Bed Bath & Beyond Inc (BBBY) 2003 Q4 法說會逐字稿

[OPERATOR INSTRUCTIONS]

Thank you.

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

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

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

Before proceeding, I will read the following statement, and I quote. "Bed Bath and Beyond's fiscal fourth quarter press release and comments made during this call may contain forward-looking statements within the meaning of Section 21-E of the Securities and Exchange Act of 1934 as amended.

May 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 and Beyond's SEC filings, including its form 10K for the year ended March 1, 2003.

The company does not undertake any obligation to update its forward-looking statements."

Leonard Feinstein, who Co-Founded our company in 1971 with Warren Eisenberg and serves together with Warren as C0-Chairman of Bed Bath and Beyond, leads off today's call.

Steven Tamares, President and Chief Executive Officer and member of the Board of Directors, will then review the fiscal fourth quarter and fiscal year 2003 results.

After Steve's comments, we will update guidance with respect to the balance of fiscal 2004, which began on February 29, 2004, and provide an overview of certain highlights of the recently concluded fiscal fourth quarter.

I'm now very pleased to introduce Leonard Feinstein.

Len?

Good afternoon.

I'm pleased to report that the consolidated results of Bed Bath and Beyond exceeded all of its performance objectives for fiscal 2003, with earnings up 32.2% for the year and by 37% for the fiscal fourth quarter.

We're particularly pleased to have been able to maintain our recorded of meeting or exceeding our operating plan in every quarter, now totaling 47, since our 1992 IPO.

In terms of consistent earnings growth, cash flow generation, and overall financial strength, we are proud that our performance over the past dozen years has been one of the strongest among all public companies.

During fiscal 2003, we added 85 new Bed Bath and Beyond stores, bringing to 575 the number of stores operating at fiscal year end.

About 2.1 million square feet or approximately 12.2% were added, bringing total store space occupied by Bed Bath and Beyond stores to approximately 19.4 million square feet at fiscal year end.

We presently operate in 44 states and Puerto Rico.

In addition, we opened one Christmas Tree and one Harmon store, bringing their store totals to 24 and 30, respectively.

We continue to refine the size of our new stores to best meet the needs to the particular markets being served.

For the past few years, this has resulted in stores that are smaller on average than those opened previously.

However, based on this year's new markets and ongoing merchandising advancements, this year's new Bed Bath & Beyond stores are expected to be slightly larger on average than last year.

Our performance for over three decades has been based on a unique, decentralized culture which places our customers first.

As we continue to improve and grow our company, we will continue to strive for long-term profitable performance based on prudent planning and superior execution.

The successful completion of our 2003 new store opening program and of a significant number of merchandising, operational and information technology initiatives, and the acquisition of Christmas Tree Shops, all are exceeding our overall financial objectives, continued to attest to the strength of the organization we have built.

Since going public in 1992, Bed Bath & Beyond net sales have grown at an average annual rate of approximately 32%, and net earnings over that period have increased by about 34% per annum.

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

Cash and investments at fiscal year end exceeded $1 billion for the first time.

Despite our substantial growth, our share of the approximately $85 billion home goods market remains relatively small, affording us the opportunity to grow to well over a thousand stores in the United States.

We are also exploring opportunities for growth for our Christmas Tree Shops and Harmon stores and opportunities to enhance the performance of our existing Bed Bath & Beyond stores as a result of new and developing merchandise initiatives.

As a result, we expect that many of our Bed Bath store locations will be candidates for enlargement in the years ahead.

Home goods 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 we are never satisfied, we are pleased that our fundamental performance has continued at a very high level.

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

In an industry that remains competitive, the performance gap between ourselves and other operators continues to widen, and we are working hard to further expand our lead.

Although we expect that 2004 will have its own challenges, we also expect it to be our best year ever.

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

Steve?

Thank you, Len.

Good afternoon and thank you for participating in this conference call.

Within the past hour, we were pleased to have reported a solid fiscal fourth quarter and better than planned results for all of fiscal 2003.

As we have said for the last 12 years, our primary financial goals have always been and remain the generation of strong net earnings combined with a solid balance sheet and positive cash flow.

To briefly touch upon the highlights, net earnings for our fiscal fourth quarter for $144.2 million, equivalent to 47 cents per share, up approximately 37% from $105.3 million, or 35 cents per share, earned in the final quarter a year ago.

For the full year, net earnings were $399.5 million, or $1.31 per share, about 32.2% higher than the $302.2 million, or $1.00 per share, earned in fiscal 2002.

These results continue an almost 12-year record of uninterrupted earnings growth achieved by Bed Bath & Beyond since our IPO on June 4th, 1992.

This is a tribute to our approximately 29,000 associates in our Bed Bath, Christmas Tree and Harmon operations, all of whom continue to demonstrate daily their exceptional dedication and talents in accomplishing their primary objective of better serving our customers.

As a result of their combined contributions to our success, Bed Bath & Beyond continues to progress towards our goal of becoming the store of overwhelming choice for customers doing their life-style shopping.

As we've also consistently pointed out, since our founding in 1971, we have grown our company as a decentralized organization.

Our decentralization has led to better decision making and better execution.

