Bed Bath & Beyond Inc (BBBY) 2001 Q3 法說會逐字稿

Ladies and gentlemen, welcome to the Bed Bath & Beyond fiscal third quarter of 2001 results conference call. All participants will be in a listen only mode for the duration of the call. This call is being recorded. A post view replay of this call will be available on December 20th, 2001, beginning at 6:30 p.m. eastern through 6:30 p.m. eastern on Saturday, December 22nd, 2001. To access post view you may dial 1-800-633-8284, reservation number 19854287. I'll now turn the call over to Ron Curwin, chief financial officer and treasurer of Bed Bath & Beyond. Please go ahead, sir.

Thank you.

Good afternoon and welcome to Bed Bath & Beyond's third fiscal quarter of fiscal 2001 conference call. You should have by now received a copy of our press release which discloses another very productive period for our company. We hope that manager's review of the results of operations, financial condition, cash flows and other comments will be useful to you. Before proceeding, I I'd like to read the following statement and I quote, "Bed Bath & Beyond's fiscal third quarter press release and comments made during this call may contain forward-looking statements. Many of these forward-looking statements be be identified by 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 statements as a result of many factors that may be outside the company's control. Please refer to Bed Bath & Beyond's S.E.C. filings including its form 10-K for the year ended march 3, 2001. The company does not undertake any obligation to update its forward-looking statements." Warren Eisenberg, who co-founded our company in 1971, with Leonard Feinstein, and serves together with Warren as co-chief executive officer and co-chairman of Bed Bath & Beyond leads off today's call. Steven Temares, president and chief operating officer and a member of our board of directors will then review our fiscal third quarter and fiscal nine months results. At the conclusion of Steve's comments, I'll provide some guidance with respect to fiscal 2001 and 2002 and review some Q3 financial highlights. If you have any questions, you may call us at 1-908-688-0888, Ken Frankel, our director

of financial planning is at extension 4554, I'm at extension 4550. If we are not immediately available, Paula Marbach may be reached at extension 4552. I'm now very pleased to introduce Warren Eisenberg. Warren?

Good afternoon.

As you'll hear shortly from Steven, operating results for the fiscal third quarter of this our 30th anniversary, was solidly on plan. The tragic events of September 11th occurred shortly after the quarter began. At a time when general business conditions had already become difficult. Consumers were obviously distracted and promotional activity by other retailers accelerated due to the weak economy. So we're more than pleased that we're able to maintain our record of meeting or exceeding our operating plan in every quarter, now totaling 38 since our June 1992 ipo. If there was ever a period when our decentralized operating philosophy demonstrated its strength and flexibility, this fiscal third quarter was certainly it. During fiscal third quarter, we added 36 stores. Averaging slightly under 30,000 square feet each or approximately 1.4 million square feet. During the 12 months ended December 1, 2001, we added about 20% to total store space. This compares with an increase of approximately 25% in the comparable period last year. We planned to end this fiscal year with 396 stores. Four of the six stores scheduled for fiscal fourth quarter have already opened including a store in Puerto Rico. Our first store outside the continental U.S. The 85 store openings for fiscal 2001 is five more than we had originally planned. We continue to refine our ability to size new stores, to better meet the needs of the particular markets being served. This has resulted in stores that are smaller on average than those opened in prior years. Top line growth going forward,

therefore, should reflect not only the number of new store openings, but also total square feet of store space being added. With the still small but growing share of the approximately $75 billion home goods market, we feel strongly that prospects of achieving substantial growth in the years ahead continue to be outstanding. Consolidation within the home goods specialty segment appears to be continuing. The recent demise of home place, Lechter's and house to home appears to confirm this. We believe that demographics in our segment of the retail industry are strong and that our goal of operating more than 850 stores in the U.S. remains achievable and conservative. Since our last conference call, we expanded by adding two new directors whose experience and expertise I know will be valuable to our board. Victoria Marsden. And Mr. Dean Addler, an attorney and cps who is a co-founder of a private equity firm. The organization that we're building combined with our unique corporate culture continues to achieve impressive goals. With little more than ten weeks remaining in our current fiscal year, we remain comfortable in our belief that this year's objectives will be achieved. We're also looking forward to a successful fiscal '02 despite the obvious challenges. Now I'll turn the call over to Steven Temares, Steve?

