BBBY
#Thank you, Adrienne, and good afternoon everyone.
Joining me on today's call are <UNK> <UNK>, Bed Bath & Beyond's Chief Executive Officer, and <UNK> <UNK>, Chief Financial Officer and Treasurer.
Before we begin, I'd like to remind you that this conference call may contain forward-looking statements, including statements about, or references to, our internal models and our long-term objectives.
All such statements are subject to risks and uncertainties that could cause actual results to differ materially from what we say during the call today.
Please refer to our most recent periodic SEC filings for more detail on these risks and uncertainties.
The Company undertakes no obligation to update or revise any forward-looking statements, as events or circumstances may change after this call.
Our earnings press release, dated January 7th, 2016, can be found in the investor relations section of our website at www.bedbathandbeyond.com.
Here are some key points from the press release: Third quarter net earnings per diluted share were $1.09, in line with the preliminary estimate of $1.07 to $1.10 provided in our December 22nd press release.
Net sales for the quarter were approximately $3.0 billion, an increase of about 30 basis points over the prior year, or 70 basis points on a constant currency basis.
Comparable sales decreased approximately 40 basis points, or were relatively flat on a constant currency basis.
The Company is modeling fiscal fourth quarter 2015 net earnings per diluted share of approximately $1.72 to $1.86 and is now modeling fiscal 2015 full year net earnings per diluted share of approximately $4.91 to $5.05.
I will now turn the call over to <UNK> for his perspective on our third quarter results.
He will also discuss our operational results and the progress we've made on some of our strategic initiatives.
Later in the call, <UNK> will discuss our third quarter financial results in more detail, as well as review some of our key modeling assumptions for the remainder of fiscal 2015.
She will also provide some preliminary modeling assumptions for fiscal 2016.
Thank you, <UNK>, and good afternoon everyone.
As you see from our press release, and consistent with our prior announcement on December 22nd, our performance in the third quarter reflects the recent retail trends we have been experiencing.
As we said, on the one hand, we experienced softer in-store transaction counts, and on the other hand, sales from our customer-facing digital channels demonstrated strong growth, in excess of 25%.
These mixed results were against the backdrop of the overall softness reported in the macro-retail environment during the quarter.
During the third quarter, we experienced a low-single-digit percentage decline in our comparable sales consummated in stores.
At the same time, in our customer-facing digital channels, we are pleased that we have seen continued growth in both the number of visits to our selling websites, as well as in the number of orders placed on both desktop and mobile.
In our mobile channels, we set new record highs across all key performance indicators during the third quarter, including traffic, orders, sales, average order value and conversion.
Mobile sales during the quarter increased more than two-and-one-half-times compared to the same period last year.
These results directionally follow the trends of strong comps in our customer-facing digital channels and softer comps in stores.
As consumer shopping preferences continue to shift, we remain focused on providing a seamless customer experience across all of our retail channels so that our customers can interact with us however, wherever and whenever they choose.
In our December 22nd press release, we anticipated comparable sales through Christmas to increase approximately 1%.
Comparable sales from the beginning of the fiscal fourth quarter through Christmas were actually slightly ahead of that plan.
<UNK> will have more to say on our modeling assumptions for the fiscal fourth quarter and full year in a few minutes.
As we said, the retail environment continues to evolve, and we are making investments throughout the company, including in the areas of information technology, marketing, analytics, merchandising and customer service, to further our market leading position in the categories for which we are best known, and to do even more for and with our customers.
While we recognize that the investments we are making impact our operating profit in the short term, we believe our never-say-no culture and the strength of our balance sheet, provide a strong foundation, and through the differentiated products, services and solutions we provide, we continue to further our efforts to become THE destination for our customer's needs and wants as they express their life interests and travel through their life stages.
While most pure-play retailers who primarily sell merchandise in home-related categories are struggling with profitability, and others rely on outside sources of capital to remain viable, our Company generates healthy cash flows, and our strong balance sheet enables us to make strategic investments necessary to continue to create a best-in-class omni-channel platform to position us for long-term success.
Some examples of recent enhancements to our websites include a new feature for both desktop and mobile, that enables customers to upload their own personal content, such as images of how they have used products, so that other customers may view, enjoy and use them as inspiration.
Also, with regard to our website and apps, we have begun piloting a new solution for our customers to manage their Bed Bath & Beyond and buybuyBaby coupons and promotional offers in one place.
