Bed Bath & Beyond Inc (BBBY) 2003 Q2 法說會逐字稿

Welcome to the Bed Bath & Beyond fiscal conference call.

All participants are in a listen-only mode.

This call is being recorded.

Broadcast of this conference call will be available on September 24th, 2003 beginning at 6:30 P.M. eastern time through 6:30 P.M. eastern time on Friday September 26th, 2003.

To access the rebroadcast dial 1-800-428-6051.

With a pass code of 300834.

I will like to turn the call over to Mr. Ron Curwin, Chief Financial Officer and Treasurer of Bed, Bath & Beyond.

Thank you.

Good afternoon and welcome to Bed Bath & Beyond's fiscal second quarter of fiscal 2003 conference call.

We are pleased that our financial and operational objectives for the period were achieved.

The results for the quarter reflect the acquisition of Christmas Tree Shops Incorporated since the Daft acquisition of June 19th.

We hope that review of the results of operations, financial position, cash flows and other comments relevant to our business will be informative and useful.

Before proceeding, I will read the following statement and I quote, "Bed Bath & Beyond's fiscal press release and comments made during this call may contain forward-looking statements within the meaning of section 21 E of the Securities Exchange act.

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 changes in the business environment.

Please refer to Bed Bath & Beyond's SEC filings including its Form 10-K for the year ended March 1st, 2003.

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 Feinstein as co-Chairman of Bed, Bath & Beyond leads off today's call.

Steve Temares, President and Chief Executive Officer and a member of the Board of Directors will then review the fiscal second quarter and fiscal first half results.

After the comments, we will update fiscal 2003 guidance last revised June 19th, 2003 and review some of the fiscal second quarter and first half financial highlights.

I now very pleased to introduce Warren Eisenberg.

Thank you.

I'm very pleased to report that the strong stock we experienced during the initial quarter of fiscal 2003 was followed by another excellent period in the fiscal quarter ended August 30th, 2003.

Bed, Bath & Beyond continues to perform at impressive levels, in terms of consistent earnings growth, cash flow generation and overall financial strength.

Despite the challenging economy, we were able to maintain our record of meeting or exceeding our operating plan in each and every one of the 45 fiscal quarters since we became a public company in 1992.

On June 19th, 2003, we announced the approximately $200 million all cash acquisition of Christmas Tree Shops, Inc., a privately held retailer.

Based in Massachusetts, Christmas Tree Shops, Inc. now operates 24 stores in six states.

While the stores range in size from 11,000 square feet to 50,000 square feet, the most recently opened stores are in 50,000 square foot range.

The stores are truly unique and sell a broad assortment of merchandise in many categories including home decor, gift wear, house wares, food, paper goods, and seasonal products at extremely low prices.

Since our 1992 IPO, Bed, Bath & Beyond store count has grown from 34 stores in nine states to 523 stores in 44 states and Puerto Rico.

In addition, there are 24 Christmas Tree Shops and 29 Harman discount beauty aid stores operating as of today.

Fiscal 92, our net sales were $216 million and we earned about $16 million.

The current year, analysts are forecasting consolidated net sales of about $4.5 billion and net earnings of about $373 million.

We are proud of the fact that we achieved this growth with internally generated funds and that we are debt-free since 1995.

Despite our aggressive store opening program, the investments in Harman and Christmas Tree Shops and ongoing infrastructure enhancements, our cash and investments totalled $802,500,000 at the quarter end.

We opened a total of 16 Bed, Bath & Beyond stores during the quarter, many of them late in the period.

In contrast, we opened 24 new stores in the fiscal second quarter last year, many of them early in the period.

We ended the fiscal second quarter of '03 with 514 stores compared with 433 a year ago.

We opened 9 additional stores since the beginning of our fiscal third quarter, bringing the total as of today to 523 Bed, Bath & Beyond stores.

As we previously said, we expect to open between 80 and 90 Bed, Bath & Beyond stores for all of fiscal '03.

As mentioned in a previous conference call, several other new stores originally planned for fiscal '03 actually opened in fiscal '02, ahead of schedule.

We are very pleased with the program initiated several years ago for new stores to meet the needs of the markets they serve.

As a group, the new stores added under this program a performing better than planned and are on average exceeding their sales, productivity and earnings targets.

We continue to apply these successful site selection criteria in our leasing activities and anticipate that the excellent results from our new stores will continue going forward.

Despite our growth, our share of the approximately $85 billion home goods market remains relatively small, affording us substantial expansion opportunities.

Industry growth demographics remain promising and we continue to believe that we can operate at least 950 Bed, Bath & Beyond stores in the U.S.

