Bed Bath & Beyond Inc.

Thank you, operator. Good afternoon, and welcome to FedBath and Beyond, Inc.' 's third quarter 2025 earnings conference call. Joining me on the call today are executive chairman and principal executive officer, Marcus Limonis, and president and chief financial officer, Adrienne Lee. I'm also joined by Alex Thomas, chief operating officer. Today's discussion and our responses to your questions reflect management's views as of today, October 27, 2025, and may include forward-looking statements, including without limitation, statements regarding our quarterly earnings reporting, forecasts of and plans for our growth, revenue improvement, profitability or sustained profitability, business strategy, including plans for enhancing customer and shopping experience, our long-term goal of becoming the everything home company, margin consistency, improved conversion, expected conversions of retail locations, planned expense reductions, value and monetization of our intellectual property, future strategic ventures, including in prop tech solutions, improved financial performance, progress of and plans for the platforms we invest in, plans for improved efficiencies and technology-based solutions, including AI-driven strategies, and timing of any of the foregoing. Actual results could differ materially from such statements. Additional information about risks, uncertainties, and other important factors that could potentially impact our financial results is included in our Form 10-K for the year ended December 31, 2024, our Form 10-Q for the fiscal period ended September 30, 2025, and in our subsequent filings with the SEC. During this call, we'll discuss certain non-GAAP financial measures. Our filings with the SEC, including our third quarter earnings release, which is available on our investor relations website at investors.beyond.com, contain important additional disclosures regarding these non-GAAP measures, including reconciliations of these measures to the most comparable GAAP measures. Following management's prepared remarks, we will open the call for questions. A slide presentation with supporting data is available for download on our investor relations website. Please review the important forward-looking statements disclosure on slide two of that presentation. With that, let me turn the call over to you, Marcus.

Thanks, Melissa. Geez, I feel like we took the whole time to do the disclosures, but good afternoon, everyone, and thank you for joining us for the third quarter call. As many are aware, consumer confidence and spending patterns, they remain uneven. But we continue to outperform our own expectations by staying disciplined, focused, and very customer-centric. During the quarter, we completed our name change back to Bed Bath & Beyond, a brand that continues to hold deep connection and trust with consumers across homes. The third quarter marked another strong step forward for Bed Bath & Beyond, our seventh consecutive quarter of measurable improvement towards achieving profitability. We've stabilized the business and are positioned it for growth. Year over year, we delivered a 93% improvement in net loss and an 85% improvement in adjusted EBITDA, a 420 basis point increase in gross margin, driven by disciplined execution, sharper focus, and much smarter spending. We know what's working, and we also know what still needs improvement. Ahead, we'll place greater emphasis on data-driven decisions, faster technology, and customer-focused, solution-based experiences. As we enhance our technology and analytics team, we're combining top internal talent with external experts. and auditing every part of the customer journey to ensure personalized solicitation, discovery, checkout, and post-purchase experiences to deliver the conversion and retention our financial model requires. During the quarter, we strengthened our foundation. We invested an additional $3 million in GrainChain, our blockchain-based supply chain platform, acquired the Kirkland's Home intellectual property for $10 million, adding another trusted home brand to our family, and raised approximately $113 million through our ATF. We're using this liquidity to strengthen the balance sheet, expand existing investments, and pursue strategic investments or acquisitions in non-retail, home-centric technology, data, products, services, and select prop tech solutions. all aim at building out our everything home business. Homeowners today need simple, innovative technology to help them maintain their homes, manage projects, and realize the full potential of their property, including a personalized, frictionless shopping experience. Over time, we see PropTech playing a growing role in how consumers maintain, finance, and optimize their homes, and how we help them unlock more value from where they live. Across the business, execution is improving, and the results reflect it. We've also continued to invest in the platform shaping our future. Both T-Zero and GrainChain are making steady progress. At T-Zero, over the last several months, we've driven the kind of change we expect. New leadership, a sharper outlook, and as of today, an acknowledgement that pursuing a public market listing could unlock new value. While T-Zero has multiple growth paths, our focus is on its ability to unlock value for asset managers and homeowners. Fractional ownership, digital transparency, and verified title records can reshape how people access and invest in property, directly supporting our Everything Home mission. GrainChain continues to advance as a blockchain platform, modernizing supply chains tied to home-related commerce. It improves transparency and efficiency across materials, logistics, and finished goods, strengthening trust across the ecosystem that builds and furnishes the home. Together, T-Zero and GrainChain connect the digital and physical worlds, enhancing transparency, ownership, and value creation. Alongside these efforts, PropTech will help integrate the home itself into this ecosystem. linking ownership, supply chain, and consumer experience in a way that's unique to Bed Bath & Beyond. With that, I'll turn the call over to Adrienne to review the results.

