BBBY
#Thank you, Bakeba, and good afternoon everyone.
With me on the call to review our first quarter fiscal 2015 results are <UNK> <UNK>, Bed Bath & Beyond's Chief Executive Officer, and <UNK> <UNK>, Chief Financial Officer and Treasurer.
Before we begin, I would 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 June 24, 2015 can be found in the Investor Relations section of our website, at www.bedbathandbeyond.com.
Here are some highlights from the press release.
Please note that our first quarter financial results were within our previously stated model range: First quarter net earnings per diluted share were $0.93.
Net sales for the quarter were $2.7 billion, an increase of approximately 3.1% over the same period last year; and Quarterly comparable sales increased by approximately 2.2%; or 2.5% on a constant currency basis.
The Company continues to model fiscal 2015 net earnings per diluted share to be between relatively flat and a mid-single digit percentage increase.
<UNK> will discuss our quarterly financial results and provide an update on our 2015 model later in the call.
Our first quarter performance reflects the core strength of our business across all channels and concepts.
We are pleased that our ongoing investments to enhance our omni-channel shopping experience are producing meaningful benefits for our customers and associates.
Let me now turn the call over to <UNK>.
Thank you, <UNK>, and good afternoon everyone.
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Thank you, <UNK>.
I'll start with some first-quarter financial highlights.
As a reminder, the first quarter typically accounts for the smallest portion of our annual net sales and earnings, so any fixed costs, as a percentage of net sales, are relatively more pronounced in the first quarter than they would be in any of the other three quarters.
Overall, we are pleased with our fiscal first quarter results.
Net sales for the first quarter were approximately $2.7 billion, approximately 3.1% higher than net sales in the prior-year period.
Of this increase, approximately 70% was attributable to the increase in comp sales and the remainder was primarily from new stores.
Our comparable sales in the first quarter increased by approximately 2.2%, attributable to increases in both the average transaction amount and the number of transactions.
As anticipated, year-over-year Canadian currency fluctuations unfavorably impacted our comparable sales by approximately 30 basis points in the first quarter.
Gross profit for the first quarter was approximately 38.1% of net sales, compared to approximately 38.8% of net sales in the corresponding period a year ago.
The primary factors contributing to this decrease, in order of magnitude, were first, an increase in coupon expense, due to an increase in redemptions, partially offset by a slight decrease in the average coupon amount, and second, an increase in net direct-to-customer shipping expenses.
Selling, general and administrative expenses for the first quarter were approximately 28.1% of net sales as compared to 27.5% of net sales in the prior-year period.
This increase in SG&A as a percentage of net sales, was primarily attributable to higher technology costs, including related depreciation, and an increase in advertising expenses due in part to the growth in digital advertising.
Consistent with our previous model and reflecting the movement in gross profit margin and SG&A expenses, the first quarter operating profit margin of 10% was approximately 130 basis points lower when compared with the same period last year.
Net interest expense of approximately $19.9 million in the first quarter relates primarily to interest associated with our $1.5 billion of senior unsecured notes and the interest from our sale/leaseback obligations related to certain distribution centers.
Our tax rate for the first quarter was approximately 37.5% compared to approximately 37.4% in the first quarter of fiscal 2014.
The first-quarter provisions included net after-tax benefits of approximately $1.5 million this year and approximately $1.8 million last year due to distinct tax events occurring during the quarters.
Considering all of this activity, net earnings per diluted share were $0.93 for the first quarter of fiscal 2015 and in-line with our modeled range.
Turning to the balance sheet: As of May 30th, 2015 our cash and cash equivalents and investment securities were approximately $793 million.
Retail inventories, which include inventory in our distribution facilities for direct-to-customer shipments, were approximately $2.8 billion at cost, an increase of approximately 5.3% compared to the end of the prior year period.
This increase includes an initial investment in inventory related to our newest Las Vegas distribution facility which opened during this quarter.
Retail inventories continue to be tailored to meet the anticipated demands of our customers and are in good condition.
Capital expenditures for the first three months of fiscal 2015 were approximately $72 million and included expenditures for technology enhancements, new stores, existing store improvements, and other projects.
Consolidated shareholders' equity at the end of the first quarter was approximately $2.6 billion, which is net of approximately $385 million, representing about 5.3 million shares of first quarter share repurchases.
The Company's current $2 billion share repurchase authorization had a remaining balance of approximately $499 million at the end of the first quarter and is expected to be completed in early fiscal 2016.
As a reminder, this repurchase program may be influenced by several factors including business and market conditions.
Since our first share repurchase authorization back in December 2004 and through May 30th, 2015, the Company has returned more than $8.9 billion of cash to shareholders through repurchases, representing over 167 million shares, and we have done this during a period of significant capital investment in the future of our Company, while continuing to generate significant operating cash flow, and maintaining a solid balance sheet.
Now I'd like to turn to our planning assumptions for the second quarter and full year, which include the following: We are modeling a 2% to 3% increase for comparable sales for the second quarter, and continue to model a 2% to 3% increase for the back half of 2015.
Net sales will exceed the comp sales percentage increase by approximately 70 basis points in the second quarter, and by approximately 110 basis points for the back half of the year.
This modeled comp sales range of 2% to 3% includes an unfavorable impact, for both the second quarter and back half of the year, of about 20 to 30 basis points due to modeled year-over-year fluctuations in the foreign currency exchange rate related to our Canadian operations.
Assuming these sales levels, gross profit is modeled to deleverage for both the second quarter and full year.
Contributing to the modeled gross profit deleverage are increases in both coupon expense and net direct-to-customer shipping expense.
