Bed Bath & Beyond targets 12% marketing expense ratio for 2026 while integrating AI and expanding omnichannel reach

Earnings Call Insights: Bed Bath & Beyond (BBBY) Q3 2025

MANAGEMENT VIEW

* Marcus Lemonis, Executive Chairman & Principal Executive Officer, highlighted, "The third quarter marked another strong step forward for Bed Bath & Beyond, our seventh consecutive quarter of measurable improvement towards achieving profitability." Lemonis noted a "93% improvement in net loss and an 85% improvement in adjusted EBITDA," and a "420 basis point increase in gross margin, driven by disciplined execution, sharper focus and much smarter spending."
* Lemonis announced the completion of the name change back to Bed Bath & Beyond, emphasizing renewed brand strength and consumer trust.
* He outlined strategic investments, stating, "We invested an additional $3 million in GrainChain, our blockchain-based supply chain platform; acquired the Kirkland's home intellectual property for $10 million... and raised approximately $113 million through our ATM." He described a focus on expanding into "non-retail, home-centric technology, data, products, services and select PropTech solutions."
* Lemonis discussed progress at tZERO, including the potential for a public market listing, with an emphasis on "fractional ownership, digital transparency and verified title records."
* Adrianne Lee, President & CFO, stated, "Net revenue was $257 million for the third quarter, down 17% year-over-year or 13% excluding the impact from our exit from Canada. Average order value improved 3%... orders were nearly flat versus the second quarter, highlighting business stability." Lee added, "Gross margin was 25.3%, up 420 basis points year-over-year, driven by lower fulfillment and returns costs and tighter promotions. Sales and marketing expense improved by 260 basis points to 14% of revenue." She also noted, "Technology and G&A expense declined by $13 million year-over-year."

OUTLOOK

* Lemonis committed to positive revenue growth in 2026, stating, "We are committing today to have positive revenue growth in 2026."
* The company aims to achieve a 12% sales and marketing expense ratio in 2026. Lemonis explained, "When we look at the target of 12% for 2026, we know there's a multitude of factors... making sure that the data set that we have... is clean, pure, de-duped and really in a condition that can be monetized."
* Margin consistency remains a priority, with Lemonis reaffirming a "short-term to medium-term goal of a product margin between 24% and 26%."
* Lemonis added, "We've also identified $20 million in additional operating expense efficiencies that we expect to realize over 2026, reinforcing that spend discipline remains a priority."

FINANCIAL RESULTS

* Lee reported net revenue of $257 million and a net loss narrowed to $4.5 million. Adjusted EBITDA loss was $4.9 million, and the company ended the quarter with $202 million in cash equivalents and inventory, plus $36 million from ATM settlements post quarter end.
* Gross margin improved to 25.3%, and sales and marketing expense was 14% of revenue.
* Technology and G&A expense declined by $13 million year-over-year.

Q&A

* Steven Forbes, Guggenheim Securities: Asked about the 12% sales and marketing expense goal and the conviction in achieving it. Lemonis responded, "We believe that we have found the bottom and... intentionally landed the plane quarter after quarter after quarter in the '25 calendar year in the same range of revenue to prove out... improvements." He detailed ongoing work in data cleansing, personalization, and performance marketing, identifying as much as $10 million in inefficient spend to be addressed.
* Forbes followed up on gross margin targets. Lemonis replied, "We have set a short-term to medium-term goal of a product margin between 24% and 26%... as we start to add our omnichannel business, particularly on the textile side... they're going to come with a... margin of 55% to 57%."
* Francesco Marmo (for Tom Forte), Maxim Group: Asked about drivers of 2026 revenue growth. Lemonis indicated, "We are committing today to have positive revenue growth in 2026." He highlighted improved conversion, new category expansion, and merchandising team collaboration as key drivers.
* Jonathan Matuszewski, Jefferies: Inquired about supplier pricing and tariff impacts. Lemonis said, "There has been a lot of pressure on them... but there has been a perfect blend... between understanding where the elasticity curve is... and us accepting the willingness to take it on as well."
* Matuszewski asked about AI-driven automation for cost savings. Lemonis responded, "AI will solve really 2 problems for our company. One, it will create staffing efficiency... Two, we believe that AI will create a better customer experience."
* Bernard McTernan, Needham: Asked about personalization tools on Overstock and timeline for Bed Bath. Lemonis discussed the recent unified tech stack implementation at Overstock and projected, "It would be my hope that by midyear maybe middle of third quarter, we will have modified the code structure at Bed Bath & Beyond."

SENTIMENT ANALYSIS

* Analysts posed focused and pressing questions about marketing efficiency, margin consistency, drivers of revenue growth, and AI integration, reflecting a neutral to slightly positive tone seeking clarity on execution and sustainability.
* Management maintained a confident and proactive tone in both prepared remarks and responses, frequently citing progress and outlining clear targets. Lemonis stated, "We believe that we have found the bottom," and described upcoming initiatives as mandates, indicating strong conviction.
* Compared to the previous quarter, management's tone has shifted from defensive cost cutting to a greater emphasis on growth and operational optimization.
* Analysts' tone remains consistent with prior quarters, with continued emphasis on cost discipline and growth prospects.

QUARTER-OVER-QUARTER COMPARISON

* The company has transitioned from a primary focus on cost cutting and stabilization in Q2 to driving efficiency, growth, and digital transformation in Q3.
* Net revenue decreased from $282 million in Q2 to $257 million in Q3, but net loss and adjusted EBITDA saw significant year-over-year improvement.
* Gross margin rose from 23.7% in Q2 to 25.3% in Q3.
* Management's tone is more forward-looking, with concrete efficiency and growth targets for 2026, including the 12% marketing expense ratio and $20 million in operating expense efficiencies.
* Analysts continued to focus on marketing spend, margin targets, and timing of technology rollouts, a pattern consistent with previous quarters.

RISKS AND CONCERNS

* Lemonis acknowledged that "sales and marketing expense remains higher than we want, and conversion is key."
* Risks related to tariff pressures and supplier pricing were discussed, with Lemonis noting unpredictability and the need to balance vendor profitability with margin management.
* Lemonis admitted, "We're not satisfied. Our sales and marketing expense remains higher than we want, and conversion is key. The shopping experience is improving but still requires more focus."
* Management identified inefficiencies in marketing spend and the need to further improve personalization and site speed.

FINAL TAKEAWAY

Management conveyed that Bed Bath & Beyond is entering a new phase of operational discipline with a clear path to positive revenue growth in 2026, driven by targeted efficiency gains, digital innovation, and a connected ecosystem strategy. The leadership team emphasized consistent execution, investment in technology and AI, and a renewed focus on customer experience and conversion as central to delivering long-term value for shareholders and customers alike.

Read the full Earnings Call Transcript [https://seekingalpha.com/symbol/bbby/earnings/transcripts]

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