Thank you, Marcus. We are proud of the progress this quarter. Our focus on execution, efficiency, and balance sheet strength continues to deliver results. Net revenue was $257 million for the third quarter, down 17% year-over-year, or 13%, excluding the impact from our exit from Canada. Average order value improved 3%, driven by our continued focus on assortment, removing unproductive SKUs and leaning into better best offering. This was partially offset by lower orders. However, I am pleased orders were nearly flat versus the second quarter, highlighting business stability. Gross margin was 25.3%, up 420 basis points year over year, driven by lower fulfillment and returns costs and tighter promotions. Sales and marketing expense improved by 260 basis points, to 14% of revenue, reflecting a more efficient channel allocation and improved return on spend. Notably, our efficiency has been relatively consistent throughout 2025, which makes it a good place to take additional steps towards improved efficiencies. This month, we launched a new private label credit card as an important retention tool step. Technology and G&A expense declined by $13 million year-over-year as we right-sized our org structure, streamlined vendors, and automated key functions. All in, net loss narrowed to $4.5 million, a 93% improvement year-over-year, and adjusted EBITDA loss of $4.9 million improved 85%. We ended the quarter with $202 million in cash, equivalents, and inventory, plus $6 million from ATM settlements post-quarter end. We believe our improved balance sheet provides stability and flexibility for the future. Operationally versus a year ago, average order value is up. Fulfillment costs and returns are down. Marketing is more efficient with owned channels performing better and fixed costs are down. All early signs that our digital and operational work is paying off. With that, I'll turn it back to Marcus for closing remarks and our view on 2026.

Great. Thanks, Adrienne. While we're encouraged by our progress, the footing we found isn't enough. We're not satisfied. Our sales and marketing expense remains higher than we want, and conversion is key. The shopping experience is improving, but still requires more focus on the customer experience. improved cart conversion, suggested cart building, increased personalization, and site speed are at the top of our list. We're integrating AI-driven strategies to improve both the customer experience and platform efficiency, predicting intent, personalizing recommendations, and streamlining operations. Look, the groundwork is being laid for lasting improvement in engagement and conversions. Our goal is to deliver a simple, user-centric experience that earns confidence and trust. Over the next several quarters, we intend to broaden our connection with customers by focusing on how they live, how they manage, and how they create value around their home. Whether through the tools that help them create value, manage products, or unlock the value in their homes, Bed Bath & Beyond will not be purely a retail play. Transactions, both online and in-store, are meant to build relationships, and those take time to nurture. Our omnichannel transformation is progressing, and we expect all 250 locations converted by mid-2026. Together with our local franchise model, this creates an asset-light network of local operators using our brand, our infrastructure, and assortment to reach more markets efficiently. We've also identified $20 million in additional operating expense efficiencies that we expect to realize over 2026, reinforcing that spend discipline remains a priority, specifically targeting a 2026 goal of 12% around our marketing expense. As we look forward to 2026, our focus is clear. Expand the everything home ecosystem, connecting retail, services, and digital innovation. Deepen AI and data integration to drive smarter marketing, better conversion, and stronger retention. Maintain margin discipline while driving top line and continue to deliver consecutive quarters of bottom line improvement on a year-over-year basis. The combination of retail scale, technology innovation, and asset management makes Bed Bath & Beyond uniquely positioned in the home category. Through our marketplaces, our brands, technology platforms, and emerging prop tech capabilities, we're building a connected ecosystem that creates long-term value for our shareholders and, most importantly, our customers alike. The majority of the heavy lifting is behind us. now it's time to accelerate to be more accountable and to have consistent execution to our team thank you for your focus and resilience to our partners and board thank you for your trust and support and to our shareholders thank you for your long-standing confidence we're building something enduring and we're doing it the right way we'll now open up the call for questions at this time i would like to remind everyone in order to ask a question

Press star, then the number one on your telephone keypad. And your first question comes from the line of Steven Forbes with Gooby Glam Sincerities. Your line is open.

