotion was really well received by our customers. That was the primary driver. And we had a lot of success, in fact, record-breaking success with our mobile app. We continue to lean into our mobile app promotions. It drives a more loyal customer, a higher order frequency and a higher average order value. And we -- as a percentage of our sales, had one of the best -- have the best major promotion we've had so far. The mobile app is really working out nicely for us, JJ?

Yes. We're also seeing some trade down. We talked about AOV being a little lower this quarter. The second quarter is typically a quarter it does well because people are in patio and that's a higher price point, a larger basket. Even then, there's -- even as they buy patio furniture in the good, better, best products, they're trading down a little. So people are watching their wallet. I hope that answers the question, Seth.

No, that's super helpful. I appreciate that. Maybe just one follow-up about what you're seeing in Canada thus far, the positive trend in visits, do you have a sense as to whether that is the current Bed Bath customer coming back? Is that an Overstock customer that's maybe seeing an improved experience or a wider assortment or maybe just a new customer for both banners, right? I'm just trying to think about the incrementality.

Yes. I think it's all 3 of those. And I think what's really telling us is that a lot of it is coming through search engine marketing. So with people typing a product they're looking for in Google or another search engine, and they find it and it's being sold at Bed Bath & Beyond, the conversion rate is higher. We -- I mentioned earlier, and it's kind of -- not everyone -- if the company loves using this analogy, but the Overstock name really was a boat anchor. And I'm not sure we knew how much -- how heavy of an anchor it was. But as we see better conversion in Canada through search engine marketing. And as I mentioned, return on ad spend is just better even as we spend more. And usually -- so we haven't found the [ elbow ] on that curve yet. I think that gives us a sense that in the past, when people found a product through a search and it was on Overstock, they may have had questions, is this last year's good, is this [indiscernible] goods. But with Bed Bath, they're comfortable making the purchase. So it's been a boat anchor with customers. We clearly see it with how SKU growth has picked up. It's been a boat anchor with suppliers. And so as I said, dropping that boat anchor adding it to our great business model, this is a sleek boat that's going to sail.

The next question comes from Thomas Forte of D.A. Davidson.

Great. So first off, Jonathan and team, congratulations on the quarter, and congratulations once again on the Bed Bath's transaction. So Jonathan, you've been asked this question a lot of times. I'm going to ask it, just slightly differently. So it's a long time participant in the home e-commerce category. At a high level, what are your thoughts on looking ahead, the timing of the category returning to positive revenue growth, recognizing the near-term pressures from revenge travel and consumer spending on live events, Taylor Swift, as you pointed out, things of that nature. And then also at a high level, is it overly optimistic to think that as you transition the brand to Bed Bath from Overstock that at a company level, you could return to revenue growth faster than the category.

So the first part of that question is hard. I think -- as I'm reading the papers, there's talk about the U.S. economy avoided a recession. I would say the home furniture and furnishings industry has had a recession. Our industry has been in recession and still in it. There's still some glut of inventory out there. There's still liquidation going on. I can't predict how quickly we're going to get out of this and we get back to normal. I will say it's -- the normalization we've seen is in the quarter-over-quarter trend. So while the spending is not yet back to normal. The second quarter, we did see a comeback in patio. We saw an uptick in the second quarter like we expected because I think the quarter-to-quarter trends are starting to feel more normal. It's just not the total volume does not get back to normal. The second part of the question, do I think the Bed Bath acquisition and re-brand helps us outperform folks in the industry? An emphatic yes. I really think so. I mean we did this for a purpose. We've been looking at Bed Bath & Beyond for quite some time. We love its brand. We love its customer base. We didn't like its business model. So buying it as a going concern, looking at it as a going concern, not something we wanted. But when this opportunity came to get the good parts of it without its boat anchor parts, it felt like just a dream come true. So I do think between the customer base, the brand -- is it customer base that we've acquired and we can now -- new customers we can market to. I do think we perform better and get back to where we need to be and where we want to be more quickly than others in the industry.

The next question comes from the line of Curtis Nagle of Bank of America.

Great. So just, I guess, a quick one on thinking about the comparisons through 3Q. July did see improvement, right? It sounded like it was due to a better [ 4th ]. But I guess is it possible kind of -- could see a falloff in August and September without the support of a big event or big holiday period, how big is the labor day period versus July 4, in terms of sales generation?

So just historically, I'm not counting what we're doing with our re-brand, which I think kind of really shakes the snow globe and things will be significantly different for us with the re-brand or that's -- I'm eager to see, August tends to be a little slower. But Labor Day is a big event. Labor Day in this industry has always been big, and we've performed well in the past. Historically, sometimes September, October, we see some of our competitors do their special events, that also generally has a halo effect or others in the industry. So I think there's a lot of good in the third quarter still to come, particularly around Labor Day. I will note, not this year, but next year, I think we're going to get some more tailwind in the third quarter with back-to-dorm, back-to-college. The timing of this acquisition means we've missed that up. We've missed most of that opportunity this year. But we know Bed Bath & Beyond has historically done well and even one in that segment in the past, we have every intention of marketing hard to that group next year. So not really relevant to the next 60 days, Curtis, but relevant to the quarterly trends as you think about us in the future. Dave, anything you'd add to that?

