BBBY
#Thank you, Daryl, and good afternoon everyone.
Joining me on today's call are <UNK> <UNK>, Bed Bath & Beyond's Chief Executive Officer, and <UNK> <UNK>n, 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 September 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.
Second quarter net earnings per diluted share increased to $1.21, in line with our model.
Net sales for the quarter increased approximately 1.7% over the same period last year, or 2.2% higher on a constant currency basis; and Comparable sales increased by approximately 0.7%; or 1.1% 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.
Today, the Board of Directors authorized a new $2.5 billion share repurchase program to commence after the completion of the existing program, which is estimated to be in early fiscal 2016.
During our call, <UNK> will review some highlights from the quarter and then provide an update on the strategic investments and ongoing initiatives that we believe will continue to position our Company for long-term profitable growth and further enhance shareholder value.
<UNK> will then discuss our quarterly financial results in more detail, as well as review some of our key modeling assumptions for the remainder of fiscal 2015.
Let me now turn the call over to <UNK>.
Thank you, <UNK>, and good afternoon everyone.
We reported positive growth in both sales and net earnings per share this quarter, while we continued to make strategic investments in our future and return value to our shareholders through share repurchases.
As <UNK> said, our fiscal 2015 second quarter net earnings per diluted share increased to $1.21, on net sales of approximately $3 billion.
Net sales increased about 1.7%, or 2.2% on a constant currency basis.
Despite slightly lower-than-modeled top-line sales growth, we are pleased to have generated net earnings per share within the mid-point of our range.
Comparable sales increased approximately 0.7%, or 1.1% on a constant currency basis.
Comparable sales consummated through customer-facing websites and mobile applications grew in excess of 25%, while comparable sales consummated in the stores declined approximately 1%.
Directionally, this follows the trend of strong comps in our customer-facing digital channels and relatively flat comps in stores.
As we have previously pointed out, these numbers in and of themselves are directional when assessing the productivity of our various channels for reasons such as: when an item purchased online is returned to a store, it results in a reduction in store sales; or when an item is being shopped for in the store and concurrently purchased on a mobile device, it is treated as a mobile sale; or when an item is reserved online and picked up in a store, is recorded as a store sale.
As our digital and physical channels continue to converge, the physical stores remain central to serving our customers and provide us a tremendous opportunity to be close to them.
The ability to consult with our knowledgeable and solutions-oriented sales associates coupled with our in-store services, encourages customers to visit and spend time in our stores.
Options such as reserve online pick-up in store; buy online and return to-store; and online appointment scheduling, highlight various points of interactions we have with our customers across our channels.
During the second quarter, we opened a total of 6 new stores, including 2 Bed Bath & Beyond stores, 3 buybuyBaby stores, and 1 Cost Plus World Market store.
We continue to 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.
Since the start of our third quarter, we have opened 2 additional Bed Bath & Beyond stores, 1 buybuy BABY store and 1 Cost Plus World Market store.
Including the 12 stores that we\
Thank you, <UNK>.
I will start with a review of our second quarter results and then provide an update on some of our modeling assumptions for the remainder of fiscal 2015.
Net sales for the second quarter were approximately $3.0 billion, about 1.7% higher than net sales in the prior year period, or approximately 2.2% higher on a constant currency basis.
Of this increase, approximately 41% was attributable to the increase in comp sales, and the remainder was primarily from new stores and Linen Holdings.
Comparable sales in the second quarter increased by approximately 0.7%, attributable to an increase in the average transaction amount, partially offset by a slight decrease in the number of transactions.
Canadian currency fluctuations unfavorably impacted our comparable sales in the second quarter by approximately 40 basis points.
We had originally modeled an impact of 20 to 30 basis points.
Gross profit for the second quarter was approximately 38.1% of net sales, compared to approximately 38.5% of net sales in the corresponding period a year ago.
Gross profit, as a percentage of net sales, decreased primarily due to, in order of magnitude, an increase in coupon expense resulting from an increase in the number of redemptions and a slight increase in the average coupon amount, and an increase in inventory acquisition cost.
Also contributing was an increase in net direct to customer shipping expense.
Selling, general and administrative expenses for the second quarter were approximately 26.4% of net sales as compared to 26% of net sales in the prior year period.
This increase in SG&A, as a percentage of net sales, was primarily attributable to an increase in technology expenses and related depreciation.
Reflecting these movements in gross profit margin and SG&A expenses, the second quarter operating profit margin of 11.7% was approximately 80 basis points lower when compared with the same period last year.
Net interest expense for the second quarter of approximately $25 million related primarily to interest associated with our $1.5 billion of senior unsecured notes, and from our sale/leaseback obligations related to certain distribution facilities.
Also included in net interest expense this quarter was approximately $2 million of a realized loss related to the tender of certain auction rate securities, as well as approximately $3 million of expense related to the reduction in the value of the non qualified deferred compensation plan investments.
This reduction was offset by a corresponding benefit in SG&A and therefore, did not impact net earnings.
Our tax rate for the second quarter was approximately 38% compared to approximately 37.7% in the second quarter of fiscal 2014.
The second-quarter provisions included net after-tax costs of approximately $800,000 this year as compared to net after-tax benefits of approximately $800,000 last year, due to distinct tax events occurring during these quarters.
Considering all of this activity, net earnings per diluted share increased to $1.21 for the second quarter of fiscal 2015, in-line with our modeled range.
This includes an unfavorable impact of approximately $0.01 from Canadian currency fluctuations.
Turning to the balance sheet: As of August 29th, 2015 our cash and cash equivalents and investment securities were approximately $767 million.
Retail inventories, which includes inventory in our distribution facilities for direct-to-customer shipments, were approximately $2.8 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 six months of fiscal 2015 were approximately $161 million, and included expenditures for technology enhancements, new stores, existing store improvements, and other projects.
