Overstock.com, Inc. (OSTK) Q2 2022 Earnings Call Transcript

Overstock.com, Inc.  (NASDAQ: OSTK) Q2 2022 earnings call dated Jul. 28, 2022

Corporate Participants:

Lavesh Hemnani — Head of Investor Relations

Jonathan E. Johnson III — Chief Executive Officer

Adrianne Lee — Chief Financial Officer

Dave Nielsen — President

Analysts:

Seth Sigman — Guggenheim Partners — Analyst

Rick Patel — Raymond James — Analyst

Peter Keith — Piper Sandler — Analyst

Anna Andreeva — Needham & Company — Analyst

Thomas Ferris Forte — D.A. Davidson — Analyst

Curtis Nagle — Bank of America — Analyst

Presentation:

Operator

Good day, and thank you for standing by. Welcome to the Overstock.com, Inc. Second Quarter 2022 Earnings Conference Call. [Operator Instructions].

I would now like to turn the conference over to your speaker today, Lavesh Hemnani, Head of Investor Relations. Please go ahead, sir.

Lavesh Hemnani — Head of Investor Relations

Thank you, operator. Good morning, and welcome to Overstock’s Second Quarter 2022 Earnings Conference Call. I am Lavesh Hemnani, Head of Investor Relations. Joining me on the call today are Jonathan Johnson, CEO; and Adrianne Lee, CFO. Additionally, Dave Nielsen, President of Overstock, will be available for Q&A. Please note that we are conducting today’s call remotely. Next slide, please. Let me remind you the following discussion and our responses to your questions reflect management’s views as of today, July 28, 2022, 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, 2021, and in our subsequent filings with the SEC. A slide presentation accompanying today’s webcast has been posted to our Investor Relations website and is available to download. Please review the important forward-looking statement disclosure on Slide two of today’s presentation.

During this call, we’ll 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. Finally, to participate during our Q&A session, please use the registration link available under the Events section of our Investor Relations website. Next slide, please. During today’s call, we will follow the agenda on Slide three.

And with that, let me turn the call over to our first speaker for today, Jonathan Johnson.

Jonathan E. Johnson III — Chief Executive Officer

Thank you, Lavesh, and good morning, everyone. Let me start by saying how proud I am of the entire Overstock team for achieving our ninth consecutive quarter of profitability, and doing so in a particularly difficult environment. Our second quarter performance reflected the headwinds relating to weak consumer sentiment due in large part the macroeconomic and geopolitical volatility. This week has started to become more pronounced in late Q1 and continues through today. While we cannot control the macro environment and the impact of high gas prices, increasing interest rates, record inflation and uncertainties surrounding geopolitical events has on consumer sentiment and competitors’ behavior, we can control and have controlled many elements of our business. In fact, our asset-light business model is highly advantageous during times like these. We don’t have expensive logistics operation with high fixed cost base or significantly owned inventory on our balance sheet.

We can and do continue to offer smart value to our customers as their wallets are stretched. Nine straight quarters of profitability with varied top line performance is a testament to this team’s ability to run a profitable enterprise for our shareholders. While I am not pleased that our top line revenue is down 34% versus the historic high of last year, I am pleased that we were able to stay within the structure of our financial recipe card to deliver adjusted EBITDA margin of 3.9%, near the lower end of our stated targets. We increased share repurchases during the quarter showing further commitment to shareholders. Overstock remains in a favorable cash position with a strong balance sheet, well equipped to navigate through ongoing macro instability. Next slide. Since I became CEO in late 2019, we have operated our business under vastly different macro conditions. During 2020, the world plunged into a pandemic and e-commerce penetration serves to over 40% compared to the 33% range today. In the first half of 2021, consumers were largely restricted to their homes and had excess money to spend on discretionary items.

In 2022, consumer sentiment around home-related purchases has moderated with rising interest rates and inflation tracking at 40-year highs. Spend on services is not yet fully normalized, which will likely continue to exert pressure on goods-related spending. Considering these facts in our record second quarter performances in each of the last two years, I believe it’s important to reflect on our recent performance as compared to our performance in the pre-2020 time frame. Over this period, we gained market share and did so profitably. The chart on this slide illustrates well the benefits we have realized from the focused operational improvements we have implemented. Compared to 2019, we’ve grown 44%, which has outpaced the market. In fact, if you were to look at our growth just for our home-related business, we have grown 60% versus Q2 2019. That is significant. Our active customer base, although smaller than the pandemic ties, is still tracking ahead of pre-pandemic. And our broader product as certain and an improved mobile app experience are being recognized by our customers. Based on third-party data we review, our change in retention rate versus last year was comparable to other peers in the category.

