Bed Bath & Beyond Inc.
10/27/2025 | Press release | Distributed by Public on 10/27/2025 14:24
Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides information that we believe to be relevant to an understanding of our unaudited consolidated financial condition and results of operations. The statements in this section regarding industry outlook, our expectations regarding the performance of our business and any other non-historical statements are forward-looking statements. Our actual results and outcomes may differ materially from those contained in or implied by any forward-looking statements contained herein. These forward-looking statements are subject to numerous risks, uncertainties, and other important factors, including, but not limited to, those described in "Special Cautionary Note Regarding Forward Looking Statements" and in Part II, Item 1A, "Risk Factors" included in this Quarterly Report on Form 10-Q. You should read the following discussion together with our unaudited consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and with the sections entitled "Special Cautionary Note Regarding Forward-Looking Statements," Part I, Item 1A, "Risk Factors," and our consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2024, filed with the SEC on February 25, 2025.
Overview
Bed Bath & Beyond, Inc. is an ecommerce-focused retailer with an affinity model that owns or has ownership interests in various retail brands, offering a comprehensive array of products and services that enable its customers to enhance everyday life through quality, style, and value. In addition, it also offers an increasing number of add-on services across our platforms, including warranties, shipping insurance, and installation services. We will be reimagining our loyalty offering through the reintroduction of Welcome Rewards+ to our Bed Bath & Beyond customers and bringing back the successful Club O loyalty program to our Overstock customers. We currently own Bed Bath & Beyond, Overstock, and buybuy BABY, among other brands. As used herein, "Bed Bath & Beyond," "the Company," "we," "our" and similar terms include Bed Bath & Beyond, Inc. and its controlled subsidiaries, unless the context indicates otherwise.
Through the Bed Bath & Beyond brand, we aim to provide an extensive array of home-related products tailored specifically for our target customers - consumers who seek comprehensive support throughout their shopping journey, aspiring to discover quality, stylish products at competitive prices that align with their budget requirements. We regularly refresh our product assortment to reflect the evolving preferences of our customers and aim to stay aligned with current trends. The mission of this brand is to achieve category-leading ownership of four distinct rooms of the home: the bedroom, the bathroom, the kitchen, and the patio, and our goal is for the assortment to include not only core legacy categories like bedding and kitchenware, but also adjacent categories like bedroom and outdoor furniture and rugs. Furniture across all rooms continues to play a critical role in our strategy. Leveraging an asset-light supply chain, direct shipping is offered to customers from both our suppliers and third-party logistics providers.
Bed Bath & Beyond's strategic priorities include curating stylish, high-quality assortments to make product selection intuitive and affordable, in addition to enhancing offerings with trusted aspirational brands. Our goal is to transform the customer experience by building trust, creating life-stage experiences, and consistently delivering inspiration, quality, and value.
Through the Overstock brand, we aim to provide a wide array of quality goods at discounted prices, and a treasure hunt-like experience for our target customers - consumers who are highly engaged, very accustomed to purchasing online, and actively seeking great deals. The mission of this brand is to delight our customers by offering deals on products they will love. Our product assortment includes home categories such as indoor and outdoor furniture, rugs, décor, and lighting, as well as lifestyle categories such as jewelry and watches, apparel and accessories, and designer shoes and handbags.
The buybuy BABY brand acquisition allows us to reunite two traditionally related brands, Bed Bath & Beyond and buybuy BABY, and support our customers through key life stage shopping moments.
In August 2025, we changed our corporate name from Beyond, Inc. to Bed Bath & Beyond, Inc. and changed our ticker symbol from "BYON" to "BBBY".
Executive Commentary
This executive commentary is intended to provide investors with a view of our business through the eyes of our management. As an executive commentary, it necessarily focuses on selected aspects of our business. This executive commentary is intended as a supplement to, but not a substitute for, the more detailed discussion of our business included elsewhere herein. Investors are cautioned to read our entire "Management's Discussion and Analysis of Financial Condition and Results of Operations," our interim and audited financial statements, and the discussion of our business and risk factors and other information included elsewhere or incorporated in this report. This executive commentary includes forward-looking statements, and investors are cautioned to read "Special Cautionary Note Regarding Forward-Looking Statements."