By focusing our efforts on ways to better serve our customers, we have been able to achieve our consistent long-term performance.

Decentralization continues to provide us with a unique competitive advantage in the marketplace.

We keep pointing this out because it is the key to understanding our success.

Our performance stems from our culture.

Our culture is directly attributable to our decentralized environment.

Again, as we've repeatedly said, ultimately, it is our culture that translates into our customers' experience in our stores, in the breadth and depth of our assortments, in our in-stock positions, our customer service, our passion to satisfy our customers.

As for additional financial details, net sales for the 13 weeks ended on February 28, 2004, were approximately $1.298 billion or about 23.7% higher than in the corresponding quarter a year ago.

Fourth quarter comps increased by 8.1% compared with 4.1% a year ago.

We are pleased that our customers' response to our offering continues to be positive.

For all fiscal 2003, consolidated net sales including Christmas Tree Shops, which was acquired last June, advanced to $4.478 billion, about 22.2% higher than the $3.665 billion achieved a year ago.

Comps for all of fiscal 2003 grew by 6.3%.

In fiscal 2002, same store sales were up 7.9%.

In addition to crediting our customers and store associates for their contributions to our fiscal 2003 success, we can also, once again, cite more effective merchandising and enhanced information technology, which supported the achievement of better than planned net sales and earnings.

Our gross profit margin improved for the third consecutive year.

For the fourth quarter, gross profit was about $563.4 million, or 43.4% of net sales, compared with the $443.6 million, or 42.3% of net sales, during the fourth quarter of 2002.

The gross profit margin for the quarter improved over 1% and about one half of 1% for the year.

The increase in gross profit as a percentage of net sales for the year was primarily attributable to improvements in both the mark-up and in the mark-downs taken.

Selling, general and administrative expenses were about $331.8 million during the fourth quarter, compared with approximately $275.2 million in the corresponding quarter a year ago.

As a percentage of net sales, we experienced a leverage of approximately 60 basis points for the fourth quarter and 70 basis points for the year.

The decrease in SG&A as a percentage of net sales for the year primarily reflects a decrease in occupancy costs, other store expenses and costs associated with new store openings, partially offset by an increase in litigation expense and advertising.

Our SG&A ratio has improved in each of the last seven years.

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

Recognizing the many long-term opportunities available to our company, including those presented by Harmon and Christmas Tree Shops, we are, as much as ever, committed to investing in our infrastructure so as to realize these opportunities.

This additional investment of capital and in other resources, which could mitigate SG&A leverage in the short-term, continues our long-term approach of investing in our company's future.

As a result of the full year improvements in the gross profit margin and the selling, general, administrative expense ratios, we experienced an approximately 120 basis point improvement in our operating profit margin from 13.1% to 14.3%.

For the fourth quarter, the operating profit margin grew by 170 basis points.

Over the last 12 years, Bed Bath & Beyond store count has grown from 34 stores in 7 states to 575 stores in 44 states and Puerto Rico.

We made two acquisitions, Harmon stores in fiscal 2002 and Christmas Tree Shops last June.

And we have vastly improved our infrastructure.

Our growth was achieved with internally generated funds, and we've been debt free for over eight years.

As previously mentioned, cash and investments exceeded $1 billion and that's after making the approximately $200 million all cash acquisition of Christmas Tree Shops.

In working toward our current goal of operating well over 1,000 Bed Bath & Beyond stores in the United States, we continue to identify a multitude of real estate opportunities.

As a reminder, we believe our projected number of store openings, that's new store opening opportunities, has always been conservative, and we continue to advise you as to any changes in our store count targets going forward.

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

Always the key management focus, we see our balance sheet and financial flexibilities continuing to strengthen in the period ahead.

Based on feedback from some of our shareholders last quarter, two other topics that we would like to discuss are Christmas Tree Shops and the performance of our new stores.

As mentioned previously, a highlight of 2003 was our acquisition of Christmas Tree Shops.

Since the acquisition, we have been integrating our organizations and focusing our efforts on the additional long-term opportunities now provided.

For the fourth quarter, top line sales for Christmas Tree Shops were approximately $87.5 million versus approximately $86.9 million in last year's fourth quarter, resulting in a slightly negative comp.

Given the disruption of Christmas Tree's business due to the acquisition and missed merchandising time overseas due to SARS, these sales results were within the range of our expectations.

Regardless, we give little stock to short-term sales results.

We have always taken a long-term approach to building our customer loyalty and our business.

The more we have gotten to know the Christmas Tree associates, their management, and their culture, the more excited we become about the abundant opportunities presented by our partnership.

Turning to the performance of our new stores.

During our last conference call in December, we raised our new store first-year sales target range to $160 to $185 per square foot.

We did so based on the actual sales performance of new stores.

Most of our new stores continue to produce sales at the high end of the revised range.

We are pleased, not only with the sales of our new stores, but more importantly with their profitability.

Generally, we would also discourage the reliance on new store productivity models in trying to evaluate the performance of our new stores.

Many of these models are built with incomplete data and will produce non-comparable results from quarter to quarter since they do not consider many factors such as the timing, size and promotional calendar of new stores.

