Bed Bath & Beyond Inc (BBBY) 2003 Q3 法說會逐字稿

Welcome to Bed Bath & Beyond's fiscal third quarter of 2003 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 this conference call will be available on December 17, 2003 beginning at 6:30 PM Eastern time through 6:30 PM Eastern time on Friday December 19, 2003.

To access the rebroadcast, you may dial 1-800-428-6051, with a passcode ID of 309991.

I would now like to turn the call over to Mr. 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 fiscal third quarter of fiscal 2003 conference call.

The press release issued within the past hour summarized another productive period for our company.

We hope that our review of the results of operations, financial position, cash flows and other comments relative to Bed Bath & Beyond will be informative and useful.

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 within the meaning of Section 21 E 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, and 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 1, 2003.

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

Stephen Temares, President and Chief Executive Officer and a member of the Board of Directors will then review the fiscal third quarter and fiscal nine-months result.

After Steve's comments, we will update guidance with respect to the balance of fiscal 2003, make our initial comments with respect to our fiscal 2004 outlook and provide an overview of certain financial highlights of the just-concluded fiscal third quarter.

I am now very pleased to introduce Warren Eisenberg.

Warren?

Thanks, Ron.

I am very pleased to report that the strong operating results achieved during our fiscal first half was followed by another excellent period in the fiscal third quarter, which ended on November 29, 2003.

In terms of consistent earnings growth, cash flow generation and overall financial strength, I believe our record is virtually unparalleled in our industry.

Bed Bath & Beyond's store count in the past 11 years has grown from 34 stores to 569 stores in 44 states and Puerto Rico.

In addition, there are now 24 Christmas Tree Shops and 30 Harmon discount health and beauty care stores.

In fiscal '92, our net sales were about $216 million and we earned about $16 million.

For the current year, net sales of about $4.4 billion and net earnings of about $380 million have been modeled by analysts.

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

Despite our aggressive store opening program, the acquisitions of Christmas Tree Shops and Harmon Stores and ongoing infrastructure enhancements, our cash and investments totaled about $838 million at quarter and.

We opened an additional 55 Bed Bath & Beyond stores during the quarter, which brings us to the total of 569 stores, compared with 489 a year ago.

Most of this year's new stores were open later than those opened last year, and this trend continued in the third quarter.

However, the later openings will have no effect on the long-term performance of the stores.

Also as mentioned in previous conference calls, several new Bed Bath & Beyond stores originally planned for fiscal 2003 actually opened in fiscal 2002 ahead of schedule.

We expect to open approximately 7 additional Bed Bath & Beyond stores in the fiscal fourth quarter, bringing to approximately 86 the number of new store openings for fiscal 2003.

Accomplishing the new store opening program, a host of other merchandising operations and information technology programs and the acquisition and integration of Christmas Tree Shops, all while successfully meeting our overall financial objectives, attest to the strength of the infrastructure we have built.

We are also very pleased with a program initiated several years ago to size our stores to meet the needs of the markets they serve.

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

We anticipate that the excellent results being generated by 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 expanding opportunities.

Industry growth demographics remain promising and the 950 domestic store target established about two years ago has now been upwardly revised to 1050 stores.

We also expect to exploit additional opportunities for growth in or Christmas Tree Shops, our Harmon Stores and through adding square footage to many of our existing Bed Bath & Beyond stores as a result of new merchandising initiatives, including fine china, health and beauty care, specialty foods and so on.

The most effective utilization of our growing cash resources and the possible expansion outside of the United States continue to remain under active consideration.

In sum, home goods retailing remains one of the most attractive sectors in all of retailing and we have the organization and the financial strength to take advantage of profitable opportunities as they appear in the future.

Although never satisfied, we are pleased that our fundamental performance has continued at a level which few if any can match.

Three quarters of another successful year have been completed.

With a little more than 10 weeks remaining in our current fiscal year, we are comfortable that our financial objectives for all of fiscal 2003 will be achieved.

And despite the obvious challenges, we look forward to another highly successful year in fiscal 2004.

I will now turn the call over to Steven Temares.

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 and year-to-date performance.

As we have consistently said, the generation of strong net earnings combined with a solid balance sheet and positive operating cash flow have always been our primary financial goals.

Our ability to attain and/or exceed our financial goals is dependent upon providing our customers with the best possible shopping experience.

Everyone in our growing dynamic organization is dedicated to doing just that.

As most of you know, since our founding in 1971, 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 and better execution.

Through the efforts of our associates and their focus on servicing our customers, we've been able to achieve our consistent long-term performance.

We believe our decentralized operating philosophy continues to provide us with a unique competitive update advantage in the marketplace.

While a decentralized operation can always cherry-pick the best aspects of a centralized organization, it is very difficult to transform a centralized operation into a decentralized one.

In fact, we are unaware of any large retailer who has successfully migrated to a decentralized model.

For those of you who have followed our company for awhile have heard us speak of this repeatedly.

While redundant, the reason we reiterated so often is that it is the key to understanding our success.

Our performance stems from our culture.

Our culture is our strength.