My Offers is a virtual coupon wallet that organizes and stores print and digital coupons and includes the ability to scan and upload paper coupons, so customers can access and redeem them conveniently.
We continue to learn from customer usage, as we further develop the appropriate strategic implementation of this customer-centric solution.
Another new offering on the Bed Bath & Beyond website is the ability to personalize products ---+ using a monogram, an etching or a personal image ---+ on such items as towels, glassware, rugs, and many other giftable items.
Over time, we plan to expand the selection and assortment available for personalization.
With regard to merchandising, we have introduced new categories and steadily expanded our assortment in others, and will continue to do so.
We currently have hundreds of thousands of SKUs available online and/or in store.
Our goal is both to increase the overall assortment, as well as to continue to curate and present the right assortment to our customers.
This requires the ongoing effort to review, edit, refine and present our offerings based on feedback from our customers, as well as the learnings from our merchant, marketing, and analytics teams.
Advancements in information technology further our efforts to connect with our customers across all of our retail channels.
We continue to build on our omni-channel strategy by creating services and experiences that are seamless across our digital and physical channels.
For example, we have enhanced our online registry experience this year for both wedding and back-to-college, by expanding the ability for registrants and potential registrants to schedule an appointment with one of our expert consultants in their local store.
In addition, we have recently launched a social shopping feature that enables registrants to invite their family and friends to recommend items for their registries.
Our service initiatives this year also included the opening of our new Customer Contact Center in October 2015.
Located in Layton, Utah, this new contact center enables us to supplement our 24/7 East Coast contact center operations with additional high-quality service and support.
We are committed to ever-improving our customer experiences wherever, whenever and however our customers wish to interact with us.
This year, in an effort to improve the efficiency and speed of delivery to our customers, and in conjunction with using our stores for fulfillment, we expanded the number of distribution facilities we have to 10, including our newest facility that opened earlier this year in Las Vegas.
In addition, in the Fall of 2016, we plan to open a new 800,000 square foot distribution facility in Lewisville, Texas.
We will continue to assess sites throughout the country for the potential to gain even greater distribution efficiencies.
We also have other important initiatives underway, including the deployment of systems, equipment and increased bandwidth in our stores; continued investments in analytics and marketing which make it possible for us to develop a more comprehensive view of our customers and drive better customer engagement through personalized target marketing; and ongoing development of a new Point of Sale system.
In our real estate efforts, we are on track to, approximately, open 29 and close 11 stores during fiscal 2015.
We had a total of 12 store openings during the third quarter, including five Bed Bath & Beyond stores, six Cost Plus World Market stores, and one buybuyBaby store.
We also closed six Bed Bath & Beyond stores during the quarter.
Since the start of our fourth quarter, we have opened one additional Bed Bath & Beyond store and one Cost Plus World Market store.
Year-to-date, we have opened 22 stores and closed seven.
As we've said previously, we actively manage our real estate portfolio in a manner that permits store sizes, layouts, locations and offerings to evolve over time to optimize market profitability.
This flexible approach has been an important part of our success and will continue to be going forward, especially as the digital and physical retail channels become more integrated.
We believe that physical stores provide a significant competitive advantage, and we concentrate on finding the right balance of physical and digital presence to optimize the products, services and solutions we offer to our customers.
For example, as you may know, we have leased approximately 130,000 square feet of space in the Sunset Park neighborhood of Brooklyn, to house four of our concepts under one roof.
This project gives us an opportunity to create a unique shopping venue to showcase our ever-increasing and evolving merchandise assortment and further integrate our omni-channel capabilities to provide a more experiential shopping environment.
We are planning to be open this summer.
In Mexico, our joint venture now operates seven Bed Bath & Beyond stores, including our newest store in Metepec which opened in early December 2015 and is our second store located outside of the Mexico City market.
Along with our partners, we remain excited about the growth opportunities in Mexico.
In addition to our retail operations, we continue to grow our complementary institutional business ---+ which includes Harbor Linen and T-Y Group ---+ by leveraging our combined expertise, product knowledge, distribution synergies and relationships, to provide products and services to hospitality, travel and other institutional customers.
As I said earlier, we view the ever-evolving retail environment as an opportune time for us to drive change through significant investments in our business ---+ both online and in-store.
We remain committed to, and focused on, positioning our Company for long-term success.