Thank you, Warren.

Good afternoon, everyone. And thank you for participating in this conference call. Within the past hour, we're pleased to have reported a strong fiscal third quarter in year-to-date performance. The third quarter results reported today further delve on our over nine consecutive years of strong earnings growth. The generation of strong net earnings combined with a solid balance sheet and positive cash flow made our primary financial goals. The key fundamental to accomplishing these goals lies in our ability to provide our customers with a superior shopping experience. Everyone in our growing, dynamic organization is dedicated to doing just that. Getting to the highlights, net earnings for our fiscal third quarter were $53 million, equivalent to 18 cents per share compared with net earnings of $40.7 million or 14 cents per share in the prior year, an increase of approximately 30.2%. For the nine months net earnings were approximately $136.9 million, equivalent to 46 cents per share, compared with $107.6 million or 37 cents per share earned a year ago. Net earnings for the nine months advanced by about 27.2%. Also, as you probably noticed from the press release, net sales for the quarter were approximately $759.4 million, about 26.2% higher than those in the corresponding quarter a year ago. The sales for the quarter benefitted from a shift in the calendar that Ron will discuss in a few minutes. So perhaps a better gauge of the strength of our quarter is our comp store sales increase. Comp store sales for the quarter increased by approximately 5.8% versus a 4.2% comp increase in last year's fiscal third quarter. Our comp store sales are completely comparative -- same 13 weeks this year versus same 13 weeks last year, so the calendar shift that Ron will discuss had no impact on our strong comp store sales figure. Comps for the nine months came in at approximately 5% versus 5.1% last year. We are particularly thankful for our sales results for the fiscal third quarter in light of the criminal acts committed against our country on September 11th, and in their aftermath, the trying economic conditions they presented. The performance of our over 18^-- excuse me, now 19,000 associates, was and continues to be outstanding. And their dedication to serving our customers, never stronger. As such, we remain comfortable with our long-held 3% to 5% comp store sales growth target, which is a primary component of our long-term earnings growth model. As a reminder, last year's fourth quarter comps were 4.9%. Ron will have more to say about sales during his remarks. Gross profits for the fiscal third quarter were approximately $311 million or 41% of net sales, compared with $246.1 million or 40.9% of net sales during the fiscal third quarter of 2000. The ten basis point improvement in the gross profit margin was consistent with plan, and we would expect slightly favorable growth profit margin comparisons going forward. Selling, general and administrative expenses, which include new store preopening costs, were about $227.3 million, compared with approximately $181.5 million in the corresponding quarter a year ago. As a percentage of net sales, we've leveraged SG & A expenses by approximately 20 and 10 basis points during the quarter and the nine months, respectively. The third quarter improvement resulted primarily from efficiencies in payroll and payroll-related items, which were partially offset by higher preopening expenses. As we have repeatedly emphasized, we continue to invest heavily in our infrastructure to support the much larger, more successful company we are striving to acheive. We continue to believe that it is essential to create today the strongest possible foundation for the Bed Bath & Beyond of the future. As a result of the positive movements in our gross profits and SG & A ratios, our operating profit margin in the fiscal third quarter improved by approximately 30 basis points. For the nine months year-to-date the improvement was about ten basis points. We expect to see further gains in this key metric going forward. Warren commented earlier about our fiscal 2001 store opening program. Which with two additional stores expected to open by the end of January or early February now totals 85.