It is understood throughout our company by most of the over 29,000 associates who practice it, built on it and teach it so effectively each and every day.

Ultimately, it is our culture that translates into our customer's experience in our stores and the breadth and depth of our assortments (ph) and our in-stock positions, our customer service, our passion to satisfy our customers.

Turning to this past quarter, net earnings for our fiscal third quarter were $100.5 million, equivalent to 33 cents per share compared with net earnings of $75.1 million, or 25 cents per share in the prior year.

So, it was an increase of approximately 33.8 percent.

For the nine months, net earnings were approximately $255.2 million, equivalent to 84 cents per share compared with $196.9 million, or 65 cents per share earned a year ago.

Net earnings for the nine months advanced by about 29.6 percent.

Net sales for the quarter, including net sales for Christmas Tree Shops which we acquired on June 19, 2003 during our fiscal second quarter, were approximately $1.175 billion, about 25.5 percent higher than those in the corresponding year -- excuse me -- those in the corresponding quarter a year ago.

For the first nine months, net sales advanced to $3.18 billion, approximately 21.6 percent higher than in the similar period last year.

Comp store sales increased by approximately 6.4 percent for the quarter and by approximately 5.6 percent for the first fiscal nine months.

We project the same-store sales growth in the 3-5 percent range in our fiscal fourth quarter.

In the final quarter of fiscal 2002, comp sales grew by 4.1 percent.

Gross profit for the fiscal third quarter was approximately $487 million, or 41.5 percent of net sales, compared with $386.2 million or 41.3 percent of net sales during the fiscal third quarter of 2002.

The 20 basis point improvement in the gross profit margin reflects an improved markup on the mix of Bed Bath & Beyond product purchased, partially offset by the consolidation of Christmas Tree Shops' gross profit margin which was somewhat below that of the Bed Bath & Beyond stores.

Selling, general and administrative expenses for the fiscal third quarter were about $325.5 million compared with approximately $267 million in the corresponding quarter a year ago.

As a percentage of net sales, we leveraged SG&A expenses by approximately 80 and 70 basis points during the quarter and the nine months, respectively.

The third quarter improvement primarily resulted from efficiencies in costs associated with new store openings, occupancy costs and other store expenses, partially offset by payroll and payroll-related items and advertising expenses.

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.

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

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 100 basis points over the third quarter of fiscal 2002.

For the nine months year-to-date, the improvement was about 90 basis points and we expect to continue to see leverage going forward.

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

We're pleased with our year-to-date operations which reflect strengthened sales, improvement in gross profit and expense leveraged.

Our balance sheet at November 29th was our best ever and operating cash flows remain strong.

Our financial strength has always been a key management focus 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 33.8 percent to $100.5 million, or 33 cents per share compared to $75.1 million, or 25 cents per share in the fiscal third quarter of 2002 on an approximately 25.5 percent increase in net sales and a 6.4 percent 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 2003 which ends on February 28, 2004.

We will review our fiscal fourth quarter and full year results with you at our next conference call scheduled for 5 o'clock on Wednesday, March 31, 2004.

On behalf of all of us at Bed Bath & Beyond, Christmas Tree Shops and Harmon Stores, we wish you the very best for the holiday season and a healthy, happy and prosperous new year.

Ron?

Thanks, Steve.

As Warren and Steve said, we're pleased with our fiscal third quarter and year-to-date results and remain comfortable that our financial goals for all of fiscal 2003 which ends on February 28, 2004 will be achieved.

In short, we foresee a continuation of our company's exceptional fundamental performance.

After updating guidance for our fiscal fourth quarter and the planning assumptions which support it, we will as we do every year at this time, provide our initial comments on the outlook for the ensuing year; in this case, fiscal 2004.

We will also comment briefly on some additional fiscal third quarter financial highlights.

We provided our initial fiscal year 2003 earnings guidance last December during our fiscal third quarter of fiscal 2002 conference call.

At that time, we indicated that we were comfortable with the then consensus estimate for fiscal 2003 of $1.18 per share.

Since then, this target has been raised three times, most recently to $1.25 per share.

Based on our year-to-date results, we are again raising our earnings target for fiscal 2003, this time to $1.27 per share.

These increases reflect better than planned quarterly earnings and the inclusion of Christmas Tree Shops.

The attainment of net earnings of $1.27 per share, approximately 27 percent higher than our fiscal 2002 EPS, would represent earnings per share of more than double the 59 cents per share earned in fiscal 2002 and would maintain our uninterrupted record of doubling earnings in every three-year period since going public ion 1992 -- I meant to say double the 59 cents per share earned in fiscal 2000 (ph) -- sorry.

The major planning assumptions underlying this outlook for the balance of 2003 are -- one -- we expect to be operating 576 Bed Bath & Beyond stores, occupying approximately 19.4 million square feet at the end of fiscal 2003.

This would include 86 new Bed Bath & Beyond stores and approximately 2.1 million square feet of store space added in fiscal 2003.

Two -- our expansion will continue to be entirely funded from internally generated sources.