Good evening, Marcus, Adrian. Hi, Marcus. I was curious if you could maybe expand on a comment you just made around targeting the 12% sales and marketing expense ratio in 2026. As we think about that in conjunction, with this return to growth narrative that you have within the press release, maybe you could just expand on the conviction there, right? Like where are the efficiencies coming from as you see it? And is the return to growth narrative also indicative of you seeing stability in the active customer base on the horizon?

Let me break that down Steven into two sections from a from a growth mindset standpoint, we believe that we have found the bottom and that we intentionally landed the plane quarter after quarter after quarter in the 25 calendar year. in the same range of revenue to prove out that we can take the individual KPIs that built the financial statement and saw improvements in those. And whether that's margin, sales and marketing, et cetera, we knew we needed to do that on a consistent basis, not a flash in the pan. And we felt like the revenue being all over the place, big highs and big lows, wouldn't give us that really uncontaminated view of where we needed to be. Through that process, though, it also uncovered a number of inefficiencies in our business. And where we really have not delivered from an expectation standpoint is around conversion. And anytime you look at driving revenue and improving conversion, the one toggle that's inside of there, aside from site sales and being overly promotional, is how much money are you spending to bring people to the party? And over the last couple of years, I think when the company bought the intellectual property out of Bed Bath in 2023, it made the great misstep or miscalculation of assuming that the data that it acquired was going to translate into e-commerce revenue. And what we learned is that we needed to spend a considerable amount of time and money augmenting and segmenting the data to really understand who those customers were, where they originally came from, what their propensity was to do business with us, and how are we going to re-attract them to our business and, more importantly, convert them into the second sale. If you go back and you look at the financial statement at the end of 23, and quite frankly, most of 24, we were just adding as many people to the file with no real logic behind the lifetime value calculation inside of them. It became buy a PLA ad, sell a couch, lose a couple hundred bucks, and then not really worry about how we're going to retain them. What's really been instrumental in 2025 is we've started to see retention start to pick up. And while we're not disclosing those numbers just yet until we know that they're pure and not contaminated, we have started to see return buyers come back on it, quite frankly, more repetitive basis than we had originally anticipated. When we look at the target of 12% for 2026, we know there's a multitude of factors. And I'll start with us really making sure that the data set that we have, both from our omni-channel partner, our different brands, legacy data, is clean, pure, de-duped, and really in a condition that can be monetized. I think the second thing that we learned is that one size doesn't fit all. And in 2024, and even the first part of 25, it was like a ready aim fire. We would just send emails out to everybody. There was no personalization. And we've started testing a high level of personalization using the overstock platform first, largely because the risk wasn't as severe if we made a mistake. We're seeing site speed increase, conversion increase, but more importantly, we're seeing consumers who are served up a personalized experience start to convert better, start to engage better, and start to return at a better rate. I think additionally, as we think about it, we have work to do in our performance marketing. Our performance marketing over the previous 12 months has been good. It's been good enough for 25. It is not good enough for 26. And whether that's continuing to cleanse the site, continuing to work on different strategies, we know that between adding internal talent and partnering with external talent, we think there is a ton of money left on the table. Could be as much as $10 million of inefficient spend still existing in our business today. I look at inefficient spend as a low contribution margin transaction with a low propensity to return. That's what I consider inefficient. It's not, did we have a positive ROAS of some amount? We have a finite amount of capital. We want to make sure that we're chasing that capital, chasing that customer with a high contribution margin, 6%, 7%, 8% contribution margin with a high AOV and a high likelihood to return again. That's ultimately the stack that we think we need to build. So there is a lot of conviction and there's a lot of work to get there at the same time. But I wanted to put that number out there both for external purposes and to lay the gauntlet down that in our side of our business, percent is the mandate.

That was super helpful. And then maybe just a quick follow-up. Nice to see the gross margin progression in the quarter. I don't think you updated, but you haven't, right? In the presentation, sort of that median term target of 25%. So just wanted to sort of ask the question if the third quarter has informed sort of your medium-term or long-term gross margin targets, or if this is just a more accelerated recapture pace.