Although we are never satisfied, we are pleased that our fundamental performance and financial strength represents standards that few, if any, can match.

Recent developments and new initiatives give us considerable reason to look forward to the future with confidence.

A successful first half is now in the books.

The talented dedicated efforts of our over 25,000 associates will, we feel comfortable in saying, produce a record number year in fiscal 2003.

I will turn the call over to Steve Temares.

Thank you.

Good afternoon, everyone.

And thank you for participating in this call.

Our press release within the past hour reported on the results of our fiscal second quarter.

Yet another period of solid performance.

Our primary financial objectives have always been the generation of strong consistent net earnings combined with a solid balance sheet and positive operating cash flows and we once again achieved all three in the period ended August 30th, 2003.

This year's second quarter was especially significant in that we welcomed on June 19th, 2003, Christmas Tree Shops and their associates, customers and vendors to Bed Bath & Beyond's growing family.

The prospects provided by their dedicated and talented people are extremely excited to our combined organization.

Christmas Tree Shops product mixes is compelling and extremely well priced.

The Christmas Tree associates are passionate about the merchandise and satisfying the customer.

There is a uniqueness to the concept that has earned strong customer allegiance.

We view Christmas Tree Shops merchandise offering and their knowledge base as extremely complimentary to Bed, Bath & Beyond.

We believe their addition to our Bed, Bath & Beyond and Harman concepts further strengthens our Company and we look forward to Christmas Tree Shops making significant contributions to our growth for many years to come.

As most of you know for over 30 years, we have grown our company as a decentralized organization.

This is consistent with our belief in the dedication and talents of our associates.

We believe our decentralization has led to better decision making.

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 the unique competitive advantage in the marketplace and we were pleased that our newest associates at Christmas Tree Shops and at Harmans stores share our passion for the business and our desire to serve our customers.

Turning to the financial highlights of our second quarter, net earnings were approximately $97.2 million, equivalent to 32 cents per share compared with net earnings of $75.5 million or 25 cents per share a year ago.

An increase of approximately 28.8%.

For the six months net earnings were approximately $154.7 million, equivalent to 51 cents per share, compared with $121.8 million or 40 cents per share earned a year ago, an increase of about 27.1%.

In achieving these results, we once again give credit to our over 25,000 dedicated associates who daily take the core principle of customer service and seize the opportunity and empowerment of our decentralized structure to make Bed, Bath & Beyond a better company.

Financial results are a continuing testimony to the talents and efforts of our people.

Net sales for the second quarter were approximately $1,111.4 million. 23.1% higher than in the corresponding quarter a year ago.

For the first half, net sales advanced to $2 billion 5.3 million, approximately 19.4% higher than in the similar period last year.

Comp store sales for the quarter increased by approximately 5.9%, versus 8% comp increase in last year's second quarter.

These sales results in part reflect the successful Back To School season.

For the six months comp store sales came in at about 5.2% compared with 10.4% in the similar six month period of fiscal 2002.

As we have repeatedly said, we continue to be prudent in establishing our internal plans.

The second quarter comp gain of 5.9% exceeded our guidance range of 3 to 5% and the strong sales contributing to the better than planned earnings.

Gross profit for the second quarter was approximately $459.1 million or 41.3% of net sales compared with $370.3 million or 41% in net sales during the second quarter of 2002.

The 30 basis point increase in the gross profit margin was consistent with plans and we expect incremental growth and our gross profit margin over the balance of the year.

Selling, general and administrative expenses were about $303.3 million during the second quarter compared with the approximately $250.6 million in the corresponding quarter a year ago.

As a percentage of net sales, they were 27.3% versus 27.8% last year.

The principal components over the SG&A leverage were costs associated with new store openings, payroll and payroll related items and occupancy costs, partially offset by advertising expenses.

We strive to systematically reduce and eliminate costs throughout our operations while continuing to invest in our infrastructure.

This balance strategy of reinvesting for the Company's future, while achieving planned current operating results remains a major focus.

As a result of the favorable movements in the gross profit margin and selling, general & administrative expenses, we experienced an increase in the operating profit margin of approximately 77 basis points during the fiscal second quarter and approximately 83 basis points for the first fiscal half.

Warren commented earlier about our fiscal 2003 expansion plan and about the continuation about the better than planned performance of our new stores.

We remain extremely well positioned to take advantage of any opportunities that arise and to respond to any challenges that may lie ahead.

Our entire organization is dedicated to providing the best possible service to our customers and through these efforts to producing exceptional financial results for our shareholders.

We are pleased with our year to date performance which reflects strength in sales, improvement in gross profit and expense leverage, but are never satisfied and we continue to strive to do better.