Revenue for the three months ended September 30, 2025, was $257.2 million, compared to $311.4 million for the three months ended September 30, 2024, representing a decrease of $54.2 million, or 17%. The decrease was primarily due to a 20% decrease in the number of orders delivered, which contributed $63.6 million of the revenue decline, partially offset by a 3% or $6.60 increase in average order value, which resulted in a revenue increase of approximately $9.3 million. The decrease in orders delivered was driven by a decline in website visits influenced in part by a shift in consumer spending preferences and macroeconomic factors impacting consumer sentiment and the home furnishings industry as well as a reduction in overall sales and marketing spend as we focus on improving more efficient traffic channels and refine our assortment. The increase in average order value was largely driven by orders mixing into categories with higher average unit retail price.
Gross profit for three months ended September 30, 2025, was $65.2 million, or 25.3% of revenue, compared to $66.0 million, or 21.2% of revenue, for the three months ended September 30, 2024. This represents a decrease of $0.8 million, or 1%. The decline in gross profit was primarily attributable to lower revenue, which reduced gross profit by approximately $12.6 million, partially offset by an improved gross margin that contributed an increase of approximately $11.8 million. Gross margin increased by 420 basis points year-over-year, primarily due to approximately 160 basis points of lower carrier costs, 160 basis points of lower return costs, and 90 basis points of improvement from discontinued Canada operations.
Sales and marketing expenses were $36.1 million, or 14.0% of revenue, for the three months ended September 30, 2025, compared to $51.9 million, or 16.7% of revenue, for the three months ended September 30, 2024. This represents a decrease of $15.7 million, or 30%. The decrease was primarily driven by decreased performance marketing expenses of $11.9 million and a $2.6 million reduction in brand advertising.
Technology expenses decreased by $7.1 million for the three months ended September 30, 2025, compared to the prior period. The decrease was primarily due to a reduction in staff-related expenses of $4.9 million and a $1.9 million reduction in third-party expenses.
General and administrative expenses decreased by $5.6 million for the three months ended September 30, 2025, compared to the prior period. The decrease was primarily due to a $4.4 million reduction in staff-related expenses and a $1.1 million reduction in third-party expenses.
Customer service and merchant fees decreased by $3.6 million for the three months ended September 30, 2025, compared to the prior period. The decrease was primarily driven by a $1.8 million decrease in customer service expenses and a $1.8 million decrease in credit card costs, primarily due to decreased order volume.
Other operating expense (income), net decreased by $1.6 million for the three months ended September 30, 2025, compared to the prior period. The decrease reflects the non-recurrence of the $1.6 million loss from the sale of our corporate headquarters in 2024.
Consolidated cash and cash equivalents increased from $159.2 million as of December 31, 2024, to $167.4 million as of September 30, 2025, an increase of $8.2 million, primarily as a result of $101.7 million in net proceeds from the sales of our common stock pursuant to our "at-the-market" public offering, net of offering costs and $6.3 million in proceeds from sales of intangible assets, offset by net cash outflows from operating activities of $50.2 million, purchases of intangible assets of $15.2 million, disbursement for notes receivable of $8.2 million, purchases of equity securities in The Brand House Collective of $8.0 million, payments on short-term debt of $7.0 million, repurchases of common stock under the stock repurchase program of $6.2 million, and expenditures for property and equipment of $5.2 million.
Additional commentary related to macroeconomic trends
We continue to monitor recent macroeconomic trends and geopolitical events, including, without limitation, ongoing global conflicts, trade barriers including tariffs, financial and stock market volatility, higher interest rates, inflation, the U.S. government shutdown, and their impacts. These events have and may continue to negatively impact consumer confidence and consumer spending, which have and may continue to adversely affect our business and our results of operations. Many of our suppliers source from other countries and may be negatively affected by increased tariffs or other import/export controls by the United States and foreign governments, as well as uncertainty in the market as it responds to global macroeconomic factors. Due to the uncertain and constantly evolving nature and volatility of these trends and events, we cannot currently predict their long-term impact on our operations and financial results. As of September 30, 2025, the challenges arising from these events have not adversely affected our liquidity or capacity to service our debt, nor have these conditions required us to reduce our capital expenditures.
Results of Operations
For information regarding revisions to previously issued consolidated financial statements and resulting reclassifications, see the information set forth under Note 2-Summary of Significant Accounting Policies, in the Notes to Unaudited Consolidated Financial Statements included in Item 1, Part I, Financial Statements (Unaudited) of this Quarterly Report on Form 10-Q.
