Bed Bath & Beyond Inc (BBBY) 2004 Q2 法說會逐字稿

Welcome to Bed Bath & Beyond's fiscal second quarter 2004 results conference call.

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

This call is being recorded.

A rebroadcast of the conference call will be available starting Wednesday, September 22nd, 2004, beginning at 6:30 p.m.

Eastern time, through 6:30 p.m.

Eastern time on Friday, September 24th, 2004.

To access the rebroadcast, you may dial 1-888-203-1112 with a pass code of 964507.

Now, at this time I would like to turn the conference over to Ron Curwin, Chief Financial Officer and Treasurer of Bed Bath & Beyond.

Mr. Curwin, please go ahead.

Good afternoon.

Welcome to Bed Bath & Beyond's fiscal second quarter of fiscal 2004 conference call.

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

During this call, we will review the operating highlights of the quarter and comment on our financial position.

Before proceeding, I will read the following statement and I quote, "Bed Bath & Beyond's fiscal second 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, 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 many factors that may be outside of the Company's control.

Please refer to Bed Bath & Beyond's SEC filings, including its Form 10-K, for the year ended February 28th, 2004.

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 Chief Executive Officer and a member of the Board of Directors will then comment on the fiscal second quarter and fiscal first-half results.

After Steve's comments, we will update fiscal 2004 guidance and provide some additional financial information.

I'm now very pleased to introduce Warren Eisenberg.

Warren?

Good afternoon.

I'm very pleased to report that the strong start we experienced during the initial quarter of fiscal 2004 was followed by another excellent period in the fiscal quarter ended August 28, 2004, with net earnings of 23.5%.

Our Company continues to perform at impressive levels in terms of consistent earnings growth, cash flow generation and overall financial strength.

We opened 14 new Bed Bath & Beyond stores during the fiscal second quarter ending the period with 606 stores compared with 514 a year ago.

We've opened 7 additional Bed Bath & Beyond stores since the beginning of our fiscal third quarter, bringing the total, as of today, to 613 stores, in 44 states and Puerto Rico.

As we previously said, we expect to open between 80 and 90 Bed Bath & Beyond stores for all of fiscal 2004.

The average store size of the new stores will be slightly larger, than those opened in fiscal 2003.

Also at quarter end, we operated 24 Christmas Tree Shops and 31 Harmon stores.

We plan to open 2 Christmas Tree Shops and approximately 4 Harmon Stores before the end of our fiscal year.

As a group, our new stores continue to exceed their sales, productivity and earnings targets and we anticipate that they will continue to produce these exceptional results.

We believe home-related products has been, and continues to be, one of the most attractive sectors in all of retailing and we are well positioned to take advantage of future opportunities.

Despite our substantial growth, our share of the approximately $85 billion home growth market remains relatively modest affording us the opportunity to grow well over 1,000 Bed Bath & Beyond stores in the United States.

We strive to enhance the performance of our stores through both superior customer service and new merchandising initiatives.

These initiatives, we believe, will allow us to expand the size of many of our existing stores to achieve their full potential.

For over 3 decades our unique decentralized culture has placed our customers first, resulting in a long-term record of outstanding financial performance, which few, if any other companies, have matched.

Importantly, we are extremely well positioned for the continuation of this controlled growth, and our entire organization is dedicated to the attainment of our ambitious long-term goals.

Recent developments, new initiatives and our long-range plan give us considerable reason to look forward to Bed Bath & Beyond's future, with confidence.

A successful first half is now in the books.

We continue to expect that fiscal 2004 will be our best year ever.

I will now turn the call over to Steven Temares.

Steve?

Thank you, Warren.

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.

As Warren said, we were pleased to report another period of excellent 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 3 in the period ended August 28th, 2004.

As many 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.

They have often repeated our belief that 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've 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 market place.

Turning to the financial highlights of our fiscal second quarter, net earnings were approximately $120 million, equivalent to 39 cents per share, compared with net earnings of $97 million, or 32 cents per share a year ago.

An increase of approximately 23.5%.

