Bed Bath & Beyond Inc (BBBY) 2002 Q3 法說會逐字稿

Welcome to Bed Bath & Beyond fiscal third quarter of 2002 results conference call. All participants will be in a listen-only mode for the duration of the call. This call is being recorded. A rebroadcast of this conference call will be available on December 18, 2002, beginning 6:30 p.m. eastern time, through 6:30 p.m. eastern time on Friday December 20, 2002. To access the rebroadcast, dial 1-800-428-6051 with an access code of 267354. I'd like to turn the call over to Mr. Ron Curwin, Chief Financial Officer and Treasurer of Bed Bath & Beyond.

Good afternoon and welcome to Bed Bath & Beyond's fiscal third quarter of fiscal 2002 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 management's review of the results of operation, financial condition, cash flow and other comments will be informative.

Before proceeding I will 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 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 statements. As a result of many factors that may be outside the company's control including but not limited to a substantial change in the business environment. Please refer to Bed Bath & Beyond's SEC filings including Form 10-K for the year ended March 2, 2002. The company does not undertake any obligation to update its forward-looking statements, end of quote.

Leonard Feinstein, who co-founded our company in 1971 with Warren Eisenberg, and serves together with Warren as co-Chief Executive Officer and co-Chairman of Bed Bath & Beyond, leads off today's call. Steven Tamares, President and Chief Operating Officer and a member of our board of directors, will then review the fiscal third quarter and fiscal nine months results. At the conclusion of Steve's comments we will update guidance with respect to our fiscal fourth quarter and overview financial highlights of the recently concluded fiscal third quarter. We will also comment briefly on the fiscal 2003 outlook. I am now very pleased to introduce Leonard Feinstein.

Good afternoon.

I'm pleased to report the strong operating results experienced during our fiscal first half continued throughout the fiscal third quarter enabling us to report record sales and earnings for this quarter. In a little over a decade, Bed Bath & Beyond store count has grown from 34 stores in nine states to 489 stores in 44 states and Puerto Rico.

In fiscal '92 our net sales were about $216 million and we earned about $16 million. For the current year, analysts are estimating net sales of about $3.6 billion and earnings of about $290 million. We are proud of the fact that we have achieved this growth with internally generated funds and that we have been debt free for over six years. In fact, as of the end of our fiscal third quarter, despite our growth and significant infrastructure enhancement, our cash and investments exceeded $592 million.

During the fiscal third quarter we added 55 Bed Bath & Beyond stores, averaging about 27,000 square feet each or approximately 1 1/2 million square feet. We also relocated two existing stores during the period. At the end of the quarter, total store space was approximately 17.2 million square feet. During the nine months ended November 30, 2002, we opened 92 stores. Adding about 17% to total store space. Compared with an increase of approximately 20% in the comparable three quarters last year.

While our prior guidance was that we would open 88 stores this year, that number now has grown to 95. This is due to the fact that several of the 2003 stores will be included in this year's openings. A new Harmon store, the 29th in the Harmon chain, acquired in March, was also opened during the quarter. We continue to find new stores to better meet the specific needs of the specific markets being served. This has resulted in stores that are smaller an average than those opened in prior years.

Our rapid growth notwithstanding, Bed Bath & Beyond's share of the approximately $75 billion home goods market remains relatively small, affording us substantial expansion opportunities. Industry growth demographics remain quite strong. We estimate we can operate at least 950 Bed Bath & Beyond stores in the U.S. We also continue to regularly explore other growth opportunities, recognizing we have the capital and the organization to do so.

The organization we have built combined with our unique corporate culture continues to achieve exceptional results. As the retail industry continues to consolidate, we are pleased that by any measure the performance gap between ourselves and our direct competitors is widening. We are working hard to maintain this trend. With a little more than ten weeks remaining in the current fiscal year, we are comfortable that our financial objectives for fiscal 2002 will be achieved. Despite the obvious challenges we are also looking forward to a success-filled fiscal 2003. I'll now turn the call over to Steven Tamares.

Thank you, Len. Good afternoon, everyone, and thank you for participating in this conference call.

Within the past hour we are pleased to have reported a strong fiscal third quarter and year to date performance. As most of you know for over 31 years we have grown our company as the decentralized organization. This is consistent in with our belief in the dedication and talent of our associates. We believe our decentralization has led to better decision-making and better execution. Through the efforts of our associates and their focus on servicing our customers and providing them with the very best possible shopping experience, we have been able to achieve our consistent long-term performance. We believe our operating philosophy continues to provide us with a unique competitive advantage in the marketplace. While a decentralized operation can always cherry pick the best aspects of a centralized organization, it's very difficult to transform a centralized operation into a decentralized one. In fact, we are unaware of any large retailer who has successfully migrated a decentralized model.

The third quarter results reported today further builds on our over ten consecutive years of strong earnings growth. The generation of strong net earnings combined with a solid balance sheet and positive operating cash flow remain our primary financial goals. The key fundamental to accomplishing these goals lies in our ability to provide our customers with a superior shopping experience. Our growing dynamic organization is dedicated to doing just that.

