Bed Bath & Beyond Inc.
Q2 2008 Earnings Call Transcript

Published: 24 Sep 2008

[Operator:]

Welcome to Bed Bath & Beyond second quarter fiscal 2008 conference call. (Operator Instructions) Now at this time it is my pleasure to turn the conference over to Ron Curwin, Senior Vice President of Investor Relations of Bed Bath & Beyond. Mr. Curwin, please go ahead.

[Ronald Curwin:]

Thank you and good afternoon. Welcome to Bed Bath & Beyond’s second quarter of fiscal 2008 conference call. Within the past hour, we issued a press release covering Bed Bath & Beyond's results for the three- and six-month periods ended August 30, 2008. During this call, we will comment on some of the quarter’s highlights and update guidance for fiscal 2008, a 52-week year ending on February 28, 2009. Before proceeding, I will read the following statement, and I quote

[Warren Eisenberg:]

Good afternoon. Our press release, issued within the past hour, showed that our company earned $0.46 per diluted share in the fiscal second quarter ended August 30, 2008. In this challenging macroeconomic environment, we continue to focus on our customers and in doing so, seek to further distance ourselves from our competitors. As always, we base our actions on what is prudent under the circumstances and what is in the best interest of our customers and our shareholders for the long-term. We opened 13 new Bed Bath & Beyond stores during the fiscal second quarter, including our second store in Canada and 22 in the first half of fiscal 2008. Including the four additional Bed Bath & Beyond store and one Christmas Tree Shop store we just opened in the beginning of our third fiscal quarter, we have 907 Bed Bath & Beyond stores in 49 states, the District of Columbia, Puerto Rico, and Canada, as well as 42 Christmas Tree Shop stores, 10 buybuy BABY stores, and 40 stores under the names Harmon and Harmon Face Value. Consolidated store space at August 30, 2008 was approximately 30.8 million square feet. In addition, as announced in May, we are also participating in a joint venture in Mexico, which presently operates two stores in the Mexico City market under the name Home and More. For all of fiscal 2008, including stores already opened, we continue to expect to open approximately 50 new Bed Bath & Beyond stores throughout the United States and in Canada, where we look to expand aggressively over the next few years. We have signed or are in final documentation for approximately a dozen additional sites in Canada and are actively negotiating another dozen or so as we strive over time to become the leading home furnishings retailer in Canada. We continue to believe that within the United States, there is an opportunity to open in excess of 400 additional Bed Bath & Beyond stores. As said previously, we are also accelerating the growth of our Christmas Tree Shops, buybuy BABY, and Harmon concepts. For all of fiscal 2008, we expect to open approximately 12 Christmas Tree Shop stores and several buybuy BABY stores, while the freestanding Harmon Face Value store is also scheduled to open in the third quarter. We continue to put our emphasis on opening additional Harmon Face Value health and beauty care department within Bed Bath & Beyond and Christmas Tree Shops locations. While the number of store openings in these newer concepts is expected to grow significantly, we are moderating the number of Bed Bath & Beyond store openings. In doing so, we remain flexible to take advantage of additional real estate opportunities if we so choose that may occur as a result of the ongoing consolidation in our industry. We consistently strive to increase productivity of existing stores by introducing new merchandising initiatives, as well as by expanding, renovating, remodeling, and/or relocating stores to enhance our customer shopping experience. Our bridal, baby, and gift registry business and the continuing development of our online sales capabilities affords us additional opportunities to attract new shoppers to the Bed Bath & Beyond experience. We continue to add associates in key areas throughout our organization and to implement new systems and procedures in all concepts. Despite the challenges, we will continue to capitalize on the unique strength of our decentralized culture, which has enabled us since 1971 to build the strong, exciting business we have today. This culture, which takes advantage of the knowledge, independence, and customer focus of our associates, has always been the foundation for our long-term performance. In today’s trying times, the benefits of decentralization become even more apparent. We expect that we will be able to look back at this period as one which afforded us an exceptional opportunity to solidify and enhance our position in the merchandising categories we offer our customers. In addition to the general economic slowdown, the retail sector for home related products, particularly in certain parts of the country, such as California, Florida, Arizona, and Nevada, remains challenged and the sector continues to consolidate. We remain focused on our customers and will keep working to improve their shopping experience in all of our concepts. We are confident that we have the people, the resources, and the determination to achieve our near-term and long-term goals. Now I’ll turn the call now over to Steven Temares. Steve.

