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 April 6, 2016 can be found in the Investor Relations section of our website at www.BedBathandBeyond.com.
Here are some highlights from our financial results: Fourth-quarter net earnings per diluted share were $1.91, an increase of approximately 6.1% over the prior-year period, including approximately $0.06 per diluted share of a net benefit from certain nonrecurring items.
Net sales for the quarter were approximately $3.4 billion, an increase of approximately 2.4%, or 2.8% on a constant currency basis.
Quarterly comparable sales increased approximately 1.7%, or 2.1% on a constant currency basis.
Fiscal 2015 net earnings per diluted share were $5.10, including approximately $0.06 per diluted share of a net benefit from certain nonrecurring items.
Net sales for the full year were approximately $12.1 billion, an increase of approximately 1.9% or 2.3% on a constant currency basis, and full-year comparable sales increased approximately 1% or 1.4% on a constant currency basis.
In addition, our Board of Directors today authorized a dividend program and declared an initial quarterly dividend of $0.125 per share to be paid on July 19, 2016 to shareholders of record as of June 17, 2016.
As we know, retailing is experiencing dynamic change as technology impacts the way consumers are able to make shopping decisions and purchase services and products.
Today's call will include a detailed discussion by Steve regarding the steps we have taken to transform our business to succeed in this evolving retail environment.
Then <UNK> will review our quarterly financial results and provide some modeling assumptions for fiscal 2016 as well as some high-level comments regarding fiscal 2017.
I'll now turn the call over to Steve.
Thank you, <UNK>, and good afternoon everyone.
We are pleased to have completed another successful year.
Our fiscal 2015 financial performance reflects the benefit of the significant investments in our business, steady progress on our strategic initiatives, and the return of more than $1.1 billion to our shareholders through share repurchase.
As <UNK> highlighted, we reported fiscal 2015 net earnings per diluted share of $5.10, including a $0.06 net benefit from certain nonrecurring items.
Excluding this benefit, we were at $5.04, which marks the fourth year in a row that we\
Thanks Steve.
I'll start with our fourth-quarter results.
Net sales for the quarter were approximately $3.4 billion, up about 2.4% over last year, or approximately 2.8% on a constant currency basis.
Comp sales for the quarter increased approximately 1.7% or 2.1% on a constant currency basis, reflecting an increase in the average transaction amounts and a slight increase in the number of transactions.
These results were at the upper end of the model range we provided back in January, which was between relatively flat and an increase of 2%.
Comp sales from our customer-facing digital channels grew in excess of 25% while comp sales from our stores were relatively flat.
Gross margin for the fourth quarter was approximately 38.6%, down about 110 basis points from last year.
The decrease was primarily due to a decrease in merchandise margins.
Also contributing were increases in net direct to customer shipping expense and markdowns.
For the year, the gross margin deleverage was less than it was in 2014, which is consistent with our model.
SG&A for the fourth quarter was approximately 24% of net sales as compared to 23.8% last year.
This increase, as a percentage of net sales, was due to, in order of magnitude, technology-related expenses, including depreciation, and advertising expense due in part to the growth in digital advertising, partially offset by a favorable net benefit of approximately 50 basis points from certain nonrecurring items, including a favorable state audit settlement.
Net interest expense for the quarter was approximately $24.5 million and related primarily to interest from our debt.
Our income tax rate for the quarter was approximately 36%, which was in line with our model assumptions back in January, versus 37.4% last year.
The tax rate decreased about 140 basis points as the current quarter includes about $7 million in discrete tax events versus $700,000 last year.
As we had modeled, our unfavorable foreign currency exchange rate impact in the quarter was approximately $0.02 per diluted share.
Considering all of this activity, net earnings per diluted share for the quarter increased 6.1% to $1.91, or $1.85 excluding the favorable net benefit from nonrecurring items of approximately $0.06.
Moving onto the balance sheet, we ended the year with approximately $673 million in cash and cash equivalents and investment securities.
Retail inventories were approximately $2.8 billion, up about 3.6%.
This increase was due in part to an increase in inventory in our distribution facilities for direct to customer shipments, including the inventory associated with our recently opened Las Vegas distribution facility.
Retail inventories continue to be tailored to meet the anticipated demands of our customers and are in good condition.
CAPEX for the year was approximately $328 million, relatively flat to last year and below our model of $350 million due to some of the anticipated spend for 2015 moving into 2016.
A significant portion of the 2015 spend related to technology projects as well as new stores, existing store improvements, our new customer contact center in Utah, and the new distribution facility in Las Vegas.
We repurchased approximately 7 million shares of our stock during the fourth quarter.
And as expected, we completed our $2 billion share repurchase program and began repurchasing shares under our new $2.5 billion share repurchase authorization during the quarter.
This new authorization was approved by the Board in 2015 and had a remaining balance of approximately $2.3 billion at the end of the year.
Since 2004 through year-end 2015, the Company has returned approximately $9.7 billion to its shareholders through share repurchases.