For the 6 months net earnings were approximately $202 million, equivalent to 66 cents per share, compared with $155 million, or 51 cents per share, earned a year ago, an increase of about 30.6%.

In achieving these results, we once again give credit to our over 29,000 dedicated associates who daily take the core principal of customer service and seize the opportunity and empowerment of our decentralized structure to make Bed Bath & Beyond a better Company.

Our financial results are continuing testimony to the talents and efforts of our associates.

Net sales for the fiscal second quarter were approximately $1.3 billion, about 14.6% higher than in the corresponding quarter a year ago.

For the first half, net sales advanced to approximately $2.4 billion, about 18.4% higher than in a similar period last year.

Comp store sales for the quarter increased by approximately 4.8% versus a 5.9% comp increase in last year's second quarter.

For the 6 months, comp store sales came in at about 4.9%, compared with 5.2% in the similar 6-month period of fiscal 2003.

As we anniversaried the acquisition of Christmas Tree Shops during our second quarter, Christmas Tree sales will be included in our comp store sales calculations, starting in the third quarter of 2004.

For the second quarter, Christmas Tree's comp stores were slightly negative.

Looking ahead, we continue to model comp sales in the range of 3 to 5%, which along with the other major planning assumptions, support the attainment of our fiscal 2004 financial targets.

Gross profit for the second quarter was approximately $531 million or 41.7% of net sales, compared with $459 million or 41.3% of net sales during the second quarter of 2003.

The 40 basis point increase in the gross profit margin was driven primarily by the reduction of inventory acquisition costs, and was consistent with plans.

Selling, general and administrative expenses were about $342 million during the fiscal second quarter, compared with approximately 303 million in the corresponding quarter a year ago.

As a percentage of net sales, they were 26.8%, versus 27.3% last year.

The principal components of our SG&A leverage were payroll and payroll-related items and occupancy costs.

We continue to systemically reduce and eliminate costs throughout our operations.

While we continue to anticipate SG&A leverage, we also continue to invest in our infrastructure, which might near term mitigate the degree of leverage we achieve.

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 favorable movements in the gross profit margin and in SG&A, we experienced an increase in the operating profit margin of approximately 80 basis points for the fiscal second quarter, and approximately 110 basis points for the fiscal first half.

Warren commented earlier about our fiscal 2004 expansion plans.

We are also pleased with the progress of our fiscal 2005 Bed Bath & Beyond new store opening program.

In addition, we are proceeding with plans to open additional Christmas Tree Shops and Harmon stores in fiscal 2005.

As you know, we acquired Christmas Tree Shops in June of 2003 and we continue to be very excited about the abundant opportunities presented by our partnering.

Since last summer, we've been integrating our organizations, and focusing our efforts on the long-term potential of this business.

Significant progress has been made to date, and is continuing.

With a promotional activity consistent with last year and a calendar shift that was mildly detrimental for the second quarter, as I previously said, Christmas Tree Shops comp sales for the quarter was slightly negative.

By taking a long-term approach to building the Christmas tree shops business, and by making essential infrastructure investments, we expect that their sales and earnings contributions to our overall results will grow in the years ahead.

During recent conference calls we told you that most of our Bed Bath & Beyond stores were producing sales at the high end of the expected annual target range of $160 to $185 per square foot, this remains the case, and we continue to be extremely pleased with both the sales and the profitability of our new stores.

We also you that the new store productivity calculation used by some was based on incomplete information, that resulted in incorrect conclusions.

Similarly, we would also suggest that the improvement in new store productivity calculations for our second quarter also provides a little insight.

To avoid any confusion, we, again, wish to state that we are happy with our new stores and they continue to perform well by any measure, whether it be sales, productivity, and/or earnings.

We are 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're pleased with our year-to-date performance, which reflects sales growth, improvement in gross profit and expense leverage.

Never satisfied, we continue to strive to do better.

In addition, we continue to actively study alternate uses of our growing cash resources, and how they may best be used to support future growth initiatives.

In this regard, we appreciate the valuable insights provided by some of our shareholders.