Turning to the financial highlights, net earnings for our fiscal third quarter were $75.1 million, equivalent to 25 cents per share compared with net earnings of $53 million or 18 cents per share in the prior year, an increase of approximately 41.8%. For the nine months net earnings were approximately $196.9 million, equivalent to 65 cents per share compared with $136.9 million or 46 cents per share earned a year ago. Net earnings for the nine months advanced by about 43.8%. This represents the fourth consecutive quarter in which earnings exceeded consensus forecasts.

Net sales for the quarter were approximately $936 million, about 23.3% higher than those in the corresponding quarter a year ago. As explained in our last conference call on September 25, two factors influenced this year's fiscal third quarter sales. First, a calendar shift resulted in seven fewer post-Thanksgiving shopping days this year than in the fiscal third quarter 2001. Second, new stores continued to be somewhat smaller on average than those opened previously.

For the first nine months, net sales advanced to $2,616 million approximately 27.7% higher than a similar period last year. Comp store sales for the quarter increased by approximately 8%. In last year's fiscal third quarter, comp store sales rose 5.8%. For the nine months comps were approximately 9.5% versus 5% last year.

You may recall from our September conference call that even though our comp sales growth for several preceding quarters were well in excess of 5% we continued to project same store sales growth in the 3 to 5% range. Again, despite our extremely strong comps in recent quarters we reiterate this guidance and wish to remind everyone that we are up against the strongest fourth quarter comps in our company history.

Gross profit for the fiscal third quarter was approximately $386.2 million or 41.3% of net sales, compared with $311 million or 41% of net sales during the fiscal third quarter of 2001. The 30 basis point improvement in the gross profit margin was consistent with plan and we would expect favorable gross profit margin comparisons going forward.

Selling, general and administrative expenses were about $267 million, compared with approximately $227.3 million in the corresponding quarter a year ago. As a percentage of net sales we leveraged SG&A expenses by approximately 140 and 120 basis points during the quarter and the nine months respectively.

The third quarter improvements primarily resulted from efficiencies in pre-opening expenses, occupancy expenses and payroll and payroll-related items. Against the backdrop of our ongoing desire to continue to invest in and strengthen our infrastructure we nonetheless strive to systematically reduce and eliminate costs throughout our operations. We will continue to employ this balanced strategy of reinvesting for the company's future while achieving planned current operating results.

As a result of the positive movements in our gross profit and SG&A ratios, our operating profit margin in the fiscal third quarter improved by approximately 170 basis points. For the nine months year to date, the improvement was about 150 basis points and we expect to continue to see leverage going forward.

Len commented earlier about our fiscal 2002 store opening program, which with three stores expected to open prior to our fiscal year end, will total 95. You may recall that in the second quarter conference call, we commented that there might be some upside to the 88 stores projected at that time to open in fiscal 2002. Due to the exceptional efforts of all our associates including our new store opening team, we were able to accelerate several of these openings which normally would have been part of our fiscal 2003 store opening program into the current year. Although the additional stores opened over plan will not have a meaningful impact on the fiscal 2002 operating results, we are pleased that they will be able to make full year contributions beginning next year.

We remain extremely well positioned to take advantage of any opportunities that arise and to respond to any challenges that may lie ahead. We are pleased with our year to date operations, which reflect strength in sales, improvements in gross profit and expense leverage. Our balance sheet at November 30 was our best ever. And operating cash flow remains strong. Our financial strength which has always been a key management focus seems to have taken on added importance in the current economy and we see our balance sheet continuing to strengthen as we look to the future.

So to recap, net earnings in our fiscal third quarter rose approximately 41.8% to $75.1 million or 25 cents per share compared with $53 million or 18 cents per share in the fiscal third quarter of 2001 on an approximately 23.3% increase in net sales and an 8% gain in same store sales. As you will hear from Ron, we remain comfortable with our ability to achieve all of our performance and growth targets for fiscal 2002, which ends March 1, 2003. We will review our fiscal fourth quarter and full-year results with you in our next conference call scheduled for 5:00 on Wednesday, April 2, 2003.

On behalf of everyone here at Bed Bath & Beyond, we wish you the very best for the holiday season and a happy, healthy and prosperous new year. Ron?

Thanks, Steve.

As Len and Steve said, we are pleased with our fiscal third quarter and year to date results. Furthermore, we remain comfortable with our ability to achieve our remaining financial goals for fiscal 2002, which ends on March 1, 2003. After updating guidance for our fiscal fourth quarter and the plan assumptions which support it, we will comment on the outlook for fiscal 2003. We will also touch briefly on some fiscal third quarter financial highlights.

First, fiscal 2002, which has a little more than ten weeks to go. We provided our initial fiscal year 2002 earnings guidance last December during our fiscal third quarter 2001 conference call. At that time we indicated that we were comfortable with the then consensus estimate of 88 cents per share. This target has been raised in each quarter since then to 91 cents per share in April, to 93 cents per share in June and then to 95 cents per share in September.