We are not alone in navigating through this difficult retail environment. A major difference for Overstock, in my opinion, is that our team is committed to delivering profitability. Since I became CEO, this has been our commitment to shareholders. I believe this financial discipline is even more important during these unprecedented times. I’m encouraged by the progress made by the team and the focus on achieving our long-term strategic vision. This includes increasing the breadth and depth of product assortment to improve our brand association with home, growing mobile app adoption and growing our Canadian revenue share. Our unique Smart Value brand pillar and the market quadrant where we compete with ample white space positions us favorably to capture demand when consumers are looking to spend in our category. Next slide. Now for a brief update on recent corporate events.

During the second quarter, we repurchased approximately $35 million of equity. Year-to-date, we have repurchased approximately $60 million of equity. We continue to be opportunistic in evaluating future repurchase opportunities. In May, our shareholders approved the conversion of both our Series A-1 and Series B preferred stock into common stock. We completed this conversion again. We now have a simpler equity capital structure. We completed our transition to a 100% furniture and home furnishings retailer by exiting the last of our non-home categories in late June. As we have shared in the past, this was a strategic choice. Over the long term, we expect to benefit from an increased association of the Overstock brand with home. While this has resulted in some short-term pain, our data continues to support that a home customer spends more with a higher average order value and repeats more frequently than other customers.

Adrianne will now review our second quarter financial results in more detail. Adrianne?

Adrianne Lee — Chief Financial Officer

Thank you, Jonathan. Slide seven, please. I will begin with a summary of our second quarter financial results, followed by a more detailed review, including our key customer metrics. Next slide, please. Revenue declined by 34% year-over-year. But as Jonathan highlighted, increased nearly 44% on a three-year basis. Despite our sales performance, we managed our business effectively to deliver adjusted EBITDA margin of 3.9%, a decline of 165 basis points versus 2021, but importantly, remains within our mid-single-digit target range, near the low end. The second quarter of 2022 was our ninth consecutive quarter of profitability. We reported adjusted diluted earnings per share of $0.19, a decrease of $0.54 versus 2021. The EPS decline versus last year was driven by lower pretax income and a higher effective tax rate. Our adjusted EPS excludes the impact from our proportionate share of the Medici Ventures fund performance and a onetime item resulting from our equity conversion.

Our effective tax rate was 26.1% for the second quarter compared to a tax benefit during the same period in 2021. Our quarterly tax expense and rate were significantly different versus the same period last year as we released the majority of our valuation allowance in Q2 2021. As I mentioned on the last call, we believe that a tax rate in the mid-20s range would be appropriate for forecasting purposes, noting there can be fluctuations quarter-to-quarter based on discrete items. Our balance sheet remains strong. Even after executing on our share repurchase program in the quarter, we ended with a cash balance of $443 million. I will now speak to these quarterly financial metrics in greater detail in the following slides. Next slide, please. We posted revenue of $528 million in the second quarter, a decrease of 34% year-over-year. The second quarter was impacted by weak consumer sentiment amidst macro and geopolitical uncertainty and our strategic actions to remove non-home products from our site.

These headwinds were compounded with comp being the largest sales quarter in our company’s history in Q2 2021. Our business continues to perform well relative to pre-pandemic 2019 levels, illustrating the operational progress we have made. This is evident in the 60% home-only sales growth since 2019 that Jonathan shared with you earlier. The customer we have retained recognized our improved assortment of furniture and home furnishings and have strong engagement with our mobile app, both of which have been key elements of our strategy. Online penetration in our category continues to track at a healthy 33%, an increase of 900 basis points over 2019. Revenue performance was positively impacted by a 16% year-over-year increase in average order value. We are pleased to report that we ended the quarter with a 100% home assortment, right on target. I will discuss our key customer metrics in further detail later. Next slide, please. Gross profit came in at $121 million in the second quarter, a decrease of $54 million versus the prior year.

This gross profit decline was partially offset by an improved gross margin. Gross margin was 22.9%, a 93 basis point improvement versus the same period last year. The year-over-year increase was driven by operational efficiencies, partially offset by higher promotions and discounting. I am pleased that we were able to offer our customers smart value, while navigating a high inflationary period. Our asset-light model protected our gross margin from markdown pressures that were being faced by other retailers with significant owned inventory and/or infrastructure. Next slide. G&A and tech expense decreased slightly year-over-year and have remained relatively constant on average.

As I have mentioned in past quarters, we have increased compensation and benefits expense versus last year, mainly driven by our enhanced equity programs. As a percentage of revenue, G&A and tech expense was 9.8% in the second quarter, a deleverage of 310 basis points compared to the second quarter of 2021. This was primarily driven by top line results. Our goal remains to be extremely disciplined in managing our expenses and finding efficiencies across the organization. We intend to offset higher staff-related costs by finding and eliminating redundancies within our cost structure, identifying automation opportunities and prioritizing spend toward our growth drivers. Next slide. In the second quarter, we delivered adjusted EBITDA of $21 million, which is a decrease of $24 million versus a year ago. Adjusted EBITDA margin was 3.9% at the lower end of our stated target.