Consolidated shareholders' equity at the end of the second quarter was approximately $2.6 billion, which is net of approximately $194 million, representing about 2.9 million shares repurchased during the period.
The Company's current $2 billion share repurchase authorization had a remaining balance of approximately $305 million at the end of the second quarter and is expected to be completed in early fiscal 2016.
As a reminder, our quarterly share repurchase activity may be influenced by several factors including business and market conditions.
And, as Steve mentioned earlier, our newly authorized $2.5 billion share repurchase program will commence after the completion of the existing program.
Since our first share repurchase authorization back in December 2004 and through August 29th, 2015, the Company has returned more than $9.1 billion of cash to shareholders through repurchases, representing over 170 million shares.
We are pleased to have been able to return such value to our shareholders while at the same time making significant investments in our people and technology to position our Company for continued successful growth in the ever-evolving retail environment.
Now I'd like to provide an update on some of our modeling assumptions for the remaining two quarters and the full year.
These include the following: For both the third and fourth quarters, we are now modeling comparable sales to increase in the range of 1% to 3%, including an impact of about 40 to 50 basis points in the third quarter and 20 to 30 basis points in the fourth quarter, due to modeled year-over-year fluctuations in the foreign currency exchange rate related to our Canadian operations.
We are modeling comparable sales consummated through our customer-facing websites and mobile apps to grow approximately 25% and store comps to be relatively flat for the rest of fiscal 2015.
As Steve mentioned earlier, this directionally follows the trend of strong comps in our customer-facing digital channels and relatively flat comps in stores.
Consolidated net sales are modeled to increase by approximately 1.8% to 4% for both the third and fourth quarters.
Assuming these sales levels, we continue to model deleverage in gross profit for the remainder of fiscal 2015.
Contributing to this deleverage are increases in coupon expense and net direct to customer shipping expense.
As a percentage of net sales, we continue to model the full-year deleverage to be less than it was in fiscal 2014.
We are also modeling SG&A deleverage for the remainder of the year, which includes increases in technology related expenses and investments in compensation and benefits.
As a reminder, SG&A in the third quarter of last year included a non-recurring benefit relating to a credit card litigation settlement, which is equivalent to about $0.05 per diluted share based on our modeled share count for this year's third quarter.
Depreciation expense for fiscal 2015 continues to be modeled in the range of approximately $255 million to $265 million.
Annual interest expense is now anticipated to be approximately $85 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 third and fourth quarter tax provisions are estimated to be in the mid-to-high 30's% range.
Net after tax benefits due to distinct tax events are modeled to be approximately $3.7 million for the third quarter as compared to $16.7 million last year, an unfavorable difference of approximately $0.08 per diluted share based on our modeled share count for this year's third quarter.
We expect to continue generating positive operating cash flow.
Consistent with our model, capital expenditures in 2015 are modeled to be approximately $375 million to $400 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, enhancements to our omni-channel capabilities, ongoing investment in data analytics, the continued buildout 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 12 we have opened to date, and our new Customer Service Contact Center that <UNK> previously mentioned.
We believe that fiscal 2015's mix of store openings by concept will be relatively comparable to that of fiscal 2014.
We will also continue our program of renovating or repositioning stores within markets where appropriate.
And, we will continue making enhancements to our distribution facilities to improve capacity and productivity.
Regarding our current $2 billion share repurchase program, we plan to continue to repurchase shares during the second half of this year 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 modeling diluted weighted average shares outstanding to be approximately 165 million for the third quarter and 166 million for the full year.
We are now modeling an unfavorable foreign currency exchange rate impact of approximately $0.06 per diluted share for fiscal 2015 compared to our previous estimate of about $0.05, based upon a revised modeled 2015 Canadian currency exchange rate of approximately CAD1.32 to each US dollar.
This $0.06 represents approximately $0.01 in each of the first two quarters and about $0.02 in each of the remaining two quarters of the year.
Based on these and other planning assumptions, we continue to model fiscal 2015 net earnings per diluted share to be between relatively flat and a mid-single-digit percentage increase.
For the third quarter, we are modeling net earnings per diluted share to be approximately $1.14 to $1.21.
This range results in year-over-year net earnings per share growth of approximately 5% to 11% after adjusting for the non-comparable items.
These non-comparable items total about $0.15 based on this year's modeled share count and include: Approximately $0.05 due to the non-recurring favorable credit card fee litigation settlement that occurred in the third quarter of 2014; Approximately $0.08 due to the significantly lower net after-tax benefit dollars planned in the third quarter of this year as compared to last year due to distinct tax events, and Approximately $0.02 due to the modeled unfavorable foreign currency rate impact in the third quarter of 2015.
We continue to execute our mission to do more for and with our customers while making strategic events to position our Company for long-term growth and profitability.
Our performance year-to-date reflects not only the health of our business and the underlying strength of our balance sheet, but also the progress we've made in further enhancing our omni-channel capabilities.
As we've said before, this is an exciting time for our Company, and we continue to manage our business for long-term performance.
Please join us again on Thursday, January 7, 2016, when we plan to report our fiscal 2015 third quarter results.
I would now like to turn the call back to <UNK>.
Thank you, <UNK>.
As I said earlier, we have a customer-centric culture.
And in our mission to do more for and with our customers, we strive to excel in the categories for which we are best known, to excite customers with additional offerings and solutions, and to provide the highest level of service to create the best shopping experience.
We are committed to making the necessary investments to position our Company for long-term success.
We are and must remain flexible and nimble to be able to respond to the ever-evolving industry landscape, and we are confident in our business model and our long-term outlook.
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 of your questions.
Thank you.
