Dive Brief:
- Overstock's third quarter revenue fell 21% year over year to $347.1 million, the e-tailer reported Tuesday.
- As sales fell, the company's losses improved. Gross margin rose 0.3% to 20% while sales and marketing costs fell 38% to $34.2 million in Q3. Net loss narrowed by more than 35% to $30.9 million. The losses were within previous guidance, according to the company, but revenue fell short of the FactSet consensus while the net loss exceeded it, according to MarketWatch.
- Overstock also disclosed in a securities filing that it was subpoenaed by the Securities and Exchange Commission around a dividend announced to shareholders in June. The SEC also requested information around a transaction with an investment firm and communication with former CEO Patrick Byrne.
Dive Insight:
Overstock is a business in flux, with a new CEO, a shift in its e-commerce strategy after chasing rival Wayfair down the path of headache-inducing losses, and an ongoing transition from online retailer to the far less straightforward and tested business of an "advancer of blockchain technology."
The company attributed the Q3 sales declines to reduced sales and marketing efforts as Overstock tries to restore profitability. China tariffs, lagging customer acquisitions from search and other sources, and waning consumer confidence also hurt sales, the company said.
Newly installed CEO Jonathan Johnson said in a statement of the company's third quarter that its e-commerce business "continues its path to sustained profitability, despite a few external headwinds, thanks to the focused leadership of an executive team with a proven track record of success."
Johnson's appointment to the chief executive spot follows the fraught departure of longtime CEO Patrick Byrne. In leaving, Byrne said he had become "far too controversial to serve as CEO."
Byrne had publicly confirmed that he had provided information regarding federal investigations into former presidential candidate Hillary Clinton and President Donald Trump, as well as a romantic relationship with a Russian agent who was prosecuted in the federal probe of Russian interference in the 2016 election.
After leaving, Byrne wrote in a blog that the company was struggling to get insurance for its executives and directors with him there. Overstock disclosed in its 10-Q Tuesday that its latest insurance policy (effective Oct. 1) was more expensive, had more exclusions and included more self-insurance than its previous policy. "As such, our D&O [directors and officers] insurance may not be adequate to fully protect the company against liability for the conduct of its directors and officers," Overstock said in the filing.
While Byrne's departure may have relieved some public pressure on Overstock, the SEC's investigation could apply new legal pressure. The October subpoena by the agency's enforcement unit comes after the SEC approached Overstock last year asking about the company's tZero subsidiary and its digital, blockchain-based token.
"We are in regular contact with the SEC and are cooperating fully with the SEC in connection with its investigation and information requests," Overstock said in its 10-Q. The company noted, however, the SEC's ability to bring enforcement actions and hefty fines. "We have expended significant financial and legal resources responding to the SEC subpoena," Overstock said, adding that defending against a possible enforcement action would entail more expenses.
In addition to the SEC investigation, shareholders have also filed four lawsuits against the company, as well as its former CEO and CFO, since late September. Overstock said it would "vigorously defend these actions."