[Steven H. Temares:]

Thank you, Warren. Good afternoon, everyone and thank you for participating in this conference call. Our fiscal second quarter results reflect the considerable strength of our decentralized organization and demonstrate what can be accomplished despite the difficult business conditions through the talents and dedication of our associates. We have been and continue to be focused on building a business that stands the test of time. We are dedicated to becoming our customers’ first choice for the products we offer domestically, interactively, and over the longer term, internationally, and we believe that the current retailing environment, though difficult, provide an excellent opportunity for us to strengthen our long-term prospects. In a sector of retailing where most continue to struggle, our operating results, though never satisfactory to us, continue to outpace on a comparative basis the performance reported by most other retailers. As always, we continue to work to control our assets, costs, and expenses while expanding our business prudently. While others in our industry are curtailing operations and otherwise limiting their growth and in some cases may be precluded from investing in their infrastructure and making necessary improvements in their stores, we have the resources and are committed to investing in our company’s future. Our capital spending plan for all of fiscal 2008 is estimated at approximately $250 million. This represents a spending reduction of approximately $110 million as compared to last year when among other projects, a new distribution center and e-service fulfillment center were built. Yet we are pleased to continue to make significant investments in our company, principally for new stores, existing store improvement, and other projects whose near and long-term impact is viewed as essential to our future. By providing our customers with a superior shopping experience, we expect to remain their choice for the merchandise categories we offer. In taking a long-term approach to building the Bed Bath & Beyond, Christmas Tree Shops, buybuy BABY, and Harmon Face Values concepts, we expect over time to do more for and with our customers. Turning now to the recent quarter, as reported earlier today, net earnings per diluted share for our fiscal second quarter were approximately $0.46 per share compared with approximately $0.55 a year ago. For the fiscal first half, net earnings per diluted share were approximately $0.76 compared with approximately $0.92 reported for last year’s first half. Net sales for the fiscal second quarter were approximately $1.9 billion, about 4.9% higher than in the corresponding fiscal 2007 period. Second quarter comp store sales were negative 0.1%. In addition to sale being negatively affected by the tough overall economic environment during the quarter, we experienced severe weather, as well as competitors’ going out of business sales in a number of our markets. For the fiscal first half, net sales amounted to approximately $3.5 billion, about 5.5% higher than in the similar six-month period last year. Comp store sales for the six months were up 0.3%. Net sales and comp sales continued to be negatively affected by the economic slowdown in general and by issues specific to the housing industry in particular. As in previous quarters, and as Warren mentioned, California, Florida, Arizona, and Nevada were some of the states most significantly affected by these issues. Gross profit for the fiscal second quarter was approximately $739 million, or 39.9% of net sales, compared with approximately $732 million, or 41.4% of net sales during the second quarter of 2007. The approximately 150 basis point decrease in the gross profit margin resulted from an increase in inventory acquisition costs, an increase in coupon redemptions, and a shift in the mix of merchandise sold to lower margin categories. Selling, general, and administrative expenses for the fiscal second quarter were about $552 million, compared with approximately $511 million in the corresponding quarter a year ago. SG&A as a percentage of net sales increased by approximately 90 basis points as compared to last year’s quarter. As a result of the 0.1% decline in comp store sales this quarter, we experienced relative increases in fixed costs such as occupancy costs, including rent, real estate taxes and depreciation, and experienced relative increases in payroll related items, including salaries, medical insurance, and workers’ compensation insurance. Although the number of advertising events were comparable to last year, we also experienced relative increases in advertising expenses, primarily as a result of the increases in postage, paper, and other production costs. Reflecting the movements in the gross profit margin and SG&A expenses, the operating profit margin for the fiscal second quarter was lower than in the year-ago period by approximately 240 basis points. For the fiscal six months, the operating profit margin decreased by approximately 260 basis points compared with last year’s first half. Though challenging, 2008 affords us the opportunity to strengthen our position in the merchandising categories we offer our customers. We are confident that we will be able to look back at this period as one which afforded us an excellent and exceptional opportunity to gain market share and to improve our competitive position. By providing the best possible shopping experience for our customers, our entire organization remains dedicated to accomplishing the long-term goals which we have established for all our concepts. We look forward to our next call on January 7, 2009, when we will review our fiscal third quarter and our first nine months of fiscal 2008 results. I will now turn the call back to Ron. Ron.

[Ronald Curwin:]

Thanks, Steve. As you heard from Warren and Steve, we earned $0.46 per diluted share in our fiscal second quarter and $0.76 per diluted share for the first six months of fiscal 2008. Looking ahead to the balance of our fiscal year, we assume that the overall business climate will continue to be challenging. As of now, here are our other major planning assumptions for fiscal 2008

[Operator:]

Ladies and gentlemen, this concludes today’s conference call. Thank you all for listening. You may now disconnect.