I am pleased that our operational efficiencies within gross margin, disciplined marketing spend and laser focus on expense management once again enabled us to remain profitable. Next slide, please. This slide shows active customers and order frequency. We measure active customers on a trailing 12-month basis. Our active customer base declined to 6.5 million at the end of the second quarter. This decline in active customers was driven by three key factors: consumer sentiment through a discretionary spend has been weak as a result of high inflation and consumer staple categories; our strategy to exit non-home products. As previously shared, this is the right long-term trade-off despite some pain during the short term; and continued normalization of store versus online spending, coupled with a shift in wallet share to experiences and services. We are disciplined when customer acquisition costs are high. With this controlled pace of new customers, our year-over-year change in customer retention rate has been comparable to peers as measured by third-party data.

This illustrates that our home-focused strategy is working. Orders per active customer was 1.65 times in the second quarter, a slight decrease versus last year and relatively flat sequentially. This is a strong result when you consider that we are comparing against our largest sales quarter in history. While active customers has decreased, we have been able to strategically offset a portion of this decline with an increased average order value, which is more typical of the home category, in which I will discuss in greater detail on the next slide. Next slide, please. Average order value improved 16% year-over-year to $247. This is a record high AOV for the company. AOV also improved sequentially as we shifted more into outdoor furniture during the seasonal period. Importantly, while we continue to experience cost pressures throughout the quarter, our AOV improvement was primarily driven by the mix within our home product assortment.

Orders delivered were 10.7 million for the trailing 12-month period. This is a decrease of 31% compared to the prior year of 4.8 million orders. The decline was primarily driven by weak consumer sentiment and a shift in their spending priorities, along with the cumulative impact of non-home product removals from our site that started a year ago. Our AOV results are an important proof point on our purposeful focus on home. While orders are declining, the value of each order is improving. It’s a strategic trade-off and reflects the purchase behavior of the customers we are targeting, home customers who trust us with higher-value items and have a higher propensity to make a repeat purchase. Next slide, please. We introduced this slide last quarter, which provides a view of our business, excluding non-home sales and is more comparable to our peers. As you can see on the left chart, at the end of the second quarter, our comparable home-related active customer base declined 26% versus the reported 29%.

The chart on the right illustrates our comparable home-only revenue declined 31% versus the reported 34%. In fact, on a sequential and trailing 12-month basis, the impact is larger. This is due to the cumulative impact of non-home customers exiting our ecosystem. Next slide, please. I will wrap up my discussion of the financial section by highlighting our strong balance sheet. We ended the second quarter with $443 million in cash and only $36 million in long-term debt. We have no significant debt maturities until March 2030. At the end of the second quarter, our net cash position was $406 million. Having minimal debt in this uncertain macro environment is a great tactical advantage. It allows us the ability to focus on improving our core operations and strategic initiatives without having to rely on the capital markets during this rising interest rate and restrictive environment.

Notably, we were able to maintained a solid financial position even after allocating capital towards share repurchases. We returned $35 million to shareholders during the second quarter on top of the $25 million last quarter. Our current share repurchase program is authorized through December 31, 2023, and we currently have approximately $40 million available on it. We will continue to be optimistic in evaluating future share repurchase opportunities. We are proud of our strong financial position and the competitive advantage it provides in a time of macro uncertainty. We continue to deliver on our stated margin targets and make progress on our strategic initiatives to drive long-term value for our shareholders.

With that, back to you, Jonathan.

Jonathan E. Johnson III — Chief Executive Officer

Thanks, Adrianne. In today’s uncertain market — I like this slide. Having a strong balance sheet certainly gives us more stability and flexibility in a world of uncertainty and rising interest rates. Next slide. Next, I’ll provide some key insights into our business, including where our focused home strategy is paying off and where we are targeting and driving growth. Next slide. We shared this slide in the past to illustrate the direction of third-party forecast for online sales in the domestic furniture and home furnishings market. Based on revised third-party data as of June, online penetration in the category is still expected to track around 33% this year. However, this is now expected to be below penetration levels in 2020 and 2021, which were revised higher. These revisions are not surprising. It is encouraging to see the projection for 33% of purchases to be transacted online.

Longer term, we still believe that as the market matures, there is sufficient room for online penetration to move higher. What also excites me is that the total addressable market for the — in the U.S. for furniture and home furnishings continues to grow. It is now estimated at $419 billion, up from $390 billion based on prior third-party reporting. The larger market provides us with additional opportunities to gain market share in a highly fragmented space, even if online penetration declined slightly this year. As the fourth largest online retailer in the home furnishings in the United States our Smart Value brand pillar and strategy, focused on increasing the breadth and depth of our home product assortment, will help us serve this larger and still growing market. Next slide. I love showing this slide to remind investors that Overstock has significant white space available in the quadrant where home goods expertise meet Smart Value. This quadrant is the right place for Overstock to compete. We’ve been strategic about choosing to focus on it. Some competitors, leveraging oversized debt and/or expensive business models, try to cast a wider net on both ends of the customer value spectrum to drive sales growth. We believe that strategy is not economically viable over the long term.