Comparisons of Three Months Ended September 30, 2025 to Three Months Ended September 30, 2024, and Nine Months Ended September 30, 2025 to Nine Months Ended September 30, 2024
Net revenue, cost of goods sold, gross profit and gross margin
The following table summarizes our net revenue, cost of goods sold, and gross profit (in thousands):
|
Three months ended September 30, |
Nine months ended September 30, |
||||||||||||||||||||||
| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Net revenue | $ | 257,187 | $ | 311,428 | $ | 771,186 | $ | 1,091,813 | |||||||||||||||
|
Cost of goods sold
|
|||||||||||||||||||||||
| Product costs and other cost of goods sold | 192,024 | 245,453 | 580,922 | 871,311 | |||||||||||||||||||
|
Gross profit
|
$ | 65,163 | $ | 65,975 | $ | 190,264 | $ | 220,502 | |||||||||||||||
| Year-over-year percentage change | |||||||||||||||||||||||
| Net revenue | (17.4) | % | (29.4) | % | |||||||||||||||||||
|
Gross profit
|
(1.2) | % | (13.7) | % | |||||||||||||||||||
| Percent of net revenue | |||||||||||||||||||||||
|
Cost of goods sold
|
|||||||||||||||||||||||
| Product costs and other cost of goods sold | 74.7 | % | 78.8 | % | 75.3 | % | 79.8 | % | |||||||||||||||
|
Gross margin
|
25.3 | % | 21.2 | % | 24.7 | % | 20.2 | % | |||||||||||||||
Revenue for the three months ended September 30, 2025, was $257.2 million, compared to $311.4 million for the three months ended September 30, 2024, representing a decrease of $54.2 million, or 17%. The decrease was primarily due to a 20% decrease in the number of orders delivered, which contributed $63.6 million of the revenue decline, partially offset by a 3% or $6.60 increase in average order value, which resulted in a revenue increase of approximately $9.3 million. The decrease in orders delivered was driven by a decline in website visits influenced in part by a shift in consumer spending preferences and macroeconomic factors impacting consumer sentiment and the home furnishings industry as well as a reduction in overall sales and marketing spend as we focus on improving more efficient traffic channels and refine our assortment. The increase in average order value was largely driven by orders mixing into categories with higher average unit retail price.
Revenue for the nine months ended September 30, 2025, was $771.2 million, compared to $1,091.8 million for the nine months ended September 30, 2024, representing a decrease of $320.6 million, or 29%. The decrease was primarily due to a 35% decrease in the number of orders delivered, which contributed $394.6 million of the revenue decline, partially offset by an 8% or $15.60 increase in average order value, which resulted in a revenue increase of approximately $73.9 million. The decrease in orders delivered was driven by a decline in website visits influenced in part by a shift in consumer spending preferences and macroeconomic factors impacting consumer sentiment and the home furnishings industry as well as a reduction in overall sales and marketing spend as we focus on improving more efficient traffic channels and refine our assortment. The increase in average order value was largely driven by orders mixing into categories with higher average unit retail price.
International net revenues were less than 4% of total net revenues for each of the three and nine months ended September 30, 2025 and 2024.
Change in estimate of average transit times (days)
Our revenue related to merchandise sales is recognized upon delivery to our customers. As we ship high volumes of packages through multiple carriers, it is not practical for us to track the actual delivery date of each shipment. Therefore, we use estimates to determine which shipments are delivered and, therefore, recognized as revenue at the end of the period. Our delivery date estimates are based on average shipping transit times. We review and update our estimates on a quarterly basis based on our actual transit time experience. However, actual shipping times may differ from our estimates, which can be further impacted by uncertainty, volatility, and any disruption to our carriers caused by certain macroeconomic conditions, such as supply chain challenges, trade barriers including tariffs, inflation, rising interest rates, climate and weather events, or geopolitical events.