No, you covered it.

Adrianne, any -- okay, I can see thumbs up from Adrianne on our screen here. So -- Curtis, I hope that addressed the question well.

Yes, for sure, a good answer and the college industry point, it's certainly a good one. Maybe just as a follow-up, kind of curious to dig into the trade down comment, right? So it sounds like it had hit AOV a little bit, but I guess would there be any offset from customers coming in because they are seeking value in a relevant industry or to you [ relevant ] industry? Or is that just kind of being not really happening because things are still promotional at the moment?

Well, look, we -- our value proposition is Smart Value. we provide quality product for less. And whatever the price point a person is willing to spend on, we think we provide the best value there. So someone else asked earlier, what are we doing that's helping us do better. I think it's that value proposition. So is there is that value seeker, the savvy shoppers, as we've referred to in the past. Are they finding us more frequently? Yes. And that's a shopper that really shops for value, something we offer. So as we see a little trade down and good, better, best, I think we're also probably getting some benefit from people just looking for a value as they shop hard across the industry.

The next question comes from the line of Anna Andreeva from Needham.

A couple of questions from us. Great to hear that the consumer in Canada is buying. And I think you mentioned strength so far over there in the Bed Bath core categories like Bed Bath and Kitchen. But curious, how has the response been to some of the Overstock core categories? And what type of marketing are you finding most effective at driving that conversion? I think you said the plan is to have coupons potentially less deep than what historically that -- that's offered. And then I had a quick follow-up.

So as I mentioned, we've seen the categories that have done best in Canada are the ones that are -- that you traditionally associated with Bed Bath & Beyond. Bath, bedding, kitchen. But we've seen growth across the board. It's not just those categories. It's people finding patio furniture, finding bedroom or rather living room and dining room furniture, rugs, art on our site in Canada and buying it. So -- the ones I mentioned are the ones that are growing the fastest, and I think there's a familiarity there. But the brand is helping all categories. How are we marketing? Most of it has been the search engine marketing, as I mentioned, the e-mail, push, ramped up slowly, it ramps slowly. It's not yet at full -- we're not sending it to everyone yet because we really need to make sure we stay out of spam filters. Now the good news is our e-mail team knows how to do this. I think there's always an eagerness, if they're faster, send to a larger group. I mean that's the CEO's mantra. The good news is the e-mail team says, "Well, no, slow down, Jonathan. And if we do what you want to do, it actually is going to backfire on us and so we know how to do it" and it's -- there's a lot of margin there. Couponing. Yes. We've done some -- a little bit more aggressive couponing in Canada out of the gate -- like -- I've hinted that we'll do in the U.S., but that's not a long-term play. Let's remember, we still like our financial recipe card over the long term. And while Adrianne said, gross margins will go down a little bit initially because of some aggressive couponing and promotions. We intend to, over time, get back to our financial recipe card, which has gross margins in the 22%-ish range. Hope that answers the question, Anna.

Okay. Yes, that's super helpful. Just as a follow-up, on the vendor base, I know you've taken some direct possession of goods just on the margin historically and recently. How should we think about the willingness to take that direct possession of goods from suppliers as it relates to Bed Bath vendors coming to the platform.

Yes. So we did take a little bit of what we call core inventory, where we purchased it in the second half of last year and hold through it quickly. It was really to prove the vendors that there was demand on our site. As I noted in my prepared remarks, is we've added more product, all of that product is on a drop-ship basis. We love our asset-light business model. We intend to continue with that asset-light business model. One of the things that we've seen is that with -- vendors are more eager to sell to us, even before in the U.S., we've become Bed Bath & Beyond because they know it's coming. And so they're not requiring that we take -- we purchase inventory. And we really don't have an intent to do that on any kind of meaningful scale.

At this time, I would like to turn it back over to the speakers for any further comments.

Operator, thank you. And for everyone that's been on the call, thank you. In closing, I need to thank the entire team for its focused hard work on our re-branding. I'm confident it will pay off. Our supplier partners are motivated by this deal. So are the new suppliers who now want to sell at the new Bed Bath & Beyond. We expect our customers will be excited by the preservation of the beloved and trusted Bed Bath & Beyond brand. They sure have been in Canada. Our employees are energized by this opportunity. It has a shot adrenaline into the company. They see a bright future and so do I, with the iconic Bed Bath & Beyond brand attached to our great business model and the actions the team is taking, I'm more bullish than ever on the future of our company. This team will capitalize on this great investment. I look forward to sharing more on our progress on our next quarterly call. Have a great day, everyone.