This is the largest number of annual new store openings in our 30-year history. Due to the exceptional efforts of all our people, including our store development and real estate groups, several of these openings, which normally would have been part of our fiscal 2002 store opening program were accelerated into the current year. Although these incremental openings are not expected to have a meaningful impact on our fiscal 2001 operating results, we are pleased that they will be able to make full year contributions beginning next year. As you'll hear later, our present new store opening target for 2002 now stands at 88 stores. Our decentralized culture, as Warren pointed out, which puts the customer first by entrusting much of the decisionmaking to local store personnel seems to be especially effective in the current operating environment. This operating philosophy continues to provide with us the unique competitive advantage in the marketplace by catering to our shoppers, by excelling at customer service and merchandising and by providing knowledgeable and dedicated associates with an exciting shopping environment, we look forward to continued strong performance. So to recap, net earnings in our fiscal third quarter rose approximately 30.2% to $53 million or 18 cents per share compared with $40.7 million or 14 cents per share in the fiscal third quarter of 2000. As you'll hear from Ron, we remain comfortable in our ability to achieve

all of our performance and growth objectives for this year and we are looking forward to reviewing our year-end and full year results with you in our fiscal year-end conference call scheduled for 5:00 on Wednesday, April 3rd, 2002. Before I turn the call back to Ron, and as I touched upon earlier, at the time of our last conference call on September 25th, had been just 14 days since the tragedy that changed the course of history and the lives of all of us. At that time, we stated our belief in the resilience of the American spirit. Much has happened in the last three months, and I know I speak for everyone at Bed Bath & Beyond when I express our great pride in the actions of our government, of our armed forces, police, fire and emergency workers and of the American citizens who have responded as they always have when lives and freedoms have been threatened. The lives lost can never be restored and the suffering caused by the heinous criminal acts of evil people cannot be easily extinguished. There can be no doubt about the justness of our country's cause, our resolve or of our ultimate success. On behalf of everyone here at Bed Bath & Beyond, we wish you the very best for the holiday season, a happy, healthy and hopefully soon peaceful new year. May God bless America. Ron?

Thanks, Steve.

As Steve said, we are pleased with our fiscal third quarter results and expect to achieve planned results going forward. I'd like to now review our guidance for fiscal 2001 which ends on march 2, 2002, and introduce our initial guidance for fiscal 2002. Again, we are pleased to reconfirm our commitment to achieving consensus earnings of 26 cents per share and 72 cents per share for the fiscal fourth quarter and full fiscal year 2001 respectively. I'd like to remind you of two important changes in the reporting calendar for the fiscal fourth quarter and full fiscal year. First, the week after THANKSGIVING fell into the fiscal fourth quarter last year as opposed to the fiscal fourth quarter this year. Secondly, we will lose a week in the fiscal fourth quarter this year because last year was a 53-week fiscal year. These changes should reduce our reported top line percentage increase in the fiscal fourth quarter to the low double digits range. And result in an increase of approximately 20% for the full fiscal year. Again, the low double digits gain for the fiscal fourth quarter is simply a result of the reporting calendar. Actual business for the 13 weeks in this year's fourth quarter versus the same 13 weeks last year is planned up approximately 20% and actual business for the 26 weeks in this year's second half against the same 26 weeks last year should also increase by approximately 20%. Of course, these changes in the reporting calendar were taken into consideration in our internal plans and we maintain our guidance of 26 cents for the fiscal fourth quarter and 72 cents for the fiscal year. With respect to comp sales as mentioned we remain comfortable with projecting increases in 3% to 5% range.

We'd like to make it very clear that we calculate comp sales on an apples to apples basis. Each week is compared with the identical week in the prior year. Each quarter consists of 13 weeks which are the same 13 weeks as in the prior year. As such, we are pleased to report a strong comp gain for the fiscal third quarter of 2001 of 5.8%. Getting back to our fiscal fourth quarter guidance, as mentioned, we expect to open six stores including four already opened and end the year with 396 stores occupying a little over 14.7 million square feet. An improvement in fiscal fourth quarter operating margin is anticipated. This is expected to result from an improved gross profit margin accompanied by S.G. & a expense leverage. The company's expense control initiatives and the absorption in the third fiscal quarter of certain expenses related to early fiscal fourth quarter store openings support this assumption. Capital expenditures for all of 2001 are now expected to approximate $145 million, mostly from new stores and information technology enhancements. Deappreciation and amortization are estimated at approximately $65 million for the fiscal year. Taxes will continue to be provided at 38.5% of pretax earnings. Interest income is expected to decline slightly versus last year's fourth quarter due to the sharp decline in interest rates and one less week in this year's fiscal fourth quarter calendar despite higher cash balances. As a result of the foregoing and other assumption, we expect net earnings equivalent to 26 cents per share in the fiscal fourth quarter and earnings of 72 cents per share for all of fiscal 2001 as previously mentioned.

