Overstock.com 2014 Annual Report Download - page 48

Download and view the complete annual report

Please find page 48 of the 2014 Overstock.com annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 117

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117

Table of Contents
breakage, and a decrease in unrealized losses on precious metals of $188,000. Because we recently introduced Club O Lite, and enrolled a significant number
of Club O Lite members, reward dollars earned and resulting breakage may increase as compared to prior periods.

Our effective tax rate for the years ended December 31, 2014 and 2013 was 33.4% and (416.3%), respectively. Our effective tax rate is affected by
recurring items such as research tax credits and non-recurring items such as a valuation allowance release and a non-recurring civil penalty in 2013. It is also
affected to a lesser extent by tax rates in foreign jurisdictions and the relative amount of income we earn in jurisdictions, which we expect to be fairly
consistent in the near term. The increase in the 2014 effective tax rate relative to the 2013 effective tax rate is primarily due to the release of a valuation
allowance for deferred tax assets in the fourth quarter of 2013, which significantly reduced the 2013 provision and effective tax rate. We have indefinitely
reinvested foreign earnings of $142,000 at December 31, 2014. We would need to accrue and pay U.S. income tax on this amount if repatriated. We do not
intend to repatriate these earnings.

Based upon our historical experience, revenue typically increases during the fourth quarter because of the holiday retail season and gross margin
decreases due to increased sales of certain lower margin products, such as electronics. The actual quarterly results for each quarter could differ materially
depending upon consumer preferences, availability of product and competition, among other risks and uncertainties. Accordingly, there can be no assurances
that seasonal variations will not materially affect our results of operations in the future.
The following table reflects our total net revenues for each of the quarters in 2014, 2013 and 2012 (in thousands):








2014
$ 341,207
$ 332,545
$ 352,991
$ 470,360
2013
$ 311,994
$ 293,204
$ 301,426
$ 397,593
2012
$ 262,367
$ 239,536
$ 255,352
$ 342,034








Revenues in 2013 increased 19% compared to 2012. The growth in revenue was primarily due to a 17% increase in average order size, from $135 to
$158, coupled with a 2% increase in orders. The increase in average order size is largely due to a sales mix shift into the home and garden category. Although
the trend towards our home and garden category has accelerated in recent years, we do not expect the sales mix shift to continue to increase at the same rate.
Gross profit in 2013 increased 25% compared to 2012 primarily as a result of that revenue growth and a shift in product sales mix into higher margin
home and garden products. Approximately $37.0 million of the $49.2 million increase in gross profit was due to higher revenue, and $12.2 million due to the
improvement in gross margin percentage. The increase in gross margin was primarily due to the sales mix shift referenced above.
Sales and marketing expenses as a percentage of revenue increased from 5.8% in 2012 to 7.0% for 2013, primarily due to increased spending in the
sponsored search marketing channel due to a higher proportion of our revenue coming through that channel. In addition, during the last several weeks of
2013, we increased our marketing spending as a result of softer sales observed during this period.
48