So now let's turn to where we are going in 2016.
As we have indicated throughout this call, we are managing our business for the long term and making progress on our strategic initiatives.
In keeping with this approach, I'd like to provide you with some full-year modeling assumptions: comp sales increase of 1% to 2% with total sales being about 90 basis points higher than the comp; gross margin deleverage, including increases in coupon expense and net direct to customer shipping expense.
We do anticipate the 2016 deleverage to be less than that of 2015.
SG&A deleverage as a percentage of net sales, primarily as a result of the following items: first, additional payroll startup costs associated with the opening of our Louisville, Texas distribution facility; second, in response to wage increases impacting the retail sector, we are modeling an increase in our investments in compensation and benefits to preserve our ability to attract and retain the best associates.
Third, we are modeling store coverage to be consistent with the prior year to reflect the evolving nature of the services our stores provide.
We are modeling the full-year impact of these three payroll-related investments to be approximately $0.23 per diluted share.
Fourth, we expect to make further investments in technology and in our digital Web and mobile capabilities, which will result in an increase in our technology-related expenses, including depreciation.
We are modeling the full-year impact of these tech investments to be approximately $0.17 per diluted share.
Additional assumptions for fiscal 2016 include: a depreciation expense estimate of $290 million, net interest expense estimate of $80 million, full-year tax rate estimate in the mid to high 30s% range with continued quarterly tax rate variability as distinct tax events occur.
We anticipate less favorable distinct tax dollars in 2016 as compared to 2015.
Opening approximately 30 new stores across all concepts, most of which are planned to open in new markets for our various concepts.
We also plan to close about 15 stores.
CAPEX estimate of approximately $400 million to $425 million, which is subject to the timing and composition of projects and includes some carryover of projects from 2015, as I mentioned earlier.
Our technology related projects represent a significant portion of our planned CAPEX and include the continued deployment of new systems and equipment in our stores, enhancements to our digital, Web and mobile capabilities, ongoing investment in data analytics, and the ongoing development and deployment of our new POS system.
In addition to technology-related projects, the CAPEX estimate also includes an estimate for the opening of our new distribution facility in Lewisville, Texas and new stores, as well as our program for renovating or repositioning stores within markets where appropriate.
Also, we anticipate our current period of heavy CAPEX investment to reach a peak in fiscal 2016.
We believe that the level of capital investment required over the next few years should start to come down off of this spending level.
In addition to our newly authorized dividend program, we will continue to repurchase shares under our current $2.5 billion authorization.
As a reminder, share repurchases may be influenced by several factors, including business and market conditions.
As Steve said earlier, our earnings per diluted share have been in the $4.50 to just over $5.00 range since we entered a heavy investment phase several years ago, and we believe we can again achieve earnings per diluted share at the high end of this range this year and, in the event our comp is higher than the 1% to 2% range we are modeling, exceed it.
We believe our fiscal 2016 quarterly net earnings per diluted share, excluding one-time items, will have a similar pro rata percent to the total year as they have in previous years with the exception that the percent for the first quarter is anticipated to be somewhat lighter and for the fourth quarter is anticipated to be somewhat stronger, due in part to holiday shifts and advertising changes.
Looking to 2017, a 53-week year, as I said, we plan CAPEX to be less than our 2016 peak estimate range as the spend for a few of our larger capital projects such as most of the equipment required for our new POS system will have been completed while still allowing for appropriate investments in areas critical to our future.
We also plan to open new stores, mostly in new markets, and close stores as market dynamics dictate.
Regarding capital allocation, with today's announcement of the quarterly dividend program, we now anticipate that the completion of our $2.5 billion share repurchase program will occur in the latter half of fiscal 2019 or in fiscal 2020.
Of course, the completion date will continue to be influenced by several factors, including business and market conditions.
Before turning the call back over to Steve for some final remarks, please note that our next quarterly conference call will take place on Wednesday, June 22, 2016.
At that time, we will review our first-quarter results and provide an update on fiscal 2016 as well as answer some questions from the investment community.
I'll now turn the call back to Steve.
Thank you <UNK>.
First off, thank you for taking the time to listen to our call.
To summarize, we believe we are making the right investments to position our Company for long-term success.
Over the past several years, we have been transforming our Company, and have created an incredible foundation for future growth.
We are excited about the opportunities to do more for and with our customers and to strengthen our business as a world-class omni-channel retailer.
I want to thank our more than 60,000 dedicated associates for what they accomplished during fiscal 2015.
Our foundation has never been stronger.
This includes the quality of our people, our merchandise assortments, and our technologies, each of which drives our Company's success.
Through the commitment of our associates and the culture they have created, and the greatly valued contributions of our merchandise and service providers, we are looking forward to continuing to satisfy our customers and, in doing so, improving our competitive position in the categories in which we do business.
Again, thank you for listening in today.
After the call, <UNK>, <UNK> and Ken Frankel will be available to answer your questions.