I'm going to look at the margin on a transaction basis first, just to kind of give you my holistic view of how I'm thinking about the overall transaction margin. And I'm going to separate it from the product margin specifically inside of that transaction. We have set a short-term to medium-term goal of a product margin between 24% and 26%. And I will tell you that in some cases, we've been very successful at avoiding tariff price increases and getting caught up in that overly promotional, call it tariff, black hole. We do have to recognize, though, that as we start to add our omni-channel business, particularly on the textile side, bedding and towels, they're going to come with a, call it, in-stock margin of 55% to 57%, giving us the ability to get some margin accretion on the soft side of things, on the textiles. Conversely, on the other side, we believe there are a number of categories where we're not as competitive as we need to be. You look at some of the upholstered furniture and some of the patio business, and we could be missing out on some market share. Rather than just pulling the ripcord and going for it, we knew that we needed to augment that or sort of mitigate whatever risk would exist in going after market share for those higher AOV transactions with higher gross dollars. by supplementing it with the textile margins at 55, 60%, just to find that balance. We believe that we'll be prepared and in stock in the spring of 2026 with that full assortment in our partners warehouse in Jackson, Tennessee, giving us the ability to be more competitive, far more competitive, and far more margin accretive on that side, giving us permission to be more aggressive on the furniture side. That's partially what's giving me the confidence that we will be able to maintain that margin range while growing revenue. We just need that offset to help.

Thank you.

And then as part of that, the other piece that we notice in the overall transaction is our product protection warranties have started to really accelerate. And so as we continue to improve attachment on that, we'll look at that overall transaction profitability. As we start to see the private label credit card integrate the transaction, we'll look at the money we make on that. And so we need these other little attachments So more than just the product, whether that's shipping insurance or whether that's product warranties or whether that's using our credit card or something else, we need that whole blend to come together so that the overall transaction is more profitable than 24 to 26.

Thank you, Marcus.

Yep. Your next question comes from the line of Tom Fortu, Maxim Group. Please go ahead.

Hi, good evening, everybody. This is Francesco Marmo filling in for Tom. Just one quick question for me. Could you please elaborate on your comments of the expected revenue growth on a year-over-year basis expected for 2026? If you can give us some color around what particular initiative you think is going to drive that and what kind of shape that growth profile should we expect?

Yeah, thank you. As a reminder, we don't provide guidance on either revenue or bottom line, but we are committing today to have positive revenue growth in 2026. Part of that revenue growth is really much of what I said to Steve a minute ago, which is really understanding how we can balance being an asset-like company and utilizing the supply chain and the store footprint of our omnichannel partner to really bring in overall revenue and overall margin increases. I expect that to be, I wouldn't call it material, but I expect conservatively for it to be positive. I think additionally, we need to continue to explore new categories. And if you look at what we did at Overstock in 2025, we could potentially end up generating anywhere between 15 and $20 million in Overstock.com alone that came from categories that did not exist for almost a half a decade. And that is in the luxury space, in the jewelry space, and in some of those other categories, a little bit of apparel as well. And we never want to use those three things as foundation builders for our overall business, but we do want to use those things as value anchoring around the rest of the products that we sell. Overstock will and probably always will be largely driven by rugs, number one, patio number two, and upholstered furniture number three. And we're trying to find the balance of how it can coexist with brands and certain values and not contaminate our Bed Bath & Beyond business. On the Bed Bath & Beyond side, what we expect to happen in 26 is the collaboration of the merchandising organizations between our omni-channel partner and our existing marketplace merchandising team. And it's no crack on anybody one way or the other, But I think that the current merchandising team that we have at Bed Bath & Beyond.com It's really just overstock people reskinned and rebranded. They knew patio rug and furniture. What we're finding and seeing on the omnichannel side is that that group, our subject matter expertise in kitchen, housewares, textiles, decor, and a variety of other things that our current group doesn't either possess the relationships with or the know-how. And so as we merge those two merchant organizations full stop, In 2026, you'll see better category segmentation, whether it's in the bedding, bath, kitchen, furniture, patio categories, and a deeper and broader knowledge of how to drive more vendors to the site, how to drive increased penetration to the site, and how to present the product in a way that we think is going to ultimately help conversion. Last thing, and maybe the most important thing, if conversion improves, revenue will also improve because it is literally spend a certain amount on a day, get a certain amount of traffic, and then get a certain amount of conversion. We need at least You know, we're operating in the 1.1 range, 1.2 range. We need to be north of 1.3 in the short term. That doesn't sound like a lot. It's probably $27 million to $35 million of revenue with a good contribution margin in the 6 to 8 range, all falling to the bottom line without any incremental expense. So when we start thinking about revenue growth, it's not really a hope to, it's a have to.