Turning to our initial guidance for fiscal 2002, we are comfortable with current consensus estimates of 88 cents per share and 12 cents per share for the year and fiscal first quarter respectively. Fiscal 2002 will be a 52-week period beginning on Sunday March 3, 2002, ending on Saturday March 1, 2003. Our fiscal 2002 operating plan, which has not yet been finalized is preliminarily based on the following major assumptions -- we expect to add approximately 88 new stores and approximately 2.5 million square feet to total store space in fiscal 2002. Recall that five stores which were originally part of our fiscal 2002 program will have opened during the current fiscal year 2001. Quarterly 2002 openings the timing of which are subject to a variety of factors, are presently assumed to be as follows -- Q1, 15. Q2, 24. Q3, 40. Q4, 9. We continue to project new store net sales of between 150 and 175 dollars per square foot in their first 12 months of operation. We expect net sales for fiscal 2002 to increase by approximately 20% and comp sales to grow from 3% to 5%. The combination of an increase in the gross profit margin and additional S.G. & A. expense leverage is expected to result in an improvement in our operating -- net operating margin. Interest income again, given the current interest rate environment, is expected to decline in fiscal 2002 despite higher investible cash balances anticipated during the year.

Our current guidance for the effective tax rate for fiscal 2002 is 38.5%. However, we anticipate that when we finalize our 2002 operating plan, the effective rate might be reduced. Based on these and other assumptions, we are committed, as previously stated, to achieving the consensus earnings estimate for fiscal 2002 of 88 cents per share and longer term also remain committed to achieving our goal of doubling net earnings every three years. A few additional financial comments relative to the fiscal third quarter of 2001. Our balance sheet and cash flows have been described as pristine. As of December 1, 2001, cash and cash equivalents approximated $328.3 million compared with approximately $104.89 million a year ago. During the first nine months, we experienced a net increase in cash and cash equivalents of approximately $82 million. Our cash portfolio continues to be invested conservatively and, as previously stated, interest income benefits resulting from a significantly higher average balances are being offset by significantly lower interest rates. Merchandise inventory levels for the important holiday selling season will plan to fully support our sales goals for the period. This positive planning approach is also applied to the staffing levels for the period. We always believed in fully stocking our stores with abundant quantities of merchandise commerce are looking for and have a sufficient number of well trained associates ready and able to assist them.

We continue to tailor inventories to meet our customers demands. Merchandise inventories at approximately $849.2 million were in line with plan. With respect to our fulfillment center and the four stores open in December, their inventories are included in the 849.2 million balance but their square footage is not. Shareholders equity at December 1, 2001 were approximately $992.8 million. A year ago it was about $725.1 million. Capital expenditures through December 1, 2001, primarily for new stores and information technology were approximately $96.5 million compared with $112 million for the first three fiscal quarters a year ago. This reduction in cap ex resulted principally from lower expenditures from leasehold improvements. As stated previously, we now expect the cap ex for all of fiscal 2002 will be about $145 million, down from prior guidance of $160 million compared with $140.4 million in fiscal 2002. That cap ex for fiscal 2001. Depreciations and amortizations for the nine months came to approximately $45.7 million up from 32.8 million last year. As always, we very much appreciate your ongoing interest in Bed Bath & Beyond. I would like now to simply add my prayers for peace and well-being for people of good will and wish you all a happy, healthy holiday season. God bless America. This concludes today's

conference call. Thank you all for listening.