Bed Bath & Beyond Inc (BBBY) 2002 Q4 法說會逐字稿

Welcome to Bed Bath & Beyond’s fiscal fourth quarter and fiscal year 2002 results conference call.

All listeners are in a listen-only mode for the duration of the call.

This call is being recorded.

A rebroadcast will be available beginning on Wednesday, April 2, 2003 at 6.30 p.m. eastern time through 6.30 p.m. eastern time on Friday, April 4, 2003.

To access the rebroadcast, dial 1-800-428-6051 with a pass code ID of 284887.

I will now turn the call over to Mr. Warren Eisenberg, Co-Chairman of Bed Bath & Beyond.

Please go ahead, sir.

Thank you.

Obviously recent events have weighed heavily on our hearts and minds as we prepared for the release of our year-end results and for this conference call.

Our pride in the accomplishments of our 23,000 Bed Bath & Beyond associates during the past year is significantly tempered by our concerns for the well-being of the men and women, who are, as we speak, answering our country's call to military service, putting their lives at risk.

Among them are a number of Bed Bath & Beyond associates or family members.

Our prayers are with all our service people, their families, and our country's leaders.

We hope for a speedy successful outcome and for their safe return in the near future.

I'll now turn the call over to Ron Curwin, CFO and Treasurer.

Thank you.

Good afternoon.

Welcome to Bed Bath & Beyond’s fiscal fourth quarter 2002 conference call.

We're pleased to report that our principal financial and operational goals for the quarter and for the entire fiscal year were not only achieved, but exceeded.

We hope that management's review of the results of operations, financial position, cash flows, and other comments relative to our business will be useful.

Before proceeding, I will read the following statement, and I quote.

Bed Bath & Beyond's fiscal fourth quarter press release and comments made during this call may contain forward-looking statements.

Many of these forward-looking statements can be identify by the use of word such as may, will, assume, 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 2, 2002.

The company does not undertake any obligation to update its forward-looking statements, end of quote.

Warren Eisenberg, who co-founded our company in 1971 with Leonard Feinstein and serves together with Len, as Co-Chairman of Bed Bath & Beyond, leads off today's call.

Steven Temares, President and CEO, and member of our board of directors, will then review the fiscal fourth quarter and fiscal year 2002 results.

At the conclusions of Steve's comments, we will update guidance with respect to fiscal 2003, which we began on March 2, 2003, and review financial highlights of the recently concluded fiscal fourth quarter.

I'll now turn the call back to Warren Eisenberg.

Good afternoon.

I'm pleased to report that despite the economic slowdown, increased promotional activity by many other retailers, international tensions, severe weather, and a shorter holiday selling season, Bed Bath & Beyond is able to report that we exceeded all of our performance objectives with earnings up 37.6% for fiscal 2003, and by 27.4% for the fiscal fourth quarter.

We're particularly pleased to have been able maintain our record of meeting or exceeding our operating plan in every quarter, now totaling 43, since our 1992 IPO.

During fiscal 2002, we added 95 new Bed Bath & Beyond stores, seven of which were originally planned to open in fiscal '03.

We added about 2.5m square feet, approximately 17.2%, bringing totals store space of the Bed Bath & Beyond stores to over 17.2m square feet at year end.

Two existing stores were relocated, and one of our smaller stores, approximately, 8,00 feet, was closed prior to year's end in terms advantageous to our company.

We also opened two Harmon stores this past year bringing that total to 29.

We continue to refine the size of our new stores to better meet the needs of the particular markets being served, resulting in stores that are smaller in average than those opened previously.

Top line growth going forward, as we have seen in recent year, is expected to continue to reflect not only the number of new store openings, but also the total square feet of store space being added.

Looking at the real estate market, we anticipate that additional opportunities that are not currently available might become available over the course of the year.

Based upon these possible opportunities, we have chosen to be patient in our new store site selection process.

The number of stores that we will open this year will be based, in part, on the timing of these opportunities.

Currently, our guidance for '03, new Bed Bath & Beyond stores, is a range from the low of 80s to 90 new stores.

We believe our patience creates additional flexibility and is in the best long-term interest of our company.

As Ron will discuss, our range of new store openings, fully supports the attainment of our major financial objectives, including consensus earnings for fiscal 2003.

I'm also pleased to report today a reworking of our management structure.

This restructuring is consistent with new standards for corporate governance.

One of these standards suggests that there are governance benefits to be derived from separating the positions of CEO and Chairman.