Great, thank you very much.

Yep. Your next question comes from the line of Jonathan Matuszewski with Jefferies. Please go ahead.

Hey, good afternoon, and thanks for taking my questions. Marcus, my first one was just on what you're hearing from conversations with your suppliers as it relates to their willingness to pass along price on your marketplace, maybe, you know, last quarter. relative to maybe the first half and whether you're picking up on any change in behavior on their behalf with the more recent tariff noise. Obviously, AOV is moving in the right direction for you guys. I think some of it is idiosyncratic with initiatives to reduce markdowns, but just wanted to get a sense of maybe what you're seeing maybe on a like-for-like basis on your platform. Thanks.

Yeah, there's a, you know, as you would imagine, and a lot of credit goes out to the suppliers that feed our company, but there has been a lot of pressure on them for longer than just a quarter in dealing with the tariffs and the, quite frankly, the lack of predictability around them. And I'd like to tell you that I have a crystal ball in what's going to happen today, tomorrow, next week, and next year, and I do not. And what we've told our team internally is we want to really be thoughtful to ensure that the relationship that vendors have with us is a profitable relationship. And we have to find ways to take other frictions out of our own business to mitigate some of the costs that we believe that they should pass on. Now the question is, how do we pass those on? And what's happened in the last quarter is there's been a perfect blend, in my opinion, between understanding where the elasticity curve is, understanding how much the vendor can take on, and us accepting the willingness to take it on as well. And we believe that as Bed Bath & Beyond rebuilds its credibility in the marketplace, both in-store and online, vendors need to feel like this is a profitable, risk-free relationship. So as we look forward to 2026, we understand that there could be more pricing pressure that could be presented both to the vendors, then to us, then to the consumer. What we have landed on is that that's probably going to happen. We're almost operating under the assumption as we built out our 26 forecast that that's probably going to happen. What we need to do and what we are doing now is continuing to eliminate those unprofitable SKUs or vendors who aren't giving us a profitable transaction and doubling down with those vendors who we can generate some profitability with. And then as we accept that pressure, coming back around to them and looking for volume targets and rebates associated with them to make the 365-day margin profile look as healthy as we need it to. But I don't know that vendors could absorb much more today, particularly on the upholstered furniture side. And it seems like every time we turn around, the sourcing of origin is shifting. One week it's China, the next week it's India, the next week it's somewhere else, then it's back to China. So it's been difficult to say the least. I think part of the benefit of being an asset-light retailer is that we don't have a ton of risk in our inventory. And even as we think about our huge investment in the omni-channel business, we're not talking about hundreds of millions of dollars sitting in warehouses. We're talking about $150 to $175 per store and enough safety stock in the warehouse. So for us, it's a perfect blend of sourcing and good margin management.

That's helpful. And then a quick follow-up, you know, you mentioned removing costs in your own business to kind of soften the blow for vendors. You know, we've been picking up on more and more AI automation in the customer service function as of late, a number of examples in home furnishings. How do you think about a potential cost savings opportunity for Bed Bath if you were able to increasingly automate a chunk of your potential chat inquiries, and is that something you're exploring? Thanks.

