The Brand House Collective's 2026 Q2 Earnings Call: Contradictions Emerge on E-commerce Strategy, Store Closures, Tariff Mitigation, and Gross Margin Outlook

The above is the analysis of the conflicting points in this earnings call

Date of Call: September 16, 2025

Financials Results

• Revenue: $75.8M, down from $86.3M in the prior-year quarter (comparable sales -9.7%; e-commerce comps -38.5%; e-commerce impacted ~750 bps by tornado; total comps impacted ~190 bps)
• EPS: Adjusted loss per share $0.90 vs $1.11 prior year (improvement driven by higher share count); GAAP net loss $19.4M vs $14.5M prior year
• Gross Margin: 16.3%, down 410 bps YOY (includes ~130 bps liquidation, ~100 bps tornado-related write-offs, ~30 bps tariff impact; occupancy deleverage also weighed)

Guidance:

• Expect continued liquidation of non-go-forward inventory in H2 to prep conversions; promotional activity to continue.
• Tariffs: gross margin headwind ~100 bps in Q3; limited impact in Q4; mitigation via vendor negotiations and pricing; sourcing to shift more domestic/national brands as conversions scale.
• No additional significant tornado-related expenses expected in H2.
• Conversions: plan to convert entire fleet over 24 months; CapEx <$100k per store; 30 conversions targeted for Q1 2026; accelerated Nashville rollouts.
• Real estate: ~25 closures at Jan 2026 lease expirations; expect 250–275 stores to remain; potential expansion in underpenetrated Northeast.

Business Commentary:

• Bed Bath & Beyond Partnership and Store Conversions:
• The Brand House Collective opened its first Bed Bath & Beyond Home store in Brentwood, Tennessee, with impressive results, including increased traffic, new customer growth, and higher average transaction values.

• The strategic partnership with Bed Bath & Beyond is expected to enhance brand visibility, drive growth, and leverage operational efficiencies.

• E-commerce Challenges and Store Performance:

• The company reported a 38.5% decline in e-commerce comparable sales, partially attributed to the tornado disruption at the Jackson, Tennessee distribution center.

• The decline was also due to the liquidation of non-go-forward inventory, as part of the preparation for Bed Bath & Beyond store conversions.

• Financial Performance and Tariff Impact:

• Net sales for the second quarter were $75.8 million, down from $86.3 million in the prior year, primarily due to a 9.7% decline in comparable sales.

• Gross margin decreased by 410 basis points, with a 30 basis points impact from tariff costs, primarily related to China and India.

• Inventory and Liquidity Management:

• The company ended the quarter with $82 million in inventory, down 12% from the prior year, due to a temporary pause on inventory shipments from Asia.
• The decrease in inventory is part of a strategy to optimize category mix and prepare stores for Bed Bath & Beyond conversions.

Sentiment Analysis:

• Management highlighted headwinds: “Net sales were $75.8M compared to $86.3M… gross margin decreased 410 bps to 16.3%,” and continuing liquidation and tariff pressures. Offsetting positives: “Sales continue to exceed our expectations” at the first Bed Bath & Beyond Home store; plan to convert “all Kirkland’s Home stores… over the next 24 months,” with low per-store CapEx and accelerating conversions.

Q&A:

• Question from Jeremy Hamblin (Craig-Hallum Capital Group LLC): What were actual conversion costs for Brentwood and how are post-opening trends holding?
  Response: Brentwood CapEx was ~$30k (using existing fixtures), with other sites still under <$100k; traffic and new customer acquisition are up sharply and sales are sustaining, with strong lifts in bedroom and kitchen.

• Question from Jeremy Hamblin (Craig-Hallum Capital Group LLC): How many of the ~300+ locations will be converted versus closed over the 24-month timeline?
  Response: About 25 stores will close at Jan 2026 lease expirations; expect 250–275 existing stores to remain and convert, with opportunistic expansion, especially in the Northeast.

• Question from Jeremy Hamblin (Craig-Hallum Capital Group LLC): How should we think about store momentum versus e-commerce and when e-commerce might stabilize?
  Response: E-commerce has been weak and was worsened by the tornado; focus will be on more profitable brick-and-mortar, with e-commerce allowed to normalize at prior decline rates while driving BOPIS and owned inventory.

• Question from Jeremy Hamblin (Craig-Hallum Capital Group LLC): Can you confirm current debt and liquidity following the IP transaction?
  Response: Yes; debt/liquidity figures are in line with your math when considering the ABL and Bed Bath & Beyond loan facilities.

• Question from Jeremy Hamblin (Craig-Hallum Capital Group LLC): What’s the expected tariff impact in H2 and thoughts on sourcing exposure into 2026?
  Response: Expect Q3 gross margin pressure from China-sourced goods, partially mitigated by vendor cost sharing/pricing; India negotiations are tougher; conversions shift mix toward domestic/national brands, reducing China exposure over time.

• Question from Jeremy Hamblin (Craig-Hallum Capital Group LLC): Can you quantify tariff impacts on gross margin in the back half?
  Response: Tariffs were ~30 bps headwind in Q2; expect ~100 bps in Q3 and limited impact in Q4; liquidation of non-go-forward categories will likely be a larger GM headwind than tariffs.

• Question from Jeremy Hamblin (Craig-Hallum Capital Group LLC): How many store conversions could you complete in 2026 vs. 2027?
  Response: Purchases placed for 30 conversions in Q1 2026; aiming for broad participation in back-to-campus 2026 with the number dependent on inventory orders finalized by late October.