Bed Bath & Beyond, Inc. (BBBY) Q3 2025 Earnings Call Transcript

Access earnings results, analyst expectations, report, slides, earnings call, and transcript.

Overview

The earnings call reveals significant improvements in financial metrics, such as narrowed net loss, better EBITDA, and increased gross margin. Despite a revenue decline, the company demonstrates strong operational efficiency and cost management. The Q&A highlights initiatives for future growth, like AI automation and improved marketing strategies, though some guidance details are lacking. Overall, the positive financial trends and strategic plans suggest a favorable short-term stock price movement.

Key Financial Performance

Net Loss Net loss narrowed to $4.5 million, a 93% improvement year-over-year. This improvement was attributed to better execution, efficiency, and balance sheet strength.

Adjusted EBITDA Adjusted EBITDA loss of $4.9 million improved 85% year-over-year. This was driven by improved operational efficiency and cost management.

Gross Margin Gross margin was 25.3%, up 420 basis points year-over-year. This increase was driven by lower fulfillment and returns costs and tighter promotions.

Net Revenue Net revenue was $257 million for the third quarter, down 17% year-over-year or 13% excluding the impact from the exit from Canada. The decline was due to reduced orders, although average order value improved by 3%.

Sales and Marketing Expense Sales and marketing expense improved by 260 basis points to 14% of revenue year-over-year. This was due to more efficient channel allocation and improved return on spend.

Technology and G&A Expense Technology and G&A expense declined by $13 million year-over-year. This was achieved by rightsizing the organizational structure, streamlining vendors, and automating key functions.

Cash Equivalents and Inventory The company ended the quarter with $202 million in cash equivalents and inventory, plus an additional $36 million from ATM settlements post quarter-end. This reflects improved balance sheet stability and flexibility.

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Operating Highlights

Name Change: Reverted to Bed Bath & Beyond, emphasizing brand trust and connection with consumers.

New Investments: Invested $3 million in GrainChain (blockchain-based supply chain platform) and acquired Kirkland's home intellectual property for $10 million.

AI-driven Strategies: Integrated AI to enhance customer experience, improve cart conversion, and streamline operations.

Omnichannel Expansion: Progressing with the conversion of 250 locations by mid-2026, creating an asset-light network of local operators.

PropTech Solutions: Exploring PropTech to help homeowners maintain, finance, and optimize their homes.

Operational Efficiencies: Identified $20 million in additional operating expense efficiencies for 2026.

Improved Margins: Gross margin increased by 420 basis points year-over-year due to lower fulfillment costs and tighter promotions.

Marketing Efficiency: Sales and marketing expense improved by 260 basis points to 14% of revenue.

Everything Home Ecosystem: Focused on connecting retail, services, and digital innovation to create a comprehensive home-centric ecosystem.

Technology Integration: Deepened AI and data integration to drive smarter marketing, better conversion, and stronger retention.

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Risk or Challenges

Consumer Confidence and Spending Patterns: Consumer confidence and spending patterns remain uneven, which could impact revenue and growth.

Sales and Marketing Expenses: Sales and marketing expenses remain higher than desired, affecting profitability.

Shopping Experience and Conversion: The shopping experience requires improvement in customer focus, cart conversion, personalization, and site speed.

Technology and AI Integration: Challenges in integrating AI-driven strategies to improve customer experience and operational efficiency.

Omnichannel Transformation: The transformation of 250 locations by mid-2026 presents execution risks and potential delays.

Economic Uncertainty: General economic uncertainties could impact consumer behavior and financial performance.

Supply Chain Modernization: Dependence on blockchain-based platforms like GrainChain for supply chain modernization may face implementation challenges.

PropTech and Strategic Investments: Investments in PropTech and non-retail ventures carry risks of execution and uncertain returns.

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Guidance & Outlook

Revenue Expectations: The company expects to broaden its connection with customers and drive top-line growth in 2026 by expanding the 'Everything Home' ecosystem and improving customer engagement and conversion.