Consistent with this thought process, Leonard Feinstein and I have given up our positions of Co-CEOs, but will continue our full-time active involvement in our Company, in our capacity as Co-Chairman.

Steven Temares, who has been managing our Company’s operations for the last six years will remain President, and has also assumed the additional title of CEO.

Based on the roles that have evolved over the years, we are confident that these changes in titles will be transparent within our organization and in the way we conduct our business.

Len and I congratulate Steve and look forward to the continuation of our close, effective, working relationship.

Fiscal 2002 was, despite the challenges a great year for us.

We are pleased that our sales and earnings growth has been consistent and that by all measures, we once again exceeded expectations.

The organization we've built, combined with our unique corporate culture, continues to establish and achieve impressive goals.

We are pleased that the performance gap between ourselves and our direct competitors continues to widen, and we're working hard to maintain this trend.

We expect that 2003 will be our best year ever.

I'll now turn the call over to Steve Temares.

Steve?

Thank you, Warren.

Good afternoon.

Thank you for participating in this conference call.

This afternoon, we were pleased to have reported a solid fiscal fourth quarter and above planned results for fiscal 2002.

To briefly touch upon the highlights, net earnings for our fiscal fourth quarter were $105.3m, equivalent to $0.35 per share, up approximately 27.4% from the $82.7m, or $0.28 per share earned in the final quarter a year ago.

For the full year, net earnings were $302.2m, or $1 per share, about 37.6% higher than the $219.6m or $0.74 per share, earned in fiscal 2001.

This was our largest percentage increase in earnings in six years, and the largest of any year since we became a public company in 1992, with the exception of the 39.4% increase recorded in fiscal 1996, which benefited from an additional six days.

These results continue an almost 11-year, 43-quarter record of uninterrupted earnings growth achieved by Bed Bath & Beyond since our IPO on June 4th, 1992.

Since that date, our net earnings have more than doubled in every three-year period, an accomplishment of which we are extremely proud.

These consistent results are a tribute to all Bed Bath & Beyond associates, who continue to demonstrate daily their exceptional abilities and extraordinary efforts in better serving our customers.

Our primary financial goals have always been and remain the generation of strong net earnings, combined with the solid balance sheet and positive cash flow.

Net sales for the 13 weeks ended March 1, 2003 were approximately $1.05b, about 19.4% higher than in the corresponding quarter a year ago.

Fourth quarter comps at 4.1% were comfortably within the forecast range of 3-5%, compared with 11.9% a year ago, which were at the time and as we reminded everyone in our third quarter conference call, the strongest fourth quarter comps in our company's history.

As Warren said, given the tough comparison, the economic slowdown, international tensions, severe weather, and a shorter holiday selling period, we are extremely pleased that our customers' response to our offerings continue to be quite positive.

Looking ahead.

Our comp store sales growth target remains 3-5%, a goal that continues to be a key component of our long-term earnings model.

For all of fiscal 2002, net sales advanced to $3.665b, about 25.2% higher than the $2.928b achieved a year ago.

Comps for all of fiscal 2002 grew by 7.9%, the strongest annual comp increase in three years.

In fiscal 2001, same-store sales were up 7.1%.

In addition to crediting our customers and store associates for their contributions to our fiscal 2002 success, we can also once again cite more effective merchandising, more efficient promotional efforts, and enhanced information technology, all of which supported the achievement of better than planned net sales and earnings.

Our gross margin improved for the second consecutive year.

For the fiscal fourth quarter, gross profit was about $443.6m, or 42.3% of net sales, compared to the $370.2m or 42.1% of net sales during the fiscal fourth quarter of 2001.

The 20 basis point improvement in the gross profit margin for the quarter and for the year were consistent with plan, and we are modeling favorable gross profit margin comparisons going forward.

Now, in general and administrative expenses, we're about $275.2m during the fiscal fourth quarter, compared with approximately $238.2m in the corresponding quarter a year ago.

As a percentage of net sales, we experienced a leverage of approximately 90 basis points for the fourth quarter, and 110 basis points for the year.

This leverage for the year resulted primarily from efficiency in occupancy and pre-opening expenses, partially offset by payroll and payroll-related items.

Our SG&A ratio has improved in each of the last six years, and we would expect to experience additional operating efficiencies going forward.

Nonetheless, having noted that, we intend to continue our longstanding practice of investing heavily in our infrastructure to support our vision of where we expect Bed Bath & Beyond to be in the future.

As a result of the full-year improvements in the gross profit margin, and the selling, general and administrative expense ratios, we experienced an approximately 130-basis point improvement in our operating profit margin.