I'll now turn the call over to <UNK>.
Thank you, <UNK>.
I'll begin with a review of our third quarter results, and then provide an update on some of our key modeling assumptions for the remainder of fiscal 2015, as well as provide a few modeling assumptions for fiscal 2016.
Net sales for the third quarter were approximately $3.0 billion, about 30 basis points higher than net sales in the prior year period, or approximately 70 basis points higher on a constant currency basis.
Comparable sales for the third quarter decreased approximately 40 basis points, or were relatively flat on a constant currency basis, reflecting an increase in the average transaction amount, and a decrease in the number of transactions.
As <UNK> said, sales from our customer-facing digital channels demonstrated strong growth, in excess of 25%, while our comparable sales from stores declined in the low single-digit percentage range.
Gross profit for the third quarter was approximately 37.8% of net sales, compared to approximately 38.4% of net sales in the corresponding period a year ago.
Gross profit, as a percentage of net sales, decreased primarily due to an increase in inventory acquisition costs.
Also contributing to the decrease, as a percentage of net sales, was an increase in coupon expense resulting from a slight increase in the number of redemptions and a slight increase in the average coupon amount.
Selling, general and administrative expenses for the third quarter were approximately 27.9% of net sales, as compared to 26.4% of net sales in the prior year period.
Of the increase in SG&A, as a percentage of net sales, approximately 45 basis points was attributable to a non-recurring benefit relating to a credit card litigation settlement in the third quarter of 2014, which was not anniversaried this quarter.
This non-recurring, prior-year benefit, was approximately $0.05 per diluted share, based on this quarter's actual share count.
The majority of the remaining increase in SG&A, as a percentage of net sales, in order of magnitude, was due to an increase in payroll and payroll related items, and an increase in advertising expense due in part to the growth in digital advertising.
Our tax rate for the third quarter of 2015 was approximately 35.3%, compared to approximately 32.3% in the third quarter of 2014.
The third quarter provisions included net after-tax benefits due to distinct tax events occurring during these quarters of approximately $6.9 million this year, as compared to approximately $16.7 million last year.
This year over year unfavorable difference is approximately $0.06 based on this quarter's actual share count.
Considering all of this activity, including the unfavorable, non-comparable items, totaling $0.11, which I just mentioned, as well as approximately $0.02 from an unfavorable foreign currency rate impact in the third quarter of 2015, net earnings per diluted share were $1.09 for the third quarter of 2015 as compared to $1.23 for the third quarter of 2014, in-line with the preliminary estimate we provided on December 22nd.
Turning to some highlights on the balance sheet: As of November 28th, 2015 our cash and cash equivalents and investment securities were approximately $565 million.
Retail inventories, which include inventory in our distribution facilities for direct-to-customer shipments, were approximately $3.2 billion at cost.
Retail inventories continue to be tailored to meet the anticipated demands of our customers and are in good condition.
Capital expenditures for the nine months of 2015 were approximately $244 million, and included expenditures for technology enhancements, new stores, existing store improvements, the new customer contact center, the new distribution facility in Las Vegas, as well as other projects.
Consolidated shareholders' equity at the end of the third quarter was approximately $2.6 billion, which is net of approximately $194 million, representing about 3.3 million shares repurchased during the period.
The Company's current $2.0 billion share repurchase authorization had a remaining balance of approximately $110 million at the end of the third quarter and is now expected to be completed in the fourth quarter of fiscal 2015.
Upon completion of the current program, the Company will begin to repurchase shares under its new $2.5 billion share repurchase program, authorized in September 2015.
As a reminder, our quarterly share repurchase activity may be influenced by several factors including business and market conditions.
Now I'd like to provide an update of some of our modeling assumptions for the remainder of fiscal 2015.
These include the following: Based upon fourth quarter sales to date, and our assumptions for the remainder of the quarter, we are now modeling comparable sales to be between relatively flat and an increase of approximately 2%, including an unfavorable foreign currency rate impact of approximately 30 basis points.
We are modeling comparable sales consummated through our customer-facing websites and mobile apps to grow in excess of 25% and store comps to be a low single-digit decrease to relatively flat for the fourth quarter.
As <UNK> mentioned earlier, this directionally follows the trend of strong comps in our customer-facing digital channels and softer comps in stores.
