Bed Bath & Beyond Inc (BBBY) 2004 Q4 法說會逐字稿

Welcome to Bed Bath & Beyond's fiscal fourth quarter and fiscal year 2004 results conference call.

This call is being recorded.

A rebroadcast of the conference call will be available beginning on Wednesday, April 6, 2005, at 6:30 p.m. eastern time through Friday, April, 8, 2005, 6:30 p.m. eastern time.

To access the rebroadcast you may dial 1-888-203-1112, with a passcode ID of 1042028.

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

Mr. Curwin, please go ahead.

Thank you and good afternoon.

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

Within the past hour we released our results for the 3 and 12-month periods ended February 26, 2005.

During this call we will comment on some of the fiscal 2004 highlights and update guidance with respect to fiscal 2005.

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 within the meaning of section 21E of the Securities and 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 of many factors that may be outside the Company's control.

Please refer to Bed Bath & Beyond's SEC filings including its Form 10-K for the year ended February 28, 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 member of the Board of Directors, will follow with an executive overview.

Our current fiscal 2005 guidance and some comments relative to fiscal 2004 will conclude this call.

I'm now very pleased to introduce Warren Eisenberg.

Warren.

Thanks, Ron.

I'm very pleased to report that the consolidated results of Bed Bath & Beyond exceeded our performance objectives for fiscal 2004.

We are proud that in terms of consistent earnings growth, cash flow generation, and overall financial strength, our performance over the past 13 years has been one of the strongest regardless of industry, among all public companies.

Furthermore, the acquisitions of Christmas Tree Shops and Harmon combined with our store opening and relocation programs and merchandising initiatives are expected to be significant growth drivers for years in the future.

During fiscal 2004, we added 85 new Bed Bath & Beyond stores, bringing to 660 the number of stores operating at fiscal year end located in 44 states and Puerto Rico.

As we have previously pointed out, in order to accommodate broader merchandise assortments the average size of the Bed Bath & Beyond stores opened in fiscal 2004 was somewhat larger than those opened in each of the two preceding fiscal years.

We also opened two Christmas Tree and five Harmon Stores in fiscal 2004, bringing their store totals at fiscal year end to 26 and 35 respectively.

Consolidated store space as of February 26, 2005, was approximately 22,900,000 square feet.

We will continue our longstanding strategy of refining the size of our new stores to best meet the needs of the particular markets being served.

We will also continue to upgrade existing stores to further enhance our customer's shopping experience.

I'm pleased that as a group, our new stores continue to exceed their sales productivity and earnings target, and we are confident that they will continue to achieve their performance target.

We will continue to execute our store rollout program and anticipate opening approximately 85 Bed Bath & Beyond stores in fiscal 2005.

Additional openings of several new Christmas Tree Shops and Harmon Stores and the relocation or expansion of certain existing stores are also planned for fiscal '05.

I'm very pleased that our first ever share repurchase program authorized in December by our Board of Directors in the amount of $350 million, was successfully completed prior to our fiscal year end.

We've been debt free for about nine years, even after deducting cash used for our store opening program, the acquisition of Christmas Tree Shops and Harmon Stores, ongoing infrastructure enhancements, and the $350 million share repurchase program, our cash, cash equivalent, and investment securities totaled about $1.2 billion at fiscal year end.

Despite our substantial growth, our share of the estimated $100 billion home goods market remains relatively modest, affording us the opportunity to grow to well over 1100 Bed Bath & Beyond stores in the United States.

Our superior customer service, expanded information technology capabilities, new merchandising initiatives, and retail concepts significantly add to our potential to create a much larger, more successful retailing business.

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.

In an industry that has always been competitive the performance gap between ourselves and other operators continues to widen, and we're working hard to further expand our lead.

Importantly, we have no doubt that we will succeed in doing so.

Fiscal 2005 has gotten off to a solid start, and we're confident that it will be our best year ever.

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

Steve.

Thank you, Warren.

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 fiscal 2004.

As we've said for the last 13 years our primary financial goals have always been and remain the generation of strong net earnings combined with a solid balance sheet and positive operating cash flow.

To briefly touch upon the highlights of the past year, net earnings for our fourth quarter were $181 million, equivalent to $0.59 per share, up approximately 25.5% from the $144.2 million or $0.47 per share earned in the final quarter a year ago.

For the full year net earnings were $505 million, or $1.65 per share, which was about 26.4% higher than the $399.5 million or $1.31 per share earned in fiscal 2003.

These results continued our record of uninterrupted earnings growth since our June 4, 1992, IPO.

We are proud of the accomplishments achieved by the approximately 31,000 associates in our Bed Bath & Beyond, Christmas Tree, and Harmon operations who continue to demonstrate daily their exceptional dedication and talent.