Over the last ten years, Bed Bath & Beyond's store count has grown from 34 stores in nine states to 496 stores in 44 states and Puerto Rico.

More importantly, over the past decade, sales have grown at an average annual rate of about 33%, from $216m to almost $3.7b.,And net earnings have increased at an average annual rate of approximately 34%.

That's from $16m to over $302m.

All of this growth was achieved with internally generated funds, and we've been debt-free for over seven years.

At the end of fiscal 2002, cash and investments exceeded $764.6m, with once again, no debt.

Warren commented earlier about our fiscal 2003 store opening target.

Should the real estate opportunities that Warren referred to develop, our financial strength and flexibility, combined with our talented, dedicated new-store development team will enable us to take prompt advantage of them.

You may recall in the third quarter conference call, he mentioned that several of the new store openings planned for fiscal 2003 were in fact opened in fiscal 2002.

We are pleased at the seven stores which opened earlier will be able to make full-year contributions this fiscal year.

Our rapid growth notwithstanding, Bed Bath & Beyond's share of the approximately $85b home goods market remains relative small, affording us substantial expansion opportunities.

Industry growth demographics remain quite strong, and we continue to be comfortable with our long-term target of at least 950 Bed Bath & Beyond stores in the United States.

We also continue to regularly explore other growth opportunities, recognizing we have the capital and the organization to do so.

Our year-end balance sheet was our best ever, and operating cash flow remains strong.

Our financial strength, which has always been a key management focus, has taken on added importance in the current business environment, and we see our balance sheet continuing to strengthen as we look to the future.

Our decentralized culture, which puts much of the decision making closest to our customers has been responsible for much of the success we have achieved over the years.

We believe this operating philosophy and the entrepreneurial and dedicated associates it produces continue to provide us with the unique competitive advantage in the marketplace.

So to recap, Bed Bath & Beyond's fiscal fourth quarter produced record earnings of $105.3m, or $0.35 per share, about 27.4% higher than a year ago, on a 19.4% increase in net sales and a 4.1% gain in same-store sales.

The full year, net earnings were $302.2m, or $1 per share.

Up about 37.6% from fiscal 2001, on a net sales increase of approximately 25.2%, and a comp store sales increase of 7.9%.

Fiscal 2002, with its opportunities and challenges was successful by any measurement, and we remain steadfast in our dedication to serving our customers, and in so doing, achieves our performance objectives.

Finally, as you will hear from Ron, we remain comfortable with our performance and growth targets for our new fiscal year.

We look forward to reviewing our first quarter results with you on our next conference call scheduled for 5pm on Wednesday, June 18, 2003.

Before I turn the call over back to Ron, who at the conclusion of the call will be in his office to answer any questions you might have, I'd like to thank Warren, Len, and the Board of Directors for the confidence they have shown in me, and together with the rest of our team, look forward to our continued outstanding performance.

Lastly, and most importantly, on behalf of Bed Bath & Beyond, we extend our deepest gratitude to all those serving our country in our armed forces.

We pray for a swift and successful outcome, and for their safe return.

Ron?

Thank you, Steve.

And congratulations.

We're obviously pleased with our fiscal fourth quarter and full year 2002 results, the best in our 31-year history.

This afternoon, we would like first to compare our fiscal 2002 actual performance to prior guidance.

We will then update fiscal 2003 guidance, comment on the major planning assumptions underlying such guidance and conclude with an overview of some of our fiscal 2002 financial highlights.

First, how did we do versus guidance?

We provided our initial fiscal year 2002 earnings guidance in December 2001, with the then consensus estimate of $0.88 per share.

That earning target was subsequently increased in quarterly increments to $0.98 per share as of our last conference call in December 2002.

As we now know, fiscal 2002 earnings reported about an hour ago were actually $1 per share.

With respect to net sales, we guided to an increase of approximately 20% for the fiscal fourth quarter.

The actual increase was 19.4%.

For the year net sales were up 25.2%, inline with our December guidance of approximately 25%.

The actual comp sales gain of 4.1% for the fiscal fourth quarter was comfortably within the 3-5% forecast range.

Our balance sheet and cash flows continue to strengthen, providing our company with exceptional financial resources and flexibility.

By any reasonability measurement or expectation, Bed Bath & Beyond’s fiscal 2002, and fiscal fourth quarter results were solidly on plan.

Turning to our fiscal 2003 guidance.