For the full year, we are modeling comparable sales to increase in a range of approximately 0.6% to 1.1%, including an unfavorable foreign currency rate impact of approximately 40 basis points.
Consolidated net sales are modeled to increase approximately 0.7% to 2.7% in the fourth quarter.
This results in a modeled full year consolidated net sales increase of approximately 1.4% to 1.9%.
Our model includes an unfavorable foreign currency rate impact of approximately 40 basis points for the fourth quarter and full year.
Assuming these sales levels, we continue to model gross profit deleverage, as a percentage of net sales, for the fourth quarter and full year.
We also continue to model the full-year gross margin deleverage to be less than it was in fiscal 2014.
We are modeling SG&A deleverage for both the fourth quarter and full year, which includes increases in investments in compensation and benefits, advertising and technology related expenses.
Depreciation expense for fiscal 2015 is expected to be approximately $260 million.
Annual interest expense is now anticipated to be approximately $83 million, primarily resulting from the interest related to the $1.5 billion of senior unsecured notes and from our sale/leaseback obligations related to certain distribution facilities.
The fourth quarter tax rate is estimated to be in the mid-30's percentage range, with an expected variability as distinct tax events occur.
We expect to continue generating positive operating cash flow.
Capital expenditures in 2015 are now modeled to be approximately $350 million, subject to the timing and composition of projects.
Our technology-related projects continue to represent a significant portion of our planned capital expenditures for the year, and include the deployment of new systems and equipment in our stores, enhancement to our omni-channel capabilities, ongoing investment in data analytics, the continued installment of new equipment and systems in conjunction with the utilization of our new data center in North Carolina, and the continued development of a new point-of-sale system.
Our model reflects completion of our current $2.0 billion share repurchase program in the fourth quarter of 2015, at which time we plan to repurchase shares under our new $2.5 billion authorization, and we estimate this new program to be completed in fiscal 2019.
This repurchase program, however, may be influenced by several factors including business and market conditions.
We are modeling diluted weighted average shares outstanding to be approximately 160 million for the fourth quarter, and approximately 165 million for the full year.
We are modeling an unfavorable foreign currency exchange rate impact of approximately $0.06 per diluted share for all of fiscal 2015, based on a Canadian currency exchange rate for the fourth quarter of approximately CAD1.38 to each US dollar.
This $0.06 estimate includes approximately $0.02 in the fourth quarter.
Based upon these and other planning assumptions, we are now modeling net earnings per diluted share to be approximately $1.72 to $1.86 for the fourth quarter, bringing the full year modeled net earnings per diluted share to a range of approximately $4.91 to $5.05.
Turning to fiscal 2016, while we are in the process of completing our annual budget, our preliminary modeling assumptions include the following: We expect to make continued investments in technology and in our omni-channel capabilities.
We anticipate opening approximately 30 stores across all concepts, and closing approximately 10 stores.
We expect to continue our program of renovating or repositioning stores within markets where appropriate.
We anticipate interest expense of approximately $81 million including the interest related to the $1.5 billion of senior unsecured notes and from our sales/leaseback obligations related to certain distribution facilities.
We expect continuing variability in our quarterly tax rates.
Our model reflects repurchases under our new $2.5 billion share repurchase authorization, with an assumed completion in fiscal 2019, and which may be influenced by several factors, including business and market conditions.
We expect comparable sales growth from our customer-facing digital channels to continue to exceed comparable sales growth from stores.
We will provide further information related to the fiscal first quarter and full year of 2016 on our next quarterly conference call on April 6, 2016.
I'll now turn the call back to <UNK>.
Thank you, <UNK>.
As we said before: The retail environment continues to evolve; We are driving change through significant investments in our business ---+ across our organization, including our websites and apps; While these investments currently place pressure on our operating profit, we believe this is an opportune time for our Company, as we continue to position Bed Bath & Beyond for long-term success.
As we begin a new year, I would like to thank our more than 60,000 dedicated associates for all of their efforts.
Through their passion to succeed and satisfy our customers, and through the differentiated products, services and solutions we provide, we will continue to do more for and with our customers wherever, whenever, and however they wish to interact with us, and further our efforts to become THE destination for our customer's needs and wants as they express their life interests and travel through their life stages.
Thank you for listening in today.
We wish you all a very healthy and happy New Year.
<UNK>, <UNK> and Ken Frankel will be here tonight to answer any of your questions.
Thank you.
