The Brand House Collective, Inc. (TBHC) Q2 2025 Earnings Call Transcript
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Overview
The earnings call summary highlights several negative aspects, including a decline in net sales, comparable sales, and gross margins, alongside increased operating expenses and net loss. The Q&A section reveals uncertainties in e-commerce stabilization and tariff impacts, with management providing unclear responses. Despite positive store conversion results, the overall sentiment remains negative due to the financial challenges and lack of clear guidance on key issues.
Key Financial Performance
Net Sales $75.8 million compared to $86.3 million in the prior year quarter, a decrease driven by a 9.7% decline in comparable sales and a 5% decline in store count. The decline was attributed to the impact of a tornado on the distribution center and liquidation efforts to optimize inventory.
Comparable Sales Declined by 9.7% year-over-year. The decline was due to liquidation efforts and a 38.5% decrease in e-commerce sales, which were further impacted by the tornado disruption.
Gross Margin Decreased by 410 basis points to 16.3% of sales, primarily due to a decline in merchandise margin and occupancy deleverage. Specific factors included 130 basis points from liquidation activity, 100 basis points from tornado-related inventory write-offs, and 30 basis points from incremental tariff costs.
Operating Expenses Increased slightly to $31.1 million from $31 million in the prior year quarter. The increase was due to $1.3 million in insurance costs related to tornado damage, and as a percentage of sales, operating expenses rose to 41.1% from 35.9%.
Net Loss $19.4 million compared to $14.5 million in the prior year quarter. Adjusted net loss was $17.8 million compared to $13.9 million in the prior year, primarily due to e-commerce headwinds, liquidation activity, and incremental tariff costs.
Adjusted Loss Per Share $0.90 compared to $1.11 in the prior year quarter. The improvement was driven by an increase in share count from 13 million to 22.3 million shares due to the Beyond transaction.
Inventory $82 million, down 12% from the prior year Q2 ending inventory. The decrease was due to a temporary pause in inventory shipments from Asia caused by tariff uncertainty.
Total Debt Outstanding $55.2 million at the end of the quarter, including $41.5 million under a senior revolving line of credit and $13.7 million in debt to Beyond. Debt levels fluctuated based on eligible inventory levels.
Operating Highlights
Bed Bath & Beyond Home store launch: The first store opened in Brentwood, Tennessee, with strong customer response and sales exceeding expectations. The store features over 30 trusted national brand names and Kirkland's Home branded products.
Future store conversions: Plans to convert all Kirkland's Home stores into Bed Bath & Beyond Home stores within 24 months, with each conversion costing less than $100,000 in CapEx per store.
New product initiatives: Development of buybuy BABY stores expected to launch in 2026 and planning for Kirkland's Home expansion into the wholesale market.
Market expansion through store conversions: Four more locations in the greater Nashville market will convert to Bed Bath & Beyond Home within six weeks, with plans for a national rollout.
Wholesale market entry: Kirkland's Home plans to expand into the wholesale market, targeting independent retailers nationwide to create a new growth channel.
Inventory liquidation: Strategic liquidation of non-go-forward inventory to optimize category mix and prepare for store conversions.
Cost efficiency in store conversions: Capital-light transformation with each store conversion costing less than $100,000 in CapEx.
Partnership with Bed Bath & Beyond: The partnership is central to the transformation strategy, leveraging Bed Bath & Beyond's brand legacy and infrastructure.
Omnichannel retail transformation: Focus on creating a seamless customer experience across products, marketing, and operations.
Risk or Challenges
Tornado Disruption: The tornado in late May caused significant disruption at the Jackson, Tennessee distribution center, negatively impacting e-commerce sales by 750 basis points and total comparable sales by 190 basis points. It also led to $1.3 million in insurance costs and a $100,000 write-off of damaged inventory.
Inventory Liquidation: The strategic liquidation of select inventory to optimize category mix and prepare for Bed Bath & Beyond conversions created significant pressure on profitability and top-line revenue, particularly in the e-commerce channel. This activity also reduced merchandise margins by 130 basis points.
E-commerce Challenges: E-commerce sales declined by 38.5% in comparable sales, driven by the tornado disruption and ongoing liquidation efforts. This remains a significant headwind for the company.
Tariff Costs: Incremental tariff costs negatively impacted merchandise margins by 30 basis points and caused a temporary pause in inventory shipments from Asia, disrupting supply chain operations.
Debt Levels: The company has $55.2 million in total debt, including $41.5 million under a senior revolving line of credit and $13.7 million in term loans to Beyond. This high debt level could constrain financial flexibility.
Operating Expenses: Operating expenses increased slightly to $31.1 million, with tornado-related insurance costs contributing to the rise. As a percentage of sales, operating expenses increased to 41.1% from 35.9% in the prior year, reflecting lower sales and additional costs.
Guidance & Outlook
Store Conversions: The company plans to convert all Kirkland's Home stores into Bed Bath & Beyond stores over the next 24 months. Each conversion is expected to cost less than $100,000 in CapEx per store, enabling a capital-light transformation.
New Store Openings: The next Bed Bath & Beyond Home store grand opening is scheduled for September 20 in Spring Hill, Tennessee, with four more locations in the greater Nashville market to follow within six weeks.
Expansion Plans: The company is planning to expand Kirkland's Home into the wholesale market, which would bring its designs to independent retailers nationwide. This initiative aims to create a new growth channel, improve supply chain efficiency, and strengthen unit economics.
Omnichannel Initiatives: The company plans to develop the buybuy BABY brand as the next omnichannel initiative, with the first new store expected in 2026.
Promotional Activity and Tariff Costs: The company expects to continue promotional activity and face incremental tariff costs beginning in the third quarter of 2025. Teams are working to mitigate these impacts.
Shareholder Return Plan
The selected topic was not discussed during the call.
Key Q&A
Earnings Word Cloud
TBHC Transcript
The earnings call reveals a decline in net sales, e-commerce, and gross margin, with increased operating expenses and net loss, indicating financial strain. The Q&A highlights efforts to stabilize e-commerce and store conversions, but with unclear future plans. Despite some positive trends in store traffic and customer acquisition, the overall financial performance and strategic outlook suggest a negative sentiment, particularly with ongoing challenges like tariff impacts and debt levels. Without a market cap, the prediction leans towards a negative reaction, potentially between -2% to -8%.
The earnings call summary highlights several negative aspects, including a decline in net sales, comparable sales, and gross margins, alongside increased operating expenses and net loss. The Q&A section reveals uncertainties in e-commerce stabilization and tariff impacts, with management providing unclear responses. Despite positive store conversion results, the overall sentiment remains negative due to the financial challenges and lack of clear guidance on key issues.
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