Bed Bath & Beyond Inc.
Q3 2008 Earnings Call Transcript

Published: 8 Jan 2009

[Operator:]

Welcome to Bed Bath and Beyond third quarter of fiscal 2008 results conference call. All participants are in a listen only mode for the duration of the call. This call is being recorded. A rebroadcast of the conference will be available beginning on Wednesday, January 7, 2009 at 6

[Eugene A. Castagna:]

Welcome to Bed Bath & Beyond’s third quarter of fiscal 2008 conference call. Within the past hour we issued a press release announcing Bed Bath & Beyond’s results for the three and nine month periods ended November 29, 2008. During this call we will comment on some of the third quarter’s highlights and update guidance for the fiscal fourth quarter and full year 2008. We will also provide some preliminary fiscal 2009 planning assumptions. We anticipate providing further information related to the fiscal first quarter and full year of 2009 on our next quarterly call on April 7, 2009 when we expect to have better visibility about the macroeconomic environment for the next fiscal year. Before proceeding, I will read the following statement, “Bed Bath & Beyond’s fiscal third quarter press release and comments made during this call may contain forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended. Many of these forward looking statements can be identified by the use of words such as may, will, expect, anticipate, estimate, assume, continue, project, plan and similar words and phrases. The company’s actual results and future financial condition may differ materially from those expressed in any such forward-looking statement as a result of many factors that may be outside of the company’s control. Please refer to Bed Bath & Beyond’s SEC filings including its form 10K for the year ended March 1, 2008. The company does not undertake any obligation to update its forward-looking statements.” Leonard Feinstein, Co-Chairman of Bed Bath & Beyond leads off today’s call. Steven Temares, Chief Executive Officer and a Member of the Board of Directors will follow Len. Some additional financial commentary will conclude today’s call. I’m now very pleased to introduce Leonard Feinstein.

[Leonard Feinstein:]

Our press release issued within the past hour showed that our company earned $0.34 per diluted share in the fiscal third quarter ended November 29, 2008. During the fiscal third quarter we opened 18 new Bed Bath & Beyond stores including our third store in Canada, seven Christmas Tree Shop stores, one buybuy BABY store and one Harmon Face Value store. Consolidated store space at November 29, 2008 was approximately 31.6 million square feet. Including the stores we have opened since the beginning of the fourth quarter which consists of our fourth Bed Bath & Beyond store in Canada, one Christmas Tree Shop store and one buybuy Baby store, we presently operated 922 Bed Bath & Beyond stores in 40 United States, the District of Columbia, Puerto Rico and Canada as well as 49 Christmas Tree Shop stores, 12 buybuy BABY stores and 41 stores under the name Harmon and Harmon Face Values. In addition, we are in a joint venture in Mexico which operates two stores in the Mexico City market under the name Home & More. For all of fiscal 2008 including stores already opened, we expect to open approximately 49 new Bed Bath & Beyond stores throughout the United States and in Canada. This reflects our conservative approach to our expansion program as well as the difficulties in the commercial real estate market. We continue to believe that within the United States there is an opportunity to open in excess of 400 additional Bed Bath & Beyond stores and we also strive over time to become the leading home furnishings retailer in the other countries in which we do business. As said previously, we are continuing to grow our Christmas Tree Shops, buybuy BABY and Harmon concepts. For all of fiscal 2008 we expect to open approximately 11 Christmas Tree Shop stores and about seven buybuy BABY stores. We continue to open Harmon Face Value health and beauty care departments within our Bed Bath & Beyond and Christmas Tree Shop locations. We believe the real estate market continues to adjust in this evolving economic climate and we remain flexible to take advantage of additional real estate opportunities that may occur. We also continue to 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 customers’ shopping experience. Our bridal, baby and gift registry businesses and the continuing development of our online sales capabilities afford us additional opportunities to attract new shoppers to the Bed Bath & Beyond experience. Despite the extremely challenging economic conditions, we will continue to capitalize on the unique front 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 of our long term performance. In today’s difficult times the benefits of decentralization become even more apparent. We fully expect that despite the challenging macroeconomic environment, we will be able to look back on this period as one which afforded us an exceptional opportunity to solidify and enhance our position in the merchandising categories we offer our customers. We are confident that we have the people, the resources and the capability to achieve our near term and long term goals. I’ll turn now the call over to Steven Temares.