Margin Projections: The company aims to maintain margin discipline while achieving top-line growth. Marketing expenses are targeted to be reduced to 12% in 2026, with $20 million in additional operating expense efficiencies identified.

Capital Expenditures and Investments: The company plans to invest in AI-driven strategies, technology platforms, and PropTech solutions to enhance customer experience and operational efficiency. It also intends to complete the conversion of 250 retail locations by mid-2026.

Market Trends and Business Segment Performance: The company anticipates growth in the PropTech sector, focusing on tools that help homeowners manage and unlock value in their homes. It also expects its omnichannel transformation and asset-light local franchise model to improve market reach and efficiency.

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Shareholder Return Plan

The selected topic was not discussed during the call.

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Key Q&A

Q:Can you expand on the 12% sales and marketing expense ratio target for 2026 and its connection to the return to growth narrative?

A:Marcus Lemonis explained that the company has identified inefficiencies in its business, particularly in conversion rates. They have been working on cleaning and segmenting customer data to improve retention and conversion. The company is also focusing on personalized marketing and performance marketing improvements, aiming to reduce inefficient spending by up to $10 million. The 12% target is supported by these efforts and a commitment to high contribution margin transactions.

Q:Has the third quarter informed your medium-term or long-term gross margin targets?

A:Marcus Lemonis stated that the company has set a short-to-medium-term product margin goal of 24%-26%. They are leveraging high-margin categories like textiles (55%-57% margin) to offset lower-margin categories like upholstered furniture and patio. The company is also focusing on product protection warranties and private label credit cards to improve overall transaction profitability.

Q:Can you elaborate on the expected revenue growth for 2026 and the initiatives driving it?

A:Marcus Lemonis mentioned that while the company does not provide specific revenue guidance, they are committed to positive revenue growth in 2026. Key drivers include leveraging an asset-light model, exploring new categories like luxury and jewelry, and improving conversion rates. The company aims to increase conversion rates from 1.1%-1.2% to over 1.3%, which could add $27-$35 million in revenue with a 6%-8% contribution margin.

Q:What are you hearing from suppliers regarding their willingness to pass along prices on your marketplace?

A:Marcus Lemonis noted that suppliers are under pressure due to tariffs and unpredictable sourcing costs. The company is working to maintain profitable relationships with suppliers by eliminating unprofitable SKUs and vendors, and focusing on volume targets and rebates. They are also leveraging their asset-light model to manage inventory risks effectively.

Q:How do you view AI automation in customer service as a cost-saving opportunity?

A:Marcus Lemonis emphasized that AI is a mandate for the company. AI will help create staffing efficiencies and improve customer experience through personalization, ultimately boosting conversion and retention. The company has established a tech committee to guide these efforts and is open to third-party expertise for implementation.

Q:What is the timeline for implementing personalization tools at Bed Bath & Beyond, and how does it affect revenue trends?

A:The company has already implemented a new unified tech stack at Overstock, which has improved conversion rates and site speed. They plan to test and refine these tools further before implementing them at Bed Bath & Beyond, likely by mid-to-late 2026. The goal is to integrate these tools with POS systems for a seamless customer experience, which is expected to positively impact revenue trends.

Q:Review of Unclear Management Responses

A:Management avoided providing specific revenue or bottom-line guidance for 2026, despite committing to positive revenue growth. They also did not disclose specific retention numbers, citing the need for uncontaminated data. Additionally, while discussing AI and personalization tools, timelines and specific cost savings were not fully detailed.

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Earnings Word Cloud

The most frequently occurring keywords in this quarter's earning call

BBBY Transcript

Bed Bath & Beyond, Inc. (BBBY) Q3 2025 Earnings Call Transcript

Positive10-27

BBBY Slides

Beyond Inc Q3 2025 slides: Narrowing losses despite revenue decline

2025-10-27

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