The following table shows the effect that hypothetical changes in the estimate of average shipping transit times would have had on the reported amount of revenue and income before income taxes (in thousands):
|
Three months ended September 30, 2025 |
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| Change in the Estimate of Average Transit Times (Days) |
Increase (Decrease) Revenue |
Increase (Decrease) Income Before Income Taxes |
||||||||||||
| 2 | $ | (5,238) | $ | (964) | ||||||||||
| 1 | $ | (2,657) | $ | (489) | ||||||||||
| As reported | As reported | As reported | ||||||||||||
| -1 | $ | 2,552 | $ | 470 | ||||||||||
| -2 | $ | 8,824 | $ | 1,624 | ||||||||||
Gross profit and gross margin
Our overall gross margins fluctuate based on factors such as competitive pricing; product costs; discounting; product mix of sales; advertising revenue and our marketing allowance program; and operational and fulfillment costs which include costs incurred to operate and staff warehouses, including rent and depreciation expense associated with these facilities, costs to receive, inspect, pick, and prepare customer order for delivery, and direct and indirect labor costs including payroll, payroll-related benefits, and stock-based compensation, all of which we include as costs in calculating gross margin.
Gross margins for the past seven quarterly periods and fiscal year ending 2024 were:
| Q1 2024 | Q2 2024 | Q3 2024 | Q4 2024 | FY 2024 | Q1 2025 | Q2 2025 | Q3 2025 | ||||||||||||||||||||||||||||||||||||||||
|
Gross margin
|
19.5 | % | 20.1 | % | 21.2 | % | 23.0 | % | 20.8 | % | 25.1 | % | 23.7 | % | 25.3 | % | |||||||||||||||||||||||||||||||
Gross profit for three months ended September 30, 2025, was $65.2 million, or 25.3% of revenue, compared to $66.0 million, or 21.2% of revenue, for the three months ended September 30, 2024. This represents a decrease of $0.8 million, or 1%. The decline in gross profit was primarily attributable to lower revenue, which reduced gross profit by approximately $12.6 million, partially offset by an improved gross margin that contributed an increase of approximately $11.8 million. Gross margin increased by 420 basis points year-over-year, primarily due to approximately 60 basis points of lower carrier costs, 160 basis points of lower return costs, and 90 basis points of improvement from discontinued Canada operations.
Gross profit for nine months ended September 30, 2025, was $190.3 million, or 24.7 % of revenue, compared to $220.5 million, or 20.2% of revenue, for the nine months ended September 30, 2024. This represents a decrease of $30 million, or 14%. The decline in gross profit was primarily attributable to lower revenue, which reduced gross profit by approximately $71.9 million, partially offset by an improved gross margin that contributed an increase of approximately $41.7 million. Gross margin increased by 450 basis points year-over-year, primarily due to 210 basis points of lower carrier costs, approximately 90 basis points of lower return costs, approximately 90 basis points of lower product costs, and 50 basis points of improvement from discontinued Canada operations.
Operating expenses
Sales and marketing expenses
We use a variety of online advertising channels to attract new and repeat customers, including search engine marketing, personalized emails, mobile app, loyalty program, affiliate marketing, display banners, and social media. We also build our brand awareness through linear and streaming TV advertising.
Costs associated with our discounted shipping and other promotions, such as coupons, are not included in sales and marketing expenses. Rather, they are accounted for as a reduction in revenue as they reduce the amount of consideration we expect to receive in exchange for goods or services and therefore affect net revenues and gross margin. We consider these promotions to be an effective marketing tool.
The following table summarizes our sales and marketing expenses (in thousands):
|
Three months ended September 30, |
Nine months ended September 30, |
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| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Sales and marketing expenses | $ | 36,126 | $ | 51,859 | $ | 105,625 | $ | 186,055 | |||||||||||||||
| Advertising expense included in sales and marketing expenses | 34,578 | 49,087 | 100,608 | 177,630 | |||||||||||||||||||
| Year-over-year percentage change | |||||||||||||||||||||||
| Sales and marketing expenses | (30.3) | % | (43.2) | % | |||||||||||||||||||
| Advertising expense included in sales and marketing expenses | (29.6) | % | (43.4) | % | |||||||||||||||||||
| Percent of net revenue | |||||||||||||||||||||||
| Sales and marketing expenses | 14.0 | % | 16.7 | % | 13.7 | % | 17.0 | % | |||||||||||||||
| Advertising expense included in sales and marketing expenses | 13.4 | % | 15.8 | % | 13.0 | % | 16.3 | % | |||||||||||||||
Sales and marketing expenses were $36.1 million, or 14.0% of revenue, for the three months ended September 30, 2025, compared to $51.9 million, or 16.7% of revenue, for the three months ended September 30, 2024. This represents a decrease of $15.7 million, or 30%. The decrease was primarily driven by decreased performance marketing expenses of $11.9 million and a $2.6 million reduction in brand advertising.