Our performance for over three decades has been based on a unique decentralized culture which always 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 powerful organization which we continue to build gives us ample reason to look forward to our future with a great deal of confidence.

As for additional financial details, consolidated net sales for the 13 weeks ended on February 26, 2005, were approximately $1.468 billion, or about 13.1% higher than in the corresponding quarter a year ago.

As we had anticipated and had discussed in our previous conference call, later than desired new store openings impacted our top line in the fiscal fourth quarter.

Fourth quarter consolidated comp store sales increased by 5.1% on top of an 8.1% comp achieved a year ago.

Same-store sales during the fiscal fourth quarter improved over the hurricane-affected fiscal third quarter as we previously mentioned in December, despite the aggressive promotional retail environment at the end of 2004, we chose to remain relatively restrained with our promotional activity during that period.

We continue to take a long term approach to our business to optimize our profitability over time.

The recently concluded fiscal fourth quarter results accomplished as they were during the period when others were reporting soft sales, below plan earnings, and reducing guidance are again a testament to our people and their ability to execute.

For all fiscal 2004 consolidated net sales advanced to $5.148 billion about 15% higher than the $4.478 billion achieved a year ago.

Consolidated comps grew by 4.5%.

Our gross profit margin improved for the fourth consecutive year.

For the fiscal fourth quarter gross profit was about $650.5 million, or 44.3% of net sales compared with the $563.4 million or 44.3% of net sales during the fourth quarter of 2003.

The gross profit margin for the quarter improved approximately 90 basis points and by about 60 basis points for the year.

The increase in gross profit as a percentage of net sales for the year was primarily attributable to the reduction of inventory acquisition costs.

Selling, general and administrative expenses were about $366.9 million, or 25% of net sales during the fourth quarter compared with approximately $331.8 million, or 25.6% of net sales in the corresponding quarter a year ago.

SG&A improved by approximately 60 basis points for the quarter and by 50 basis points for the fiscal year.

The decrease in SG&A as a percentage of net sales for the year primarily reflects a decrease in payroll and payroll related items, occupancy costs, and other expenses partially offset by an increase in net advertising expenses even though the number of advertising events was unchanged from the prior year.

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

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.

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

This additional investment of capital 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, and administrative expense ratios we experienced an approximately 110 basis point improvement in our operating profit margin from 14.3% to 15.4%.

For the fourth quarter the operating profit margin grew by approximately 150 basis points over the year-ago period.

Over the last 13 years, including the three stores opened since the beginning of our fiscal year, Bed Bath & Beyond's store count has now grown from 34 stores in 9 states to 663 stores in 44 states and Puerto Rico.

We made two acquisitions.

Harmon Stores in fiscal 2002 and Christmas Tree Shops in fiscal 2003 and we have vastly improved our infrastructure.

Our growth was achieved with internally generated funds and we've been debt-free for about nine years.

As Warren noted we successfully completed the $350 million share repurchase program authorized in December.

We continue to generate strong cash flow.

In working toward our current goal of operating well over 1100 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 new store opportunities has always been conservative and it is likely that there will be a further upward revision to our store count targets going forward.

As we continue to refine our site selection criteria and gain valuable market insights from our existing stores.

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

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

Again this affords us a distinct competitive advantage which we will continue to exploit.

Warren also commented earlier about the successful completion of our 2004 new store opening program.

We currently anticipate opening approximately 85 Bed Bath & Beyond stores in fiscal 2005 as well as several new Christmas Tree Shops and Harmon stores.

But taking a long-term approach to building the Bed Bath & Beyond, Christmas Tree Shops, and Harmon businesses, and by making essential investments in our infrastructure to ensure a solid foundation to support our growth objectives, we expect that all aspects of our business will continue to contribute significantly to the achievement of our goals in the years ahead.

So to recap, Bed Bath & Beyond's fiscal fourth quarter produced record earnings of $181 million, or $0.59 per share, about 25.5% higher than a year ago, on a 13.1% increase in net sales, and a 5.1% gain in same-store sales.

For the full year, net earnings were $505 million, or $1.65 per share, up about 26.4% from fiscal 2003 on a net sales increase of approximately 15% and a comp store sales increase of 4.5%.

Fiscal 2004 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 in fiscal 2005 and in the years ahead.

Finally, as you will hear more from Ron, we remain comfortable with our business outlook for the year.

He will also comment on our implementation of our recently -- excuse me, of those recently issued lease accounting clarifications, as well as he will comment on our accounting for stock options during fiscal 2005.

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

Ron.

Thanks Steve.

As you heard from Warren and Steve we are pleased with our fiscal fourth quarter and full year 2004 results, the best in our 33-year history.