Our focus on the white space within our quadrant helps us maximize our marketing spend to win business across our customer base and do so profitably. Our target customers, those that seek the highest quality and style for their dollar, what we call Smart Value, and an easy experience to find what they want, already have a greater capacity to shop with us. We purposely play to our natural strengths. These customers represent roughly 40% of the market. Overstock has ample growth opportunity in this space and with these target customers. And when wallets are stretched, more and more customers seek Smart Value. I will now pass to our three brand pillars, each of which are key to our continued growth and help define Overstock value proposition. Next slide. The first brand pillar is Product Findability. During the quarter, approximately 99% of our revenue was in home categories. Our merchandising team has done an impressive job of adding breadth and depth to product assortment on our website.

Our unique capital-light and asset-light business model allows us to onboard partners and grow product assortment at a relatively fast pace, a key part of our strategy to grow our brand association with home. The expansion of home product assortment has positioned us favorably to meet the evolving needs of our customers with a broader and better offering. Unlike some of our competitors, because we don’t own any inventory, we are insulated from risks associated with changes in consumer demand or preferences across categories. Home sales have slowed. An economist’s outlook point to further reduction through this year. However, home equity values remain strong, which is good for our business. Consumers are investing in their homes and backlogs for home project-related spend is still above pre-pandemic levels. Our business has been reflecting the same trend. Sales growth in our home improvement categories have been outpacing the overall company average.

During the second quarter, these categories continued to deliver positive sales growth. And as consumers start spending more on home products, again, we are well positioned to meet demand and capture market share. Next slide. Our second brand pillar is Smart Value. We strive to offer the highest quality products at the best price. Our high-low promotional model is intentions and critical to attracting and retaining customers. As is widely acknowledged during the second quarter, the industry faced elevated competitive promotional pressure due to a mismatch of inventory and demand. Although our asset-light model did not directly expose us to mark down our liquidation pressures, we did have to navigate through a challenging environment to deliver Smart Value to our customers and maintain margins, and we did so successfully. We held our pricing tenants in line with past quarters.

Unlike some of our competitors, we didn’t need to liquidate any excess owned inventory, nor will we need to do so in the future. Our Smart Value proposition is not only important to our strategy, it is something our customers count on. We delivered the second largest Memorial Day customer in company history. This is impressive considering we were comparing against the largest quarterly sales volume in Overstock’s history. It is also important to compare key sales events in 2022 due to the major change in consumer sentiment since the start of the year. Sales on Memorial Day this year were larger than President’s Day in February, which, as a reminder, was our largest on record. Considering a consumer backdrop, it was significantly weaker in May than February. It shows that our event-driven strategy continues to work, and our Smart Value offering is resonating. We continue to do well with our mobile app adoption, which has enabled us to improve customer engagement.

Our mobile app is now our strongest conversion in customer retention platform. During the second quarter, we saw app downloads increased 85% sequentially, on top of 54% sequential growth last quarter. We are now capitalizing on this larger installed base of mobile app users. In addition to our popular app exclusive coupons to deliver additional value to our customer, we’ve revived game-based strategies like auto offers and started using the notification plan more effectively. These strategies have been delivering results. Our mobile app return on our ad spend has been higher year-over-year during key events, making us more efficient with marketing spend. We believe we still have a long runway for growing mobile app adoption and continue to use it to direct strategies for further growth.

Next slide. Our third brand pillar is Easy Delivery & Support. Our asset-light supply chain continues to be a competitive advantage, positioning us favorably in the industry relative to others. Our supply chain is broad and distributed with a vast and growing partner network. This reduces single-source risks, shipping bottlenecks and supply chain kinks. We own almost no inventory, protecting us from markdown or clearance risk. This unique supply chain model is a major advantage in the current environment. Our focus on delivering on our financial recipe card is appreciated by our partners, who, with greater and greater frequency remark, that it is important for them to do business with a company that makes money and who their asset backed lenders know we’ll pay them quickly. As a result, existing partners who were historically underrepresented on our website are increasing allocations to us. And we’re broadening our partner base with new partners interested in working with us, particularly since we are now 100% home-focused. There is a reason we refer to our suppliers as partners.

We have an unparalleled commitment to them, which was fully evident in the second quarter when their inventory piled up in their warehouses. There are other channels canceled orders, and they faced significant markdown pressure. During the quarter, we supported our partners by providing an improved promotional pricing tools to enable them to sell through their other inventory items and position their inventory in our marketing campaigns to help move it quickly. Our unique flagship model enabled them to eliminate costs tied to warehouse logistics. Many use our negotiated carrier rates to lower shipment costs. And of course, we continue to pay them on a regular time line, even as we navigated a challenging top line environment. The faith that our partners have put in our partnership goes a long way towards successful achievement of our long-term vision. Next slide. Our mantra is sustainable, profitable market share growth. Growth is and always will be a key component of our business, one which we spend a significant amount of time strategizing and working to achieve.