For example, in any quarter in which we experience a much heavier and later store opening schedule compared with the prior year, most new store productivity models would show a decline in new store productivity based upon timing alone.

In this year's fourth quarter, we opened seven stores as opposed to three in the fourth quarter last year.

In addition, this year's store openings were skewed significantly later in the quarter, with five of the seven stores opening in February.

Similarly, for the first quarter of 2004, as Ron will discuss, we expect approximately twice the number of openings compared to last year's first quarter.

Also, we currently anticipate that this year's first quarter program will be heavily weighted towards the back end of the quarter.

So as to be very clear, we want to again repeat that we are extremely pleased with the actual sales and profitability of our new stores.

So to recap, Bed Bath & Beyond's fiscal fourth quarter produced record earnings of $144.2 million, or 47 cents per share, about 37% higher than a year ago on a 23.7% increase in net sales and an 8.1% gain in same-store sales.

For the full year, net earnings were $399.5 million, or $1.31 per share, up about 32.2% from fiscal 2002 on a net sales increase of approximately 22.2% and a comp store sales increase of 6.3%.

Fiscal 2003, with its opportunities and challenges, was successful by any measurement and we remain steadfast in our dedication to serving our customers and by so doing, achieving all of our performance objectives.

Finally, as you will hear more from Ron, although we plan in fiscal 2004 to accelerate spending on infrastructure development in order to better support several major growth initiatives, we continue to believe that fiscal 2004 consensus earnings estimates adjusted for our now reported year-end results, are reasonable.

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

Ron?

Thanks, Steve.

As you heard from Len and Steve, we are pleased with our fiscal fourth quarter and full year 2003 results, the best in our 32-year history.

Turning to our fiscal 2004 guidance.

While the consensus earnings estimate for fiscal 2004 is $1.53 per share, as a result of our strong fourth quarter and updated planning assumptions, we now believe that any earnings per share estimates ranging from $1.53 per share to as high as $1.56 per share are reasonable.

Estimated earnings of 25 cents per share for the fiscal first quarter, 1 cent above current consensus, also appear reasonable.

The aforementioned fiscal 2004 and fiscal first quarter earnings estimates are supported by, among others, the following major planning assumptions.

One, in fiscal 2004, we expect to open between 80 and 90 new Bed Bath & Beyond stores comprising approximately 2.2 million square feet of total store space.

We expect to approximately double from a year ago the number of fiscal first quarter new store openings.

Many of the first quarter 2004 stores are expected to open in the latter part of the period.

Approximately 16 stores are planned to open in the fiscal second quarter.

All of the remaining 2004 new store openings, with a possible exception of several that may open in the fiscal fourth quarter, are expected to occur during the fiscal third quarter.

Two, we continue to project Bed Bath & Beyond new store net sales of between $160 and $185 per square foot in the first 12 months of operation.

We expect a low 20s percentage increase in consolidated net sales in the fiscal first quarter and a mid-teens percentage increase for all of fiscal 2004.

Comp sales are expected to grow in the 3 to 5% range quarterly throughout the year.

Three, continued improvement in net operating profit margin is anticipated.

Four, interest income, despite historically low interest rates, is expected to increase modestly due to anticipated higher cash balances.

Five, in our last conference call, we mentioned that our tax rate was likely to be reduced modestly beginning in fiscal 2004.

Accordingly, the rate used to calculate the provision for taxes is being lowered to 37.75% beginning in fiscal 2004.

The revised rate has been reflected in our earnings guidance for fiscal 2004.

Six, capital expenditures for fiscal 2004, principally for new Bed Bath & Beyond stores, information technology enhancements, and other infrastructure investments, are conservatively estimated at approximately $190 million.

Depreciation and amortization for fiscal 2004 is expected to be approximately $95 million.

Before concluding this afternoon's call, a few additional comments relative to fiscal 2003.

One, our balance sheet and cash flow strengthened throughout the year.

As of February 28th, 2004, as you've heard, cash, cash equivalents and investment securities approximated $1.077 billion.

This compared with approximately $765 million in cash, cash equivalents and investment securities a year ago, an increase of about $313 million or 41%.

Two, merchandise inventories as of February 28, 2004, were on plan at approximately $1 billion.

We continue to tailor inventories by store to meet our customers' demands.

As you may be aware in our decentralized operation, most of the merchandise is replenished by store associates, and we are very pleased with the condition of our inventories going into the spring season.

Three, shareholders' equity at February 28th, 2004, was approximately $1.991 billion, about 37% higher than the $1.452 billion a year ago.

Four, capital expenditures, primarily for new stores and information technology, were approximately $113 million for the fiscal year.

Depreciation and amortization was about $85 million.

Although we are never satisfied, the fundamental performance of our companies continues to support our optimism as we look ahead.

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 is poised for profitable growth in the years ahead.

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

As a reminder, our next conference call to discuss results for the fiscal first quarter of 2004 and to update our outlook for all of fiscal 2004 will be on Wednesday, June 23rd, 2004.

If you have any questions, we will be in our offices this evening, March 31st, to take your calls.

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

Thank you all for listening.

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

Thank you all for listening.

You may now disconnect