Sales and marketing expenses were $105.6 million, or 13.7% of revenue, for the nine months ended September 30, 2025, compared to $186.1 million, or 17.0% of revenue, for the nine months ended September 30, 2024. This represents a decrease of $80.4 million, or 43%. The decrease was primarily driven by decreased performance marketing expenses of $66.8 million and a $10.2 million reduction in brand advertising.
Technology expenses
We seek to deploy our capital resources efficiently in technology to support operations, including private and public cloud, web services, customer support solutions, and product search. We aim to enhance the customer experience by investing in technology, including investing in machine learning algorithms and generative AI, improving our process automation and efficiency, modernizing and enhancing our systems, and supporting and expanding our logistics infrastructure. We expect to continue to incur technology expenses to support these efforts and these expenditures may continue to be material.
The frequency and variety of cyberattacks on our websites, enterprise systems, services, and on third parties we use to support our technology continues to increase. The impact of such attacks, their costs, and the costs we incur to protect ourselves against future attacks, have not been material to date. However, we consider the risk introduced by cyberattacks to be serious and will continue to incur costs related to efforts to protect ourselves against them.
The following table summarizes our technology expenses (in thousands):
|
Three months ended September 30, |
Nine months ended September 30, |
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| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Technology expenses | $ | 20,645 | $ | 27,673 | $ | 70,584 | $ | 84,596 | |||||||||||||||
| Year-over-year percentage change | |||||||||||||||||||||||
| Technology expenses | (25.4) | % | (16.6) | % | |||||||||||||||||||
| Technology expenses as a percent of net revenue | 8.0 | % | 8.9 | % | 9.2 | % | 7.7 | % | |||||||||||||||
Technology expenses decreased by $7.1 million for the three months ended September 30, 2025, compared to the prior period. The decrease was primarily due to a reduction in staff-related expenses of $4.9 million and a $1.9 million reduction in third-party expenses.
Technology expenses decreased by $14.6 million for the nine months ended September 30, 2025, compared to the prior period. The decrease was primarily due to a reduction in staff-related expenses of $13.4 million and a $1.6 million reduction in third-party expenses, partially offset by one-time restructuring costs of $0.5 million.
General and administrative expenses
The following table summarizes our general and administrative expenses (in thousands):
|
Three months ended September 30, |
Nine months ended September 30, |
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| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| General and administrative expenses | $ | 11,971 | $ | 17,571 | $ | 40,373 | $ | 56,556 | |||||||||||||||
| Year-over-year percentage change | |||||||||||||||||||||||
| General and administrative expenses | (31.9) | % | (28.6) | % | |||||||||||||||||||
| General and administrative expenses as a percent of net revenue | 4.7 | % | 5.6 | % | 5.2 | % | 5.2 | % | |||||||||||||||
General and administrative expenses decreased by $5.6 million for the three months ended September 30, 2025, compared to the prior period. The decrease was primarily due to a $4.4 million reduction in staff-related expenses and a $1.1 million reduction in third-party expenses.
General and administrative expenses decreased by $16.2 million for the nine months ended September 30, 2025, compared to the prior period. The decrease was primarily due to a $12.7 million reduction in staff-related expenses, a $3.2 million reduction in third-party expenses and a $0.2 million reduction in depreciation & amortization.
Customer service and merchant fees
Customer service and merchant fees include customer service costs and merchant processing fees associated with customer payments made by credit cards and other payment methods and other variable fees. Customer service and merchant fees as a percent of net revenue may vary due to several factors, such as our ability to effectively manage customer service costs and merchant fees.
The following table summarizes our customer service and merchant fees (in thousands):
|
Three months ended September 30, |
Nine months ended September 30, |
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| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Customer service and merchant fees | $ | 8,873 | $ | 12,425 | $ | 27,561 | $ | 41,374 | |||||||||||||||
| Year-over-year percentage change | |||||||||||||||||||||||
| Customer service and merchant fees | (28.6) | % | (33.4) | % | |||||||||||||||||||
| Customer service and merchant fees as a percent of net revenue | 3.5 | % | 4.0 | % | 3.6 | % | 3.8 | % | |||||||||||||||
Customer service and merchant fees decreased by $3.6 million for the three months ended September 30, 2025, compared to the prior period. The decrease was primarily driven by a $1.8 million decrease in customer service expenses and a $1.8 million decrease in credit card costs, primarily due to decreased order volume.