Our balance sheet at August 30th 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 improve over time.

Having said that, as I said earlier, we remain conservative as always in establishing our financial targets.

As you will also hear from Ron, we remain comfortable with our fiscal 2003 outlook and have once again raised our full year earnings target.

To recap, net earnings in our fiscal second quarter rose approximately 28.8% to $97.2 million with 32 cents per share, compared with $75.5 million or 25 cents per share and last year's fiscal second quarter on an approximately 23.1% increase in net sales and at 5.9% gain in same store sales.

I look forward to our next call on Wednesday, December 17th, 2003 when we will review with you the accomplishments of our fiscal third quarter and the first nine months of fiscal 2003.

We will also at that time make our initial comments with regard to our fiscal 2004 outlook.

With so many new stores scheduled to come on stream before the end of November and with the fall selling season under way, this promise is to be an exciting, productive time for all of us at Bed, Bath & Beyond.

I will turn the call over to Ron.

At the conclusion of the call, both Ron and Ken, our Director of Financial Planning will be in their offices to take your comments and questions.

Thanks, Steve.

Here are our updated major planning assumptions for the balance of fiscal 2003.

One, of the approximately 80 to 90 new Bed, Bath & Beyond stores planned for 2003, 24 as previously noted occupying approximately 553,000 square feet were opened during the fiscal first half.

Two, our expansion will continue to be entirely funded with internally generated funds.

Three, the consolidated net sales in the fiscal third quarter and for all of fiscal 2003 are expected to grow in the low 20% range.

Comp sales as previously mentioned are expected to continue to grow into 3 to 5% range.

Four, the net operating profit margin for all of fiscal 2003 is expected to be incrementally improved from that achieved in fiscal 2002.

Five, interest income given the current interest rate environment is expected to show little change, despite higher average cash balances.

Six, capital expenditures for all of fiscal 2003 are planned to be approximately $175 million.

Mostly for new Bed, Bath & Beyond stores and information technology enhancements.

Depreciation and amortization are estimated to be approximately $80 million for the year.

Seven, income taxes will continue to be provided at 38.5% of pre-tax earnings.

As Steve said, we were raising our full year earnings target once again.

We initiated our fiscal 2003 earnings guidance last December.

At that time, the consensus earnings estimate was $1.18 per share.

This target was subsequently increased to $1.20 per share in April and then to $1.23 per share in June.

At the time we announced our fiscal first quarter results and the acquisition of Christmas Tree Shops.

Based on our updated earnings model, which reflects the just reported fiscal second quarter results, we are again raising our earnings target for all of fiscal 2003.

This time to $1.25 per share, the third increase this year.

The achievement of net earnings of $1.25 per share would represent a doubling of the earnings per share reported for fiscal 2000, the fiscal year ended March 3rd, 2001, when we reported earnings of 59 cents per share and would maintain our record of doubling earnings in every three year period since Bed, Bath & Beyond went public in 1992.

Given our year to date performance, we remain comfortable with current quarterly consensus earnings estimates for the balance of fiscal 2003.

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

One, our debt-free balance sheet as of August 30th, 2003 remains strong and flexible.

The combined total of $802.5 million in cash and cash equivalents and investment securities compares with cash and cash equivalents and investment securities of $560 million a year ago.

An increase of about $242.5 million or 43.3%.

Two, merchandise inventories at August 30th, 2003 were on plan at $958.8 million compared with $859.9 million a year ago.

On a per-square-foot basis, inventories were about $50.72.

We continue to taylor inventories by store to best neat the demand of customers in each store.

Three, capital expenditures for the first fiscal half primarily for 24 new stores compared with 37 new stores in the year ago period and information technology enhancements amounted to approximately $30 million compared with approximately $58 million and last year's first half.

Four, share holders equity at August 30, 2003 was approximately $1.6 billion, a year ago it was about $1.2 billion.

Five, company wide total store space as of August 30th, 2003, was approximately 18.9 million square feet, of which approximately 17.8 million square feet were occupied by Bed, Bath & Beyond stores.

Bed, Bath & Beyond is uniquely positioned to continue to deliver superior operating results combined with outstanding financial strength and flexibility.

We remain dedicated to providing the best possible shopping experience for millions of valued customers and by so doing, over time to continue building share holder value.

As had a reminder, our next conference call will be on Wednesday, December 17th, 2003.

We look forward to updating you on our progress at that time.

Ken and I will be available in our offices to answer your questions.

Thanks for your interest in Bed, Bath & Beyond.

Have a good evening.

This concludes today's conference call.

Thank you for listening.

You may now disconnect.