Well, everybody should assume that AI is an absolute mandate inside of our company, as it is in almost every company. I think we're in a unique position where we have a pretty blank canvas, and we don't have a lot of I would call it technical debt from a legacy standpoint. Sure, we need to improve our unified code structure and our base of how we're operating. We probably have some work to do in our PIM. And we think that we're at this really interesting tipping point where when we decide to make new investments into a PIM or into a POS in our omnichannel business, we have a clean slate of paper and not a lot of historical contracts or kind of dead weight dragging us down. I've said this internally and externally. AI will solve really two problems for our company. One, it will create staffing efficiency. What does that mean in plain English? We will be able to operate with less people and have greater efficiency. That isn't a maybe or a would like to. It's going to happen in 26th. Number two, we believe that AI will create a better customer experience. Again, I'm going to tie it back to conversion. Can we find the customers in a more personalized way, communicate to them what they want, when they want it, how they want it, and be able to get better conversion in the moment and retention in the long haul? We are, though, however, for the first time in history, not acting like we're the company that can build everything. And you always hear this buy it, build it mentality. And one of the things that I did establish during the quarter is that we created a special committee at the board of directors level that sits side by side with audit and with compensation, with governance in the tech committee. And the chairperson of that tech committee is quite frankly, a very, very astute person. And we have started to engage in third parties, having people come in and tell us what we need to do in our business and not assuming that this company has to build everything that it does. So I would expect a big, bright future. It'll happen fast. And we're happy to be on that roadmap.

Thanks, Marcus.

Your next question comes from the line of Bernie McTernan with Needham. Please go ahead.

Great. Thanks for taking the question. Maybe it's a follow up from one of the previous questions talking about the personalization tools and how they're working on overstock right now. What's the timeline to think about those coming to bed bath? And does that inform maybe the quarterly cadence of revenue expecting next year? Obviously, on a full year basis, expecting it to be positive, but how should we expect it to trend throughout the year? Acknowledging you know that provide guidance, we might be overreaching here, but figured I would try.

During the third quarter, unbeknownst to probably anybody, we moved on to a new unified tech stack at Overstock. And it was a big risk for us. So we chose to do it there because we knew that there were conversion contaminants that can hurt our business. And to be candid with you, we believe that we probably, through the quarter, because of the swap over from Shopify, which was a great system in itself, but didn't give us all the marketplace tools we were looking for, we feel like that transition, along with a slow and delayed shop pay and Apple Pay integration into Overstock, probably cost us $7 million of top line in the quarter. I could be probably more specific, $6.2 million if you look at what we lost, 30,000 orders at an average of $210 for the quarter. We feel very good because since we launched it, the revenue has not only bounced back, but the conversion has started to accelerate. And we're going to take one solid more quarter at a minimum to ensure that as we add Apple Pay, as we add Shop Pay, as we add other features and benefits to that platform, that we know that we have built it. Now, the way that Overstock unified code structure was built is that we put a top layer on top of it. We layered Vercel on top of it, which really gave us the ability to speak to each consumer in a very specific way, meaning that customer X and customer Y may, in some cases, see something totally different. One of the byproducts of that stack was that the site moves faster. But again, until we see a 1.3% or better conversion, until we start to see 10%, 15%, quarter-over-quarter growth for overstock, I don't want to tinker or risk the massive revenue that Bed Bath & Beyond.com does today. I will tell you, however, that we are learning things. So whether it's the cart checkout process and how to improve the process there, we aren't waiting to bring over certain portable ideas that don't require a whole new evolution. It would be my hope that by mid-year, maybe middle of third quarter, we will have modified the code structure at Bed Bath & Beyond. And there are two simple reasons. One, we hope to have all the Bed Bath & Beyond version stores open by mid-2026. And we hope to be able to have a consumer experience that ties the POS and a new unified code structure together so that the customer can transact however they want. Buy online, pick up in store. Buy online, ship from store. Or be in store and add something to my order that comes from the dot-com business. We've been spending the last couple months architecting what we think that could look like. We are bringing on some new talent to be announced shortly and some new vendor partners to be announced shortly that we think tie all of that together. And it won't be tied together with one single company. It will be tied together with multiple subject matter experts that integrate properly into something like that. So time, testing, and proof is what we are running this business with, which is why you see seven quarters of material improvement, and we want that to continue.

Got it. Very helpful. Thanks, Marcus.

Yep. Due to time constraints, this concludes today's question and answer session. I will now turn the call back over to Marcus for closing remarks.

Great, thank you so much. As we mentioned earlier, the most important thing for us is to have people be comfortable. As the company prepares for 2026, we expect year over year revenue trends to turn positive. We believe this upward trajectory, combined with margin consistency, an additional $20 million in operating expense efficiencies, and improved site conversion position the company to achieve its profitability objectives. Thank you, and we'll see you next quarter.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.