Customer service and merchant fees decreased by $13.8 million for the nine months ended September 30, 2025, compared to the prior period. The decrease was primarily driven by an $8.7 million decrease in credit card costs and a $5.1 million decrease in customer service expenses, primarily due to decreased order volume.
Other operating expense (income), net
The following table summarizes our other operating expense (income), net (in thousands):
|
Three months ended September 30, |
Nine months ended September 30, |
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| 2025 | 2024 | 2025 | 2024 | ||||||||||||||||||||
| Other operating expense (income), net | $ | - | $ | 1,648 | $ | (5,790) | $ | (8,627) | |||||||||||||||
| Year-over-year percentage change | |||||||||||||||||||||||
| Other operating expense (income), net | (100.0) | % | (32.9) | % | |||||||||||||||||||
| Other operating expense (income), net as a percent of net revenue | - | % | 0.7 | % | (1.0) | % | (1.0) | % | |||||||||||||||
Other operating expense (income), net decreased by $1.6 million for the three months ended September 30, 2025, compared to the prior period. The decrease reflects the non-recurrence of the $1.6 million loss from the sale of our corporate headquarters in 2024.
Other operating expense (income), net decreased by $3.4 million for the nine months ended September 30, 2025, compared to the prior period. The decrease reflects the non-recurrence of the $10.3 million gain tied to the 2024 sale of the Wamsutta brand, offset by the $5.0 million gain from the sales of Canada and the United Kingdom Bed Bath & Beyond trademarks in 2025, and the $1.6 million loss related to the 2024 corporate headquarters sale.
Other income (expense), net
The $24.2 million favorable change in other income (expense), net for the three months ended September 30, 2025, as compared to the same period in 2024, was primarily attributable to a $24.2 million decrease in loss recognized from our equity method securities. The decrease reflects the change from a recognized loss on equity method securities of $17.2 million for the three months ended September 30, 2024 to a recognized gain on equity method securities of $7.0 million for the three months ended September 30, 2025.
The $26.2 million favorable change in other income (expense), net for the nine months ended September 30, 2025, as compared to the same period in 2024, was primarily attributable to a $26.8 million decrease in loss recognized from our equity method securities.
Income taxes
Our income tax provision for interim periods is determined using an estimate of our annual effective tax rate adjusted for discrete items, if any, for relevant interim periods. We update our estimate of the annual effective tax rate each quarter and make cumulative adjustments if our estimated annual effective tax rate changes.
Our quarterly tax provision and our quarterly estimate of our annual effective tax rate are subject to significant variations due to several factors including: variability in predicting our pre-tax and taxable income, the mix of jurisdictions to which those items relate, relative changes in expenses or losses for which tax benefits are limited or not recognized, how we do business, fluctuations in our stock price, economic outlook, political climate, and other conditions such as supply chain challenges, inflation, rising interest rates, and geopolitical events. In addition, changes in laws, regulations, and administrative practices will impact our rate. Our effective tax rate can be volatile based on the amount of pre-tax income. For example, the impact of discrete items on our effective tax rate is greater when pre-tax income is lower.
On July 4, 2025, the reconciliation bill, or One Big Beautiful Bill Act (the "OBBBA") was signed into law, which includes a broad range of tax reform provisions that may affect the Company's financial results. The OBBBA allows an elective deduction for domestic Research and Development (R&D), a reinstatement of elective 100% first-year bonus depreciation, and a more favorable tax rate on Foreign-derived Deduction Eligible Income, among other provisions. The OBBBA is not currently expected to materially impact the Company's effective tax rate or cash flows in the current fiscal year.
Our provision for income tax for the three months ended September 30, 2025 and 2024 was $233,000 and $189,000, respectively. The effective tax rate for the three months ended September 30, 2025 and 2024 was (5.4)% and (0.3)%, respectively. Our provision for income tax for the nine months ended September 30, 2025 and 2024 was $714,000 and $635,000, respectively. The effective tax rate for the nine months ended September 30, 2025and 2024 was (1.1)% and (0.4)%, respectively. Our tax provision and rate differs from the statutory federal income tax rate of 21% primarily due to year-to-date losses on our retail operations for which tax benefits are limited.