[Steven H. Temares:]

In the sector of retailing that has been broadly affected by the current economic challenges, our operating results, though never satisfactory to us, continue to outpace on a comparative basis the performance reported by others. Although we did not meet all our financial objectives in the fiscal third quarter, we are extremely grateful for the exceptional effort of our people in the face of significantly challenging circumstances. We remain focused on building a business that stands the test of time. We are committed to becoming our customers’ first choice for the products we offer domestically and to actively and over the longer term internationally. We believe that the current retailing environment, though difficult, provide an excellent opportunity for us to strengthen our long term prospects. As always, we continue to work to systematically review all expenditures while taking in to consideration the current economic environment with the goal of prudently managing our business. At the same time, we remain committed to making the required investments in our company’s infrastructure to help position us for our continued success. Our capital spending plan for all of fiscal 2008 is currently estimated at approximately $235 million. This represents a slight reduction from the estimate we provided in September and an approximately $120 million reduction as compared to last year and among other projects a new distribution center and eservice fulfillment center were built. We continue to review and prioritize our capital needs while continuing to make investments in our company principally for new stores, existing sore improvements and other projects whose impact is viewed as essential to our future. By providing our customers with a superior shopping experience we work to remain their first choice for the merchandise categories we offer. In taking a long term approach to building our Bed, Bath & Beyond, Christmas Tree Shops, buybuy BABY and Harmon Face Value concepts, we expect over time to do more for and with our customers. As we announced on December 2, 2008 our third quarter was adversely affected by the declining overall macroeconomic environment during the period, the liquidation sales of a major competitor as well as a one week shift in the Thanksgiving holiday. As reported earlier today, net earnings per diluted share for the quarter were approximately $0.34 compared with $0.52 a year ago. For the fiscal nine months, net earnings per diluted share were approximately $1.10 compared with $1.44 reported for last year’s nine month period. As previously reported, net sales for the fiscal third quarter were approximately $1.8 billion, a decrease of approximately .7% from the corresponding fiscal 2007 period. Third quarter comp store sales were down 5.6%. For the first nine months net sales amounted to approximately $5.3 billion, about 3.3% higher than in the similar nine month period last year. Comp store sales for the nine months were down 1.7%. Net sales and comp sales for the nine month period were negatively affected by the economic slowdown including issues specific to the housing industry and the liquidation sales of a number of retailers including a major competitor. Gross profit for the fiscal third quarter was approximately 38.9% of net sales compared with approximately 41.7% of net sales during the third quarter of 2007. The approximately 280 basis point decrease in the gross profit margin resulted from an increase in inventory acquisition costs, an increase in coupon redemptions and the shift of merchandise sold to lower margin categories. Selling, general and administrative expenses for the fiscal third quarter were 31.2% of net sales, an increase of approximately 90 basis points as compared to last year’s quarter. As a result of the 5.6% 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 as well as relative increases in payroll related items including salaries and benefits. Reflecting the movements in gross profit margin and SG&A expenses, the operating profit margin for the fiscal third quarter was lower than in the period a year ago by approximately 370 basis points. For the fiscal nine months the operating profit margin decreased by approximately 290 basis points compared with last year’s nine months. Though challenging, as we have consistently stated, we believe these economic times afford 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 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 April 7, 2009 when we will review our fiscal fourth quarter and yearend fiscal 2008 results. I’ll now turn the call back to Gene.

[Eugene A. Castagna:]

As you heard from Len and Steve, we earned $0.34 per diluted share in our fiscal third quarter and $1.10 per diluted share for the nine months of fiscal 2008. Looking ahead to the balance of our fiscal year, we assume that the overall business climate will continue to present significant challenges. Our major planning assumptions for the fourth quarter of fiscal 2008 which includes two additional pre Christmas shopping days, are as follows

[Operator:]

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