Obviously, as with most businesses, it is difficult to measure the possible impact of the war and changes in the retail climate are now financial performance.

Therefore our forecast is based on the assumption of the continuation of relative normal business conditions.

We said in our December 18th conference call that, and I quote, we are comfortable with consensus earnings estimates of $1.18 per share for fiscal 2003, and $0.18 per share for fiscal first quarter 2003, close quote.

As a result of our favorable Q4 2002 results and updated planning assumptions, we are comfortable with the current consensus earnings estimate of $1.20 per share for fiscal 2003, and $0.18 per share for the fiscal first quarter, which began on March , 2003.

The aforementioned fiscal 2003, and first fiscal quarter earning targets are supported by, among others, the following major planning assumptions.

One, as mentioned earlier, in fiscal 2003, we currently expect to open new Bed Bath & Beyond stores numbering between the low 80s and 90, comprising approximately 2m square feet of total square space.

Recall that seven stores, which were originally part of our fiscal 2003 program, were actually opened prior to the end of fiscal 2002.

Approximately eight stores, including six already opened, are expected to open in the first quarter, and approximately 25 stores are now expected for open in our fiscal second quarter, consistent with prior years.

All the remain stores, with the exception of a few in fourth quarter, are expected to open during our fiscal third quarter.

As of today, we are operating 496 Bed Bath & Beyond stores, and 29 Harmon stores.

Two, we continue to project Bed Bath & Beyond new stores net sales of between $150 and 170 per square foot in the first 12 months of operation.

We expect a mid teens percentage increase in net sales for the first quarter, and for all of fiscal 2003, and that comp sales will grow in the 3-5% range.

Three, the combination of another modest increase in the gross profit margin and additional SG&A operating efficiencies is expected to result in continued improvement in the company's net operating profit margin.

Four, interest income.

Given the current interest rate environment, is expected to show little change, despite higher investment cash balances anticipated during the year.

Five, the effective tax rate for fiscal 2003 is expected to remain at 38.5%.

Six, capital expenditures for fiscal 2003, principally for new Bed Bath & Beyond stores, and information technology enhancements are estimated at approximately $165m.

Depreciation and amortization for fiscal 2003 is expected to be in the range of $75-85m.

Before concluding this afternoon's call, a few additional comments relative to fiscal 2002.

One, our balance sheet and cash flows continue to strengthen year over year.

As of March 1, 2003, cash, cash equivalents and investment securities approximated $765m.

This compares with approximately $481m in cash, cash equivalents, investment securities a year ago, an increase of about $283m or 59%.

Fiscal fourth quarter increase in cash, cash equivalents and investment securities was approximately $172m.

Two, we continue to tailor inventories by store to meet our customers' demands.

Merchandise inventories in March 1, 2003 of approximately $916m, about a 2.5% increase on a per square foot basis year over year, was solidly on plan.

We continue to utilize a small portion of our cash resources to modestly increase merchandise inventories where appropriate to accommodate new or expanded merchandise offerings, and by so doing, to better meet the needs and expectations of our customers.

Three, shareholders' equity at March 1, 2003, was approximately $1.5b, about 33% higher than the $1.09b a year ago.

Four, capital expenditures, primary for new stores and information technology were approximately $135.3m for the fiscal year.

In fiscal 2001, CAPEX were approximately $121.6m.

Depreciation and amortization was about $75m for the fiscal year, compared with about $63m in fiscal 2001.

Although we are never satisfied, the fundamental performance of our company continues to exceed our operating plan.

With a small but expanding share of the retail marketplace for home goods, and with what many believe to be the premier offering in the retail sector that we serve, Bed Bath & Beyond's growth opportunities in the years ahead are exceptional.

We remain dedicated to providing the best possible shopping experience for our millions of valued customers.

I would like now to simply add my prayers for the safety of our military personnel and for the swift return of peace, tranquility, and the sense of well-being for all of us.

God bless the United States of America.

As Steve said, our next conference call to review results for the fiscal first quarter of 2003, and to update our fiscal 2003 outlook will be on Wednesday, June 18, 2003.

We look forward to updating you at that time.

If you have any questions, you may call us as 1-908-688-0888, Ken Frankel (ph) is at extension 4554, Paula Marback (ph) is at extension 4552.

You can reach me at extension 4550.

We'll respond as quickly as possible.

As always, we very much appreciate your ongoing interest in Bed Bath & Beyond.

This concludes today's conference call.

Thank you all for listening.

This concludes our conference call today.

Thank you for participating.

Have a great day.

All parties may now disconnect.