Each quarter we assess on a jurisdictional basis whether it is more likely than not that our deferred tax assets will be realized under ASC Topic 740. We have no carryback ability, and therefore we must rely on future taxable income, including tax planning strategies and future reversals of taxable temporary differences, to recover our deferred tax assets. We assess available positive and negative evidence to estimate whether we will generate sufficient future taxable income to use our existing deferred tax assets. A significant piece of objective negative evidence evaluated as of September 30, 2025, is the cumulative loss position over a three-year period generated by our U.S. retail operations. On the basis of this evaluation, we continue to maintain a valuation allowance against our deferred tax assets for the U.S. jurisdiction, not supported by reversals of taxable temporary differences. We intend to continue maintaining a valuation allowance on our net U.S. deferred tax assets until there is sufficient evidence to support the reversal of all or some portion of these allowances. We will continue to monitor the need for a valuation allowance against our deferred tax assets on a quarterly basis.
As we repatriate foreign earnings for use in the United States, the distributions are generally exempt from federal and foreign income taxes but may be subject to certain state taxes. As of September 30, 2025, the cumulative amount of foreign earnings considered permanently reinvested upon which taxes have not been provided, and the corresponding unrecognized deferred tax liability, was not material.
We are subject to taxation in the United States and multiple state and foreign jurisdictions. Tax years beginning in 2020 are subject to examination by taxing authorities, although net operating loss and credit carryforwards from all years are subject to examinations and adjustments for at least three years following the year in which the attributes are used.
Liquidity and Capital Resources
Overview
We believe that our cash and cash equivalents currently on hand and expected cash flows from future operations will be sufficient to continue operations for at least the next twelve months. We continue to monitor, evaluate, and manage our operating plans, forecasts, and liquidity considering the most recent developments driven by macroeconomic conditions, such as supply chain challenges, inflation, rising interest rates, tariffs, bans, or other measures or events that increase the effective price of products, and other geopolitical events. We proactively seek opportunities to improve the efficiency of our operations and have in the past and may in the future take steps to realize internal cost savings, including aligning our staffing needs, creating a more variable cost structure to better support our current and expected future levels of operations and process streamlining.
We periodically evaluate opportunities to repurchase our equity securities, obtain credit facilities, or issue additional debt or equity securities, which may impact our future operations and liquidity. In addition, we may, from time to time, consider the investment in, or acquisition of, complementary businesses, products, services, or technologies to expand our business, any of which might affect our liquidity requirements or cause us to issue additional debt or equity securities that would be dilutive to stockholders.
Our future capital requirements will depend on many factors, including, but not limited to, our growth, our ability to execute on our business strategy, our ability to realize the benefits of any investment in new business strategies, acquisitions, or other transactions, and consumer sentiment towards our offerings. In the event that additional liquidity is required from outside sources, we may not be able to raise the capital on terms acceptable to us or at all. If we are unable to raise additional capital when desired, our business, financial condition, and results of operations could be adversely affected.
Current sources of liquidity
Our principal sources of liquidity are existing cash and cash equivalents and accounts receivable, net. At September 30, 2025, we had $167.4 million of cash and cash equivalents and $17.3 million of accounts receivable, net of allowance for credit losses.
During the nine months ended September 30, 2025, the Company entered into standby letter of credits with BMO Bank N.A. valued at $7.0 million. The letter of credits were issued in favor of the Company's payment processors as a financial guarantee in connection with ongoing payment processing operations.
We entered into a Sales Agreement dated June 10, 2024 with JonesTrading, under which we have conducted and may in the future conduct "at the market" public offerings of our common stock. Under the Sales Agreement, JonesTrading, acting as our sales agent or principal, may offer our common stock in the market on a daily basis or otherwise as we request from time to time. At September 30, 2025, we had $52.4 million available under our "at the market" sales program. We have no obligation to sell additional shares under the Sales Agreement, but we may do so from time to time. Under the agreement, we will pay JonesTrading up to a 2% sales commission on all sales. For the nine months ended September 30, 2025, we sold 12,432,021 shares of our common stock pursuant to the Sales Agreement and have recognized $101.7 million in proceeds, net of $2.1 million of offering costs, including commissions paid to JonesTrading.
Cash flow information is as follows (in thousands):
|
Nine months ended September 30, |
|||||||||||
| 2025 | 2024 | ||||||||||
| Cash (used in) provided by: | |||||||||||
| Operating activities | $ | (50,212) | $ | (152,625) | |||||||
| Investing activities | (30,416) | (6,546) | |||||||||
| Financing activities | 88,952 | (2,081) | |||||||||
Operating activities
Cash received from customers generally corresponds to our net revenues as our customers primarily use credit cards to buy from us, causing our receivables from these sales transactions to settle quickly. We have payment terms with our partners that generally extend beyond the amount of time necessary to collect proceeds from our customers.