This slide shows several key drivers that are critical to support continued growth, something we are working to jump start. Our differentiated business model is allowing us to pursue these growth drivers, despite headwinds in the overall macro and competitive environments. These growth drivers are not capital or resource-intensive. Other than limiting what would be inefficient marketing spend, our focus on profitability is not hampering the progress of any of our growth drivers. We are focused on these strategies while continuing to be disciplined in managing expenses. We continue to add SKUs to increase our home association, is sharper on pricing, something that was greatly tested during the second quarter, effectively leverage our mobile app and make shopping easier for our customers. With the move to 100% home now complete, we are pursuing initiatives to reposition the brand as a prominent retailer of furniture and home furnishings with a long runway for growth. Moving to a quick reminder on our Canada efforts. As we’ve shared before, our goal is for Canada to grow to 10% of our U.S. revenue over the next several years.

During 2022, however, we do not expect our Canadian business to meaningfully contribute to our stated financial targets as we carefully develop it, to scale effectively and serve as the right template for future international expansion opportunities. Right now the team is focused on enhancing the Canadian customer experience by increasing products locally available to ship from Canada and improving price competitiveness to enhance the end-to-end customer journey to increase conversion. Marketing is focusing on bringing additional traffic to the Canadian website in showcasing our unique brand pillars. These efforts are regressing steadily and positioning Overstock for long-term success in the Canadian market. Next slide.

We continue to direct our strategies to drive sustainable, profitable market share growth within our financial recipe card targets, even as the online market contracts them. Overstock has opportunities to gain market share as we win brand association with home. Our annual targets for 2022 and beyond remain unchanged. These include top line outpacing the market to deliver market share growth under various macro scenarios, driven by our advanced technology, our unwavering focus on the customer and our inherently adaptable business model. Gross margin is in the 22% range so that we can deliver on Smart Value, acknowledging these may fluctuate slightly from quarter-to-quarter. Disciplined G&A and tech spending to deliver operating leverage. I will note our ability to drive leverage during the first half of 2022 was limited by the difficult sales environment.

We will, of course, continue to manage these expenses carefully. And we continue to do our best to deliver adjusted EBITDA margin in the mid-single digits on an annual basis. Next slide. I will now discuss a few updates on the Medici Ventures Fund. Next slide. It has been over a year since we handed over full control of the day-to-day operations and investment decisions of the Medici portfolio to Pelion Venture Partners. As you will recall, during 2020, as we pivoted our focus to strategies aimed at driving sustainable, profitable market share growth for the furniture and home furnishing e-commerce business, we went through a rigorous process to evaluate options through the Medici portfolio. Remember, most of the Medici portfolio companies were and still are an early seed in Series A investing stage and require an experienced venture capital style operator to get them to a level to realize the best financial outcome for all stakeholders.

After considering multiple professional venture firms, we chose to partner with Pelion, a firm which has decades of experience in helping disruptive technology companies scale and exit successfully. We structured the fund so that the better Pelion does with the portfolio company exits. Both Overstock shareholders and Pelion will see the benefits. Pelion has proven to be a great choice to actively help advance the portfolio of companies’ respective businesses and allow the Overstock management team to remain focused on the furniture and home furnishings e-commerce business. Pelion is demonstrating its prowess in elevating companies to the next level. Recent examples are the strong leadership additions at tZERO and Bitt. In June, tZERO added two new members to its Board, Edward Marshall, Former Senior Vice President and Founding Chief Technology Officer of Intercom Metal Exchange; and Michael Blaugrund, Chief Operating Officer of the New York Stock Exchange. tZERO should benefit from their combined technology and financial services background. We remain excited about the future of tZERO.

Bitt has also strengthened its executive team. Last week, Bitt announced the addition of the Criteo Central Bank digital currency, or CBDC founding team, including Jim Shinn and Erik Bethel. The Criteo team has successfully engaged over 12 central banks in Latin America, Africa, Europe and Central Asia advancing their CBDC programs. This team will continue these engagements with this market-leading technology and CBDC product suite. And they have then also added a new Chief Product Officer, Baker Nanduru. These appointments solidified Bitt’s market-leading position in the digital currency space and set it up for long-term growth. This digital currency management system is the technology behind most of the live retail CBDC deployments across the world, including launches in Africa and Central America. Bitt has established relationships with an impressive list of partners and associations which enhanced the digital currency experience for everyone within a country’s financial ecosystem.

I hope everyone has had the chance — I hope everyone had the chance to attend Medici Day on May 10, hosted by the Pelion team, led by Matt Mosman. Matt has over 30 years of experience with early-stage companies and key relationships in the disruptive technology space that the Medici portfolio can leverage. six portfolio companies — and based on feedback received, attendees appreciated details on the businesses and how the portfolio is pioneering the use of blockchain technology. For those who have not yet had a chance to review the presentation, a replay remains available on our Investor Relations website. I anticipate that the Pelion hosted Medici Day will become an annual event, which is the appropriate cadence given the still early stages of mostly the portfolio of companies.