Based on the year to date results reported today and other assumptions we are raising our earnings target for fiscal 2002 for the fourth consecutive time. This time to 98 cents per share. Since last December our earnings per share target for fiscal 2002 has been raised by approximately 11%. From 88 cents per share to 98 cents per share. The projected increase in earnings per share 2002 versus 2001 is now about 32%. We are comfortable with consensus earnings estimates of 33 cents per share for the fiscal fourth quarter, an increase of 1 cent per share from our 32% per share guidance three months ago.

Our outlook for the balance of fiscal 2002 is based on the following major planning assumptions. One, at the end of fiscal 2002 we expect to be operating 491 Bed Bath & Beyond stores occupying a total of approximately 17.3 million square feet. Two, our expansion will continue to be funded with internally generated funds. Three, taking the Thanksgiving holiday shift, the smaller average size of new stores and other factors into consideration, net sales in the fiscal fourth quarter are expected to increase by approximately 20%. For all of fiscal 2002, the increase in net sales is expected to be approximately 25%. Comp sales for the fiscal fourth quarter which are up against our strongest ever fourth quarter comp sales increase, are expected to grow by 3 to 5%.

Four, the gross profit margin, SG&A expense ratio and operating profit margin are planned to show some improvement over those reported for the fiscal fourth quarter of 2001. Five, we expect fiscal year end inventories to be in line with historic trends. Six, interest income for all of fiscal 2002 is expected to show little change from the prior fiscal year. Seven, capital expenditures for all of fiscal 2002 are planned to be approximately $150 million, mostly for new Bed Bath & Beyond stores and for information technology enhancements. Depreciation and amortization continue to be estimated at approximately $80 million for the year. Eight, income taxes will continue to be provided at 38 1/2% of pretax earnings.

Based on these and other planning assumptions, we expect as said previously, to achieve our remaining financial goals of fiscal 2002 and to end the year in our strongest ever financial condition. Our fiscal 2003 operating plan will be finalized within the next few weeks. At this time we are comfortable with consensus earnings estimates of $1.18 per share and 18 cents per share for fiscal year 2003 and for the first fiscal quarter of 2003 respectively.

Following are a few of the assumptions on which our fiscal 2003 operating plan will be based. Approximately 88 new stores and approximately 2.2 million square feet of total store space will be added in fiscal 2003. Recall that seven of the stores which were originally part of the fiscal 2003 program were opened during fiscal 2002. Quarterly 2003 openings, the timing of which may be affected by a variety of factors are presently assumed to be as follows: First quarter, 12. Second quarter, 23. Third quarter, 50. Fourth quarter, 3. New store net sales are expected to be between $150 and $175 per square foot in the first 12 months of their operation.

Net sales of fiscal 2003 are expected to increase by about 20% and comp sales by about 3 to 5%. Comp sales in the first fiscal quarter of fiscal 2002 grew by 13.2%. Net operating margin is expected to improve further due to the combination of firmer gross profit margins and SG&A savings. Obviously we will continue to refine our fiscal 2003 operating plan on an ongoing basis and will provide quarterly updates throughout the new fiscal year.

Before concluding this afternoon's call, a few additional comments relative to the just concluded fiscal third quarter. One, our debt-free balance sheet as of November 30, 2002, remains strong and flexible. The combined total of $592 million in cash, cash equivalents and investment securities, compares with cash and cash equivalents of about $321 million a year ago, an increase of about $271 million or 84%.

Two, merchandise inventory levels for the now ongoing holiday selling season were planned to fully support our sales goals for the period. This positive planning approach was also applied to store staffing levels. We have always believed in fully stocking our stores with abundant quantities of merchandise customers are looking for and having well-trained associates ready and able to assist them. We will continue to tailor inventories by store to meet our customers' demands. Merchandise inventories at November 30, 2002, of approximately $989.1 million compared with approximately $849.2 million a year ago and they were on plan.

Three. Three, shareholders equity at November 30, 2002 was approximately $1,340 million A year ago it was about $993 million. Four, capital expenditures through November 30, 2002, primarily for new stores and information technology were approximately $122.5 million compared with $96.5 million for the first three fiscal quarters a year ago. As previously stated, we now expect that Cap Ex for all of fiscal 2002 will be about $150 million compared with $121.6 million expended in the prior year. Depreciation and amortization for the nine months came to approximately $57.1 million up from $45.7 million last year and should be about $80 million for all of fiscal 2002.

We continue to believe that with the small but expanding share of the retail marketplace for home goods, Bed Bath & Beyond's growth opportunities in years ahead are exceptional. We remain dedicated to providing the best possible shopping experience for our millions of valued customers.

Our next conference call to discuss final results of fiscal year 2002 and our updated outlook for fiscal 2003 will be on Wednesday, April 2, 2003. If you have any questions, you may call us at 1-908-688-0888. Ken Frankel is at extension 4554. Paula Marback is at extension 4552. You can reach me at 4550. We'll respond as quickly as possible. As always, we very much appreciate your ongoing interest in Bed Bath & Beyond and I'd like to join Steve, Warren and Len in wishing you all a happy, healthy and prosperous holiday season and new year. This concludes today's conference call. Thank you all for listening.

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