The $50.2 million of net cash used in operating activities during the nine months ended September 30, 2025, was primarily due to loss from operating activities of $63.7 million, net of the impact from non-cash items such as depreciation and amortization, non-cash operating lease costs, stock-based compensation, gain on sale of intangible assets, and loss from equity method securities of $34.8 million and cash used by changes in operating assets and liabilities of $21.3 million.
The $152.6 million of net cash used in operating activities during the nine months ended September 30, 2024, was primarily due to loss from operating activities of $177.5 million, net of the impact from non-cash items such as depreciation and amortization, non-cash operating lease costs, stock-based compensation, gain on sale of intangible assets, write-down of assets held for sale, and loss from equity method securities of $65.9 million and cash used by changes in operating assets and liabilities of $41.0 million.
Investing activities
For the nine months ended September 30, 2025, investing activities resulted in a net cash outflow of $30.4 million, primarily due to $15.2 million for purchases of intangible assets, $8.2 million for disbursement of notes receivable, $8.0 million for purchases of equity securities in The Brand House Collective, and $5.2 million of expenditures for property and equipment, offset by $6.3 million of proceeds received from the sale of intangible assets.
For the nine months ended September 30, 2024, investing activities resulted in a net cash outflow of $6.5 million, primarily due to $11.3 million of expenditures for property and equipment and $6.0 million for purchases of intangible assets, offset by $10.3 million of proceeds received from the sale of intangible assets.
Financing activities
For the nine months ended September 30, 2025, financing activities resulted in a net cash inflow of $89.0 million, primarily due to $101.7 million in net proceeds from the sales of our common stock pursuant to our "at the market" public offering, net of offering costs, offset by $7.0 million payments on short-term debt and $6.2 million repurchases of common stock under the stock repurchase program.
For the nine months ended September 30, 2024, financing activities resulted in a net cash outflow of $2.1 million, primarily due to $3.3 million for payment of taxes withheld upon vesting of employee stock awards.
Contractual Obligations and Commitments
The following table summarizes our contractual obligations as of September 30, 2025, and the effect such obligations and commitments are expected to have on our liquidity and cash flow in future periods (in thousands):
| Contractual Obligations | Total |
Less than 1 year |
1-3 years |
3-5 years |
More than 5 years | |||||||||||||||||||||||||||
| Operating leases (1) | $ | 8,477 | $ | 1,277 | $ | 2,295 | $ | 2,186 | $ | 2,719 | ||||||||||||||||||||||
| Total contractual cash obligations | $ | 8,477 | $ | 1,277 | $ | 2,295 | $ | 2,186 | $ | 2,719 | ||||||||||||||||||||||
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(1) Represents the future minimum lease payments under non-cancellable operating leases. For information regarding our operating lease obligations, see Note 8-Leases, in the Notes to Unaudited Consolidated Financial Statements included in Item 1, Part I, Financial Statements (Unaudited) of this Quarterly Report on Form 10-Q.
Tax contingencies
We are involved in various tax matters, the outcomes of which are uncertain. As of September 30, 2025, accrued tax contingencies were $3.8 million. Changes in federal, foreign, state, and local tax laws may increase our tax contingencies. The timing of the resolution of income tax contingencies is highly uncertain, and the amounts ultimately paid, if any, upon resolution of issues raised by the taxing authorities may differ from the amounts accrued. It is reasonably possible that within the next 12 months we will receive additional assessments by various tax authorities. These assessments may or may not result in changes to our contingencies related to positions on prior years' tax filings.
Critical Accounting Policies and Estimates
The preparation of our financial statements requires that we make estimates and judgments. We base these on historical experience and on other assumptions that we believe to be reasonable. Except as disclosed in Note 2-Summary of Significant Accounting Policies, in the Notes to Unaudited Consolidated Financial Statements included in Item 1, Part I, Financial Statements (Unaudited) of this Quarterly Report on Form 10-Q, there have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in Critical Accounting Policies and Estimates, included in Part II, Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations and in Note 2-Accounting Policies and Supplemental Disclosures, included in Part II, Item 8, Financial Statements and Supplementary Data, of our Annual Report on Form 10-K for the year ended December 31, 2024.
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