Our partnership with Pelion has an eight-year term. And in my view, there is a lot of good news still to come. Pelion, tZERO and Bitt teams are making good progress. Next slide. I’ll now briefly recap the quarter and provide some thoughts before moving to Q&A. Next slide. During the second quarter, we continue to demonstrate our commitment to profitability against a weak consumer backdrop. We also returned cash to our shareholders through share repurchases. Our balance sheet is strong and provides us flexibility in the current macro environment. We believe that the Overstock business model is agile and resilient, reacts well to jolt in the market and consumer behavior and is well positioned to capitalize on opportunities to gain market share. Looking ahead, we continue to increase the breadth and depth of home SKU assortment available on our site, strengthening Overstock’s brand association with home.

Our focus on Smart Value is unique, especially in times where consumer wallets are under pressure. We are successfully leveraging our mobile app to increase customer engagement. Our supply chain is asset-light and built to support sustainable, profitable market share growth. To wrap up, we like our business model, and we have a strong, adaptable and focused team that is proving it can control the controllables. This is a team that wants to and I believe will win. We like our position in the market and our differentiated model.

Now, operator, let’s take some questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Seth Sigman with Guggenheim Partners.

Seth Sigman — Guggenheim Partners — Analyst

Hey everybody, thanks for taking the question. I’m looking at the EBITDA performance. It’s continued to be impressive in this environment. I’m just curious about the sustainability of mid-single digits. If we’re thinking about the potential for sales to continue to decline from here, especially in Q3 in a potentially lower volume quarter, could we start to see the operating deleverage get worse, particularly thinking about some of the more fixed expenses like tech and G&A? Or do you feel like you have some levers to continue to offset that?

Lavesh Hemnani — Head of Investor Relations

Seth, thanks for acknowledging our EBITDA performance. Adrianne, I’ll ask you to address that first, and I’ll add some comments.

Adrianne Lee — Chief Financial Officer

Certainly, Jonathan and Seth, I would just say, of course, as you mentioned in the second quarter, with our sales performance, we were able to deliver on our margin targets. And we’ve been able to do this over the last four quarters, where we’ve seen revenue declines. To your point, and in Jonathan’s prepared remarks, we talked about our goal is to continue to deliver results in that mid-single-digit EBITDA margin and manage our expenses effectively. Jonathan?

Jonathan E. Johnson III — Chief Executive Officer

Yes. Seth, we’re always going to look at our expenses carefully. We’ve proven we can manage them, and we have a model that works that way. we are — I should address the other part of, I think, your comment, and that’s what are we doing to drive sales because top line growth helps all kinds of things. I’ll say a few things that we’re doing in merchandising and a few things that we’re doing in marketing. In merchandising, we’ve made great strides in adding breadth and depth with SKUs. The team has aggressive plans to have SKUs through the year and is doing well in meeting those plans, adding SKUs from underpenetrated partner that sell through our competitors. So I think that is a big deal. I’ll also note, some of the SKUs we’re adding, I think, are particularly focused for second half of the year sales as we look for small appliances and things like that to help in the fourth quarter when those — when people are looking for giftable home appliances.

On the marketing front, — we’re working to leverage our app to increase customer engagement. Using our marketing communication, you can expect us to use more marketing communication to amplify our move to 100% home and to reengage with our existing customers and expand our customer base. Now that we’re 100% home, that message and that brand association become more important and it’s something we’ll focus on. So Seth, thanks for the question.

Seth Sigman — Guggenheim Partners — Analyst

Thanks guys.

Operator

And our next question comes from Rick Patel with Raymond James.

Rick Patel — Raymond James — Analyst

Thank you, good morning and I appreciate you taking my question. Jonathan, can you share your views on what’s going on with pricing in the industry? It seems that companies are trying to take up pricing given inflation, but discounting is also up. So when you think about the bigger picture, do you think this net debt to prices being higher or lower versus last year for the home category? And as it relates to your business, we talked about the importance of having Smart Value. Just given what you’re seeing with the pricing in the industry, do you see the potential to tweak your pricing favorably while continuing to remain very competitive versus others?

Jonathan E. Johnson III — Chief Executive Officer

Rick, really cogent question. Let me provide some initial comments, and then I’ll let Dave add some more color. During the second quarter, maintaining our pricing tenant of being the low cost on the Internet post promotion in our high-low model was challenging. As some of our competitors who own their inventory have publicly acknowledged they have too much and are liquidating it, I assume at a loss means that we’re competing against people that are behaving, in some sense, irrationally by selling it a lot. We don’t have that pressure because we don’t own inventory. That said, during the quarter, we worked with our partners to get them to lower their first cost for us so that we could keep their products on our site, have it available to sell at competitive pricing within our pricing tests.