As you will hear from Ron, we remain comfortable with our outlook for the remainder of fiscal 2004, and have once again raised our full-year earnings target.

So to recap, Bed Bath & Beyond's fiscal second quarter produced earnings of $120 million, or 39 cents per share, about 23.5% higher than a year ago, on an approximately 14.6% increase in net sales and a 4.8% gain in same-store sales.

Over the past 12 years, Bed Bath & Beyond store count has grown from 34 stores in 7 states, to 613 stores in 44 states and Puerto Rico.

We completed 2 acquisitions, and vastly improved our infrastructure.

Our organization has never been stronger.

We are dedicated to giving our Bed Bath, Christmas tree shops and Harmon customers the very best shopping experience possible and through these efforts to continuing to produce exceptional financial results.

I look forward to our next call on Wednesday, December 15th, 2004, when we will review the accomplishments of our fiscal third quarter and the first 9 months of fiscal 2004.

We will also, at that time, comment on our fiscal 2005 outlook.

With so many new stores scheduled to open before the end of our fiscal year, and with the full selling season underway, this promises to be an exciting, productive time for Bed Bath & Beyond.

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

Ron?

Thanks, Steve.

Here are our updated major planning assumptions for the balance of fiscal 2004.

1.

Of the approximately 80 to 90 new Bed Bath & Beyond stores planned for 2004, 31 occupying approximately 824,000 square feet will open during the fiscal first half.

Including the 7 stores opened so far in September, approximately 54 new Bed Bath & Beyond stores, 2 Christmas Tree Shops, and 4 Harmon stores are expected to open between now and the end of our fiscal year.

2.

Our expansion will continue to be funded with internally-generated funds.

3.

Consolidated net sales in the fiscal third quarter are expected to grow in the low teens percentage range.

Comp sales are projected to grow in the 3 to 5% range.

4.

The operating profit margin for all of fiscal 2004, is expected to expand from that achieved in fiscal 2003.

5.

Interest income is expected to increase principally due to anticipated higher cash balances.

6.

Income taxes will continue to be provided at 37.75% of pretax earnings.

7.

Capital expenditures for all of fiscal 2004, are planned to be approximately $190 million.

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

Depreciation and amortization are estimated to be approximately $95 million for the year.

As Steve said, we're raising our full-year earnings target to reflect actual fiscal first-half results.

We believe at this time, that analysts consensus earnings estimates of $1.59 per share for all of fiscal 2004 appear reasonable.

Also at this time, we believe that analysts consensus earnings estimates of approximately 39 cents per share for our fiscal third quarter ending on November 27th, 2004, appear reasonable, based on current planning assumptions, and other known factors that might affect our results.

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

1.

Our debt-free balance sheet as of August 28th, 2004 remains strong and flexible.

The combined total of approximately $1.3 billion in cash and cash equivalents, and investment securities compares with cash and cash equivalents and investment securities of about $802 million a year ago.

An increase of about $455 million, or approximately 57%.

2.

Merchandise inventories at August 28th, 2004, were on plan, at about $1.1 billion compared with $959 million a year ago.

On a per square foot basis inventories were about $49.42.

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

3.

Capital expenditures for the fiscal first half, primarily for 31 new stores compared with 24 new stores in the year-ago period and information technology enhancements, amounted to approximately $65 million, compared with approximately $30 million in last year's first half.

Depreciation and amortization for the fiscal first half, approximated $46 million, compared with $40 million in the year-ago period.

4.

Shareholders equity at August 28, 2004 was approximately $2.2 billion.

A year ago it was about $1.6 billion.

5.

Company-wide total store space as of August 28th, 2004, was approximately 21.3 million square feet.

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 our millions of valued customers and by doing so, over time, to continue building shareholder value.

As a reminder, our next conference call is scheduled for Wednesday, December 15th, 2004.

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

Ken and I will be in our offices this evening to take your questions.

Thank you for your interest in Bed Bath & Beyond and have a good afternoon.

Ladies and gentlemen, this does conclude today's conference call.

Thank you, everyone, for listening.

You may now disconnect.