Three -- taking the small average size of new stores, the acquisition of Christmas Tree Shops and other factors into consideration, consolidate net sales in the fiscal fourth quarter and for all of fiscal 2003 are expected to grow in the low 20s percentage range.

Fourth quarter comp sales are expected to increase in a range of from 3-5 percent.

Four -- operating profit margin is expected to show some improvement over that reported for the fiscal fourth quarter of 2002 and for all of fiscal 2002.

Five -- due to historically low interest rates, interest income for all fiscal 2003 is expected to decline from the prior full year.

Six -- capital expenditures for all of fiscal 2003, excluding property and equipment acquired as a result of the purchase of Christmas Tree Shops are now planned at approximately $135 million, mostly for new Bed Bath & Beyond stores and information technology enhancements.

Depreciation and amortization is estimated at approximately $80 million for the year.

Seven -- income taxes for the balance of fiscal 2003 will continue to be provided at 38-1/2 percent of pre-tax earnings.

Based on these and other planning assumptions, we expect as said previously to achieve our remaining financial goals for fiscal 2003 and to end the year in our strongest ever financial condition.

Turning now to next year -- after the conclusion of the ongoing 2003 holiday shopping season, we will finalize our fiscal 2004 operating plan.

At this time, we remain comfortable with consensus earnings estimates of $1.51 per share for all of fiscal year 2004 and 24 cents per share for the fiscal first quarter of 2004.

The principal assumptions underlying our fiscal 2004 operating plan are as follows.

One -- approximately 80 to 90 new Bed Bath & Beyond stores occupying approximately 2.2 million square feet of total store space will be added in fiscal 2004.

We expect to open approximately one-third of the new stores in the first half of the year and the balance in the second half.

Two -- new stores are expected to generate net sales of between $160 and $185 per square foot in their first 12 months of operation.

This expected increase in the range of first year new store sales, which had been between $150 and $175 per square foot, is consistent with our recent experience.

Consolidate net sales for all of fiscal 2004 are currently expected to increase by a mid- to high-teens percentage and comp sales to increase by about 3 to 5 percent.

Consolidate net sales and comp sales for the fiscal first quarter of 2004 are expected to increase in the low 20s percentage range and from 3 to 5 percent respectively.

Further improvement in net operating margin is expected.

Four -- based on higher investable balances and flat to possibly higher interest rates, we anticipate that interest income for all of 2004 will show an increase over fiscal 2003.

Five -- although a final determination has not yet been made, we expect that the rate used to calculate the provision for income taxes, which has been at 38-1/2 percent of pre-tax earnings for the past three years will be reduced modestly beginning in fiscal 2004 to reflect the weighted average effective tax rate in the states and territory in which the Company conducts business.

We will disclose the new rate during our next conference call.

Consistent with prior practice, we will adjust our fiscal 2004 operating plan as may be required throughout the year and we will provide updated guidance on a quarterly basis.

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 29, 2003 remains strong and flexible.

The combined total of $838 million in cash, cash equivalents and investment securities compares with cash and cash equivalents and investment securities of about $592 million a year ago, an increase of about $246 million, or 41.6 percent.

Since the Company is expected to continue to generate cash resources in excess of its current needs, we continue, as Warren said, to review all possible uses.

Two, merchandise inventory levels for the ongoing holiday season were planned to fully support our sales goals for the period.

As you may be aware in our decentralized operation, most of the merchandise is a replenished by store associates.

Merchandise inventories at November 29, 2003 were on plan at approximately $1.168 billion, compared with approximately $989.1 million a year ago.

On a per square foot basis, inventories at the end of the fiscal third quarter were about $57.50, compared with $56.70 per square foot a year ago, a planned increase of about 1 percent.

We continue to tailor inventories by store to best meet the demands of the customers of each store.

Three -- shareholders equity at November 29, 2003 was approximately $1.8 billion.

Four -- capital expenditures through November 29, 2003, primarily for new stores and information technology were approximately $79.2 million, compared with $122.5 million for the first three fiscal quarters a year ago.

As previously stated, we now expect that CapEx for all of fiscal 2003 will be about $135 million.

Depreciation and amortization for the nine months came to approximately $60.7 million, up from $57.1 million last year and should be about $80 million for all of fiscal 2003.

Five -- company-wide total store space as of November 29, 2003 was approximately 20.3 million square feet, of which approximately 19.2 million square feet were occupied by Bed Bath & Beyond stores.

With a small but expanding share of the retail marketplace for home goods, Bed Bath & Beyond is uniquely positioned to continue to deliver superior operating results, combined with outstanding financial strength and flexibility for the foreseeable future.

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

As a reminder, our next conference call to discuss full year results and our updated outlook for fiscal 2004 will be at 5:00 PM Eastern time on Wednesday, March 31, 2004.

If you have any questions, we will be in our offices this evening, Dec. 17th, to take your calls.

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

I would now like to join Warren, Len and Steve in wishing you all a healthy, happy and prosperous holiday season and new year.

This concludes today's conference call.

Thank you all for listening.

Ladies and gentlemen, this concludes today's conference call.