We saw that particularly during the second half of the second quarter. We continue to see it some in the third quarter, and I think we’ll see it through the third quarter. The good news is our team works with the partners, helps us get cost concessions so that we can keep competing price-wise. Dave, what would you add to that?

Dave Nielsen — President

Just one additional point, John, I think well covered. We’ve increased our match rate percentage, if you will. It’s a very, very challenging time for pricing, and we want to make sure that we know exactly where we are in the industry. And we feel confident that by hitting that 80% competitive rate, plus then take into consideration our coupons or discounts, it makes us the best deal out there. And as we’ve increased that match rate, we feel even more confident that all of those actions that Jonathan just talked about are resonating with customers and will continue to as we move through the fall. Jonathan, back to you.

Jonathan E. Johnson III — Chief Executive Officer

Rick, let me add one thing. You asked will prices come down or will they continue to rise? Here’s my guess. For products where our competitors and/or our partners have ample inventory, even over inventory, they’ll come down. The areas where they’re still waiting for product to get through the ports, they’ll rise. So I mean, it’s ECON 101, where supply is higher than demand, prices are going to come down. Where supply is less, then demand will go up. And I think there are categories like home — like a patio outdoor furniture, where supply is ample right now, and there are a lot of deals to be had and we’ve got deals on Overstock. We’re competing at the price level we want to compete. I hope that addresses your question, Rick?

Rick Patel — Raymond James — Analyst

Thank you very much.

Operator

Our next question comes from Peter Keith with Piper Sandler.

Peter Keith — Piper Sandler — Analyst

Thanks, good morning everyone. So the expense management is very impressive, and you have a lot of things going on. But I did want to focus on the order growth. You talked about the home sales growth of 60% from 2019. At the same time, your AOV is up, I’m calculating, 49%. So it does look like about 11% home order growth, which is about a 3.5% CAGR over the last three years. It seems a little low given all the goodness that’s going on. So the heart of the question is, is that math about right? And are you potentially not advertising enough to drive your Smart Home value proposition?

Jonathan E. Johnson III — Chief Executive Officer

Adrianne, I’ll let you comment on the math, and then I’ll talk through marketing efforts to emphasize the home.

Adrianne Lee — Chief Financial Officer

Thanks, Jonathan. And yes, math directionally correct, Peter. I would just also include kind of that order frequency component as well, just looking at that kind of consistency and some uptick there. But yes, generally, your math is in line. Jonathan?

Jonathan E. Johnson III — Chief Executive Officer

So on emphasizing our brand, associating our brand better with home. As I mentioned in past quarters, we felt like doing that, while we still had a good number of non-home SKUs on the site was premature. When you emphasize home and then people see jewelry or watches, we felt like we weren’t getting the maximum bang for the buck. Now that we’re 100% home, you can expect to see different branding campaigns being rolled out that show that we are a home. I think they’re going to be exciting. I think they’re catchy. I think the consumer is going to understand them. And as I’ve said many times, Overstock name recognition is very high. Our association with home is not where it needs to be. I think that will change over the coming quarters as you see more, better and more focused branding bringing out there. Dave, I know you’re working closely with the marketing team. Anything you’d add there?

Dave Nielsen — President

No, nothing to add. Excited for what’s coming in at end of the third quarter.

Jonathan E. Johnson III — Chief Executive Officer

Peter, hopefully, I addressed your question?

Peter Keith — Piper Sandler — Analyst

Yes, very helpful, thank you.

Operator

And the next question comes from Anna Andreeva with Needham & Company.

Anna Andreeva — Needham & Company — Analyst

Great, thank you and good morning everyone. One quick one for us. You guys mentioned you saw a record high Memorial Day weekend, but then I think trends slowed towards the end of the quarter. Could you provide more color on that? I think June was good for the home industry overall. And curious what are you seeing in the business quarter to date?

Jonathan E. Johnson III — Chief Executive Officer

Yes, Anna, thanks. Memorial Day was good. It was more than very good. It wasn’t quite as good as last year, better than President Day this year, which I think is saying something given where the market was going. June was a little worse than May. July is a little bit better than June. I’ll emphasize a little bit in that sentence. It’s tough to know how the summer is going to play. And then what will happen when summer ends and people get back to work into shopping. We think we’re in a good place. We continue to offer smart value. We continue with our high low promotional event. I do think that as a high loan retailer. The days when people are shopping at the holidays are important days for us to win. And we’re getting better and better at it. And I’m looking forward to Labor Day, our Customer Day, Black Friday, Cyber Monday. The second half of the year has got some good events days that we think we can capitalize on.

Anna Andreeva — Needham & Company — Analyst

Okay. That’s super helpful. And if I could follow up, this is actually a follow-up on the previous question. Just considering the new marketing campaigns coming out in the back half to drive that home association for Overstock. Should we expect some step-up in marketing expenses as a result? You guys have managed that line item really well.