As we said previously, we are modeling the fiscal 2015 deleverage in gross profit, as a percentage of net sales, to be less than it was in 2014.
SG&A is also modeled to deleverage for both the second quarter and full year, which includes increases in technology related expenses and investments in compensation and benefits.
Also contributing to the full year deleverage is the non-recurring benefit relating to the credit card litigation settlement, which occurred in the third quarter of fiscal 2014.
Depreciation expense continues to be modeled in the range of approximately $255 million to $265 million for the full year.
Annual interest expense is now anticipated to be approximately $81 million, primarily resulting from the interest related to the $1.5 billion of senior unsecured notes and the interest from our sale/leaseback obligations related to certain distribution centers.
The second quarter and full year tax rates are estimated to be in the mid to high 30s% range, with an expected variability as distinct tax events occur.
Based on our model, we expect to generate positive operating cash flow.
Capital expenditures in 2015 are planned to be approximately $375 million to $400 million, which remains subject to the timing and composition of projects.
Our technology-related projects represent nearly half of our planned capital expenditures for the year, and include the deployment of new systems and equipment in our stores, enhancements to our omni-channel capabilities, ongoing investment in data analytics, the continued build out and utilization of a data center in North Carolina, and the continued development of a new point-of-sale system.
In addition to our technology-related projects, capital expenditures also include the opening of approximately 30 new stores company-wide, including the five we have opened to date; and our new Customer Service Contact Center that <UNK> previously mentioned.
We will also continue our program of renovating or repositioning stores within markets where appropriate.
As a reminder, we anticipate an increase in the number of new stores and repositioned stores that will be self-developed this year compared to last year.
As such, we will incur incremental capital expenditures for the construction and other improvements.
As you may know, this is not a new strategy for us, but is a decision made on a project by project basis, to optimize our real estate occupancy expense structure.
As part of our strategy to renovate or reposition stores, we seek opportunities to leverage our broad merchandise assortments from all of our concepts.
We have been creating specialty departments within our stores in categories such as health and beauty care, baby, specialty food, and beverage.
At Bed Bath & Beyond stores alone, we have nearly 200 locations that have one or more of these specialty departments, and we continue to model approximately 15 Bed Bath & Beyond stores to add at least one specialty department this fiscal year.
And, we will continue making enhancements to our distribution and ecommerce fulfillment centers to improve capacity and productivity.
Regarding our current $2.0 billion share repurchase program, we plan to continue to repurchase shares and estimate this program to be completed by early fiscal 2016.
This repurchase program, however, may be influenced by several factors including business and market conditions.
We are now modeling full year diluted weighted average shares outstanding for 2015 to be approximately $167 million, subject to the timing of our share repurchase program.
Based on these and other planning assumptions, we are modeling net earnings per diluted share to be in the range of $1.18 to $1.23 in the second quarter, as compared to $1.17 in 2014.
For the full year, we are continuing to model net earnings per diluted share to be between relatively flat, and a mid-single-digit percentage increase, as compared to 2014.
Our 2015 model incorporates an unfavorable Canadian currency exchange rate impact of approximately $0.05, including about $0.01 in the first quarter, based on a modeled 2015 Canadian currency exchange rate of approximately 1.25 Canadian dollars to each US dollar.
In summary, our balance sheet and business fundamentals remain strong, and we believe, with the strategic investments we are making today, we are well positioned for the future.
As we've said before, this is an exciting time for our Company and we continue to manage our business for long-term growth and profitability.
And finally, we plan to report our 2015 fiscal second quarter net sales and net earnings results on Thursday, September 24th.
I would now like to turn the call back to <UNK>.
Thank you, <UNK>.
As we repeatedly say, our ability to interact with and satisfy our customers wherever, whenever, and however they express their life interests, and travel through their various life stages is our strategic imperative.
This has been our mission for the past 44 years and it continues to be the foundation for everything we do.
In today's ever-evolving retail environment, this approach has never been more important.
In understanding and satisfying our customers' needs and wants, we believe the whole is greater than the sum of our parts, which gives us a powerful retail model that will enable us to further refine our relationships with our customers.
Our shared-services model has been one of the foundational pieces of our organizational structure since we made our acquisition of Harmon back in 2002.
The knowledge and best practices afforded us by our shared services model ultimately allows us to most efficiently drive a better and more robust customer experience.
By leveraging our corporate infrastructure for many functional areas where appropriate, we are able to do more for and with our customers, while optimizing efficiencies and profitability across our Company.
We look to continue to leverage the capital investments we make in one area of our business across all our concepts, channels and countries in which we operate.
We see this across our Company in areas such as technology, analytics, marketing, logistics, real estate, product development and merchandise assortment.
For example, as <UNK> mentioned, we leverage our broad merchandise assortments by creating specialty departments within our concepts in categories such as health and beauty care, baby, specialty food, and beverage.
We also gain economies of scale as we optimize our store operations and market coverage, resulting in favorable advertising and real estate opportunities.
This is a model that we continue to improve upon through our ongoing investments in disciplines such as analytics, target marketing, logistics and information technology.
As I said earlier, this is an exciting time for our Company and we are excited about our future.
We are confident that we are making the appropriate investments to position our Company for long-term profitable growth, and to further enhance shareholder value.
In closing, I would like to thank our more than 60,000 dedicated associates for all of their efforts which drive our Company's success.
It is their passion to succeed and satisfy our customers, that enables us to continue to do more for and with our customers wherever, whenever, and however they wish to interact with us.
Thank you for listening today and for your continued interest in Bed Bath & Beyond.
<UNK>, <UNK> and Ken Frankel will be here tonight to answer any questions you may have.