Jonathan E. Johnson III — Chief Executive Officer

You can expect us to continue to manage it well. Dave, do you want to address how we — how we’re going to do brand launch and manage return on ad spend?

Dave Nielsen — President

Sure. So as we look to some of the comments Jonathan mentioned about our upcoming home campaigns, we’ll be shifting dollars between the channels, and we’re always doing that. And we don’t ever really reveal or provide specific details around each individual channel, but we will be increasing in some of our channels to broadly distribute our brand recognition of home and home furnishings. And as we do that, we’ll be increasing in our influencer campaigns and rest of the brand ambassadors. Some very exciting things that we have coming that we’re looking forward to. So as Jonathan mentioned, we will always watch the bottom line expenses. From a channel spend on our return on ad spend, the models are built to efficiencies and to a return level. And you could spend more and lose a lot of money doing it and grab a customer. But it’s such a cost that it is — the future value is not worth it. So we continue to balance those and watch our expenses as we do it.

Jonathan E. Johnson III — Chief Executive Officer

Yes. I didn’t know that we’re committed to profitability. With our Smart Value, which means 22%-ish for the gross margin, there is some fixed expenses. We’re going to be really careful in making sure that how we advertise, how we brand just within the return on ad spend metrics that we have and we’re committed to.

Anna Andreeva — Needham & Company — Analyst

Right, terrific. Thank you guys, very helpful.

Operator

And the next question comes from Victoria James from D.A. Davidson.

Thomas Ferris Forte — D.A. Davidson — Analyst

It’s Tom Forte at Davidson. So can you talk about your Club O program? How are sales trending there versus trends overall? And do you have any plans to make any changes to Club O?

Jonathan E. Johnson III — Chief Executive Officer

Tom, thanks for bringing up Club O. Year-over-year, it continues to grow. It remains strong. It’s something we focus on. Those customers have a higher AOV and shop more frequently. We are working on some things to expand and improve our loyalty program. I don’t want to go too under the covers on those. More to come. We think it’s exciting and will help us grow when those are launched. But Club O continues to grow year-over-year and an exciting part of our business.

Thomas Ferris Forte — D.A. Davidson — Analyst

Great, thanks Jonathaan.

Operator

And our final question comes from the line of Curtis Nagle of Bank of America.

Curtis Nagle — Bank of America — Analyst

Good morning, thanks for taking the question. I guess the first one was focusing on mobile, right? So I think you guys have done a lot to increase the functionality and improving the experience, right? Downloads have been increasing all that. But if you just look at the percent of orders going through mobile, hasn’t really budged? I think $5 rate quite might actually be higher than what we’re seeing for the business as a whole. So I guess just why is that? Is it just going to take a little more time for it to catch up? How should we expect that channel to grow in terms of total sales going through it?

Lavesh Hemnani — Head of Investor Relations

Yes. So Curtis, thanks for asking about mobile. It gives us a chance to highlight it some more and actually correct some assumptions, some flat assumptions in your question. Dave, why don’t you give a little bit of color about what’s coming through mobile, what we see and why we’re so excited about it?

Dave Nielsen — President

In the mobile app, business for us, that channel is, as mentioned in the remarks, it’s our highest repeat rate and our highest conversion and our highest AOV. These are loyal customers. And once we acquire them and get them in the ecosystem, it is less expensive for us to advertise to them, to market to them and interact with them. So this is a channel, and it is growing and growing significantly for us. We don’t reveal the individual channels growth publicly, but I will tell you this one is on a terrific trajectory. And we are continuing to invest in the capabilities and the marketing capabilities of remarketing efforts with the mobile app.

Jonathan E. Johnson III — Chief Executive Officer

Yes. Thanks, Dave. And the other thing I would mention, Curtis, is with the mobile app, we’re reaching a little bit different demographic — not different in that it’s not a savvy shopper and reluctant repressions, but a younger demographic. And it’s important for us to pick that up to communicate actively with them. So mobile continues to grow, and we’re excited about it. And more and more of our sales are coming through it. Did I address the question?

Operator

And I would now like to turn the conference back over to Mr. Jonathan Johnson for any closing remarks.

Jonathan E. Johnson III — Chief Executive Officer

Thank you, operator, and I want to thank everyone for participating in today’s call. I like our business. We have the right asset-light business model. We’re focused on the right market in the furniture and home furnishings market. We’re focused on the right customer segments, savvy shoppers and reluctant repression. Customers would have a natural tendency to shop with Overstock. We have the right team to execute and deliver both market share growth and profits. At the same time, even with steady macro and competitive headwinds, we have dry powder for strategic opportunities. And we have a portfolio of blockchain assets being well managed by Pelion that I believe has huge potential to drive value for our shareholders. Again, I like our business and I like our future. We appreciate your interest in Overstock [Indecipherable].

Operator

[Operator Closing Remarks]