Turning to our fiscal 2005 guidance, on December 15, we stated that the then consensus earnings estimates for fiscal 2005 of approximately $1.89 per share, which took into account our stock repurchase plan, appeared reasonable.

After the release of our third quarter results the consensus estimate increased to $1.90 per share.

As a result of our strong fiscal fourth quarter and updated planning assumptions our fiscal 2005 earnings target would have been expected to be increased to a range of about $1.93 to $1.94 per share.

That target range, however, did not take into consideration the effect of recent clarifications for lease accounting and changes in accounting for stock options, to which Steve referred and which have recently become required of all companies.

The changes in our accounting for stock options will be implemented in our fiscal third quarter.

Directly related to the new stock option accounting we are in the process of making changes to our compensation programs which will begin during the first quarter of fiscal 2005.

Although these changes include items that will increase compensation expense beginning in fiscal 2005 over the long term they're expected to have a favorable financial impact to that which would have otherwise resulted from the application of the new stock option accounting rules.

In addition, and more importantly, these changes to our compensation programs permit us to continue to reward our people while providing greater predictability and control over a significant element in our business planning.

Recent clarifications for lease accounting are incorporated in our 2004 year end results and now in our 2005 outlook.

The lease accounting clarifications did not require the restatement of our financial results for prior years.

After taking into account the updated planning assumptions, anticipated changes in our compensation plan, revised stock option accounting, and lease accounting clarifications, our earnings per share for fiscal 2005 is now being planned at approximately $1.87 per share.

While the exact impact of each of these variables is dependent on events still to occur, and as such cannot be finely determined at this time, our $1.87 estimate reflects approximately $0.06 to $0.07 for the changes in our compensation plan and revised stock option accounting and as much as $0.02 per share for the lease accounting clarifications.

With respect to our fiscal first quarter ending May 28, taking into consideration the accounting changes and the timing of their implementation, we nevertheless remain comfortable with the present consensus estimated earnings of $0.32 per share.

In addition to the accounting changes previously described our fiscal 2005 first quarter and full-year earnings estimates are supported by the following other major planning assumptions.

One, in fiscal 2005 we expect to open approximately 85 new Bed Bath & Beyond stores of which approximately 11, including 3 which have already opened, are expected to open during the fiscal first quarter compared to 17 in the corresponding quarter of fiscal 2004.

Also at this time we expect to open between 15 and 20 additional Bed Bath & Beyond stores in our fiscal second quarter compared with 14 in the year-ago period.

The majority of the remaining Bed Bath & Beyond openings will occur during the fiscal third quarter.

We anticipate that the Bed Bath & Beyond stores expected to open in fiscal 2005 will occupy approximately 2.4 million square feet of total store space.

Also included in our fiscal 2005 store opening program will be some Christmas Tree Shops and Harmon Stores.

None of these openings are expected to occur during our fiscal first 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 have planned a low double-digit percentage increase and consolidated net sales for the fiscal first quarter and for all of fiscal 2005.

Consolidated comp sales continue to be planned up in the 3 to 5% range quarterly throughout the year.

Three.

Although we anticipate some additional improvement in net operating margin early in the fiscal year, due to the changes in accounting for stock options, changes in our compensation program, and clarifications for lease accounting our plan provides for a slight reduction in operating profit margin for the full year.

Four.

Interest income is expected to increase due to a combination of higher average cash balances and interest rates.

Five.

The rate used to calculate the provision for taxes for fiscal 2005 is being estimated at approximately 37.40%.

Six, capital expenditures for fiscal 2005 principally for new Bed Bath & Beyond stores, Christmas Tree Shops, Harmon Stores, information technology enhancements and other infrastructure investments are estimated at between 220 and $240 million.

Depreciation and amortization for fiscal 2005 is expected to be between 110 and $120 million.

Consistent with prior practice we will update our fiscal 2005 operating plan as may be required during the year, and we'll provide updated guidance on a quarterly basis.

Before concluding this afternoon's call a few additional comments relative to fiscal 2004.

One, our balance sheet and cash flow is strengthened throughout the year, even after our share repurchase of $350 million.

As of February 26, 2005, cash, cash equivalents,. and investment securities approximated $1.2 billion higher than the approximately $1.1 billion in cash, equivalents, investment securities a year ago.

Two, merchandise inventories as of February 26, 2005, were on plan at approximately $1.2 billion.

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

As you may be aware, at our decentralized operation much 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, again, even after the completion of our $350 million share repurchase, shareholders equity at February 26, 2005, was approximately $2.2 billion compared with $2.0 billion a year ago.

Four.

Capital expenditures primarily for new stores and information technology will approximate $191 million for the fiscal year.

Depreciation and amortization was about $97 million.

Five, consolidated store space as of February 26, 2005, as Warren mentioned was approximately 22.9 million square feet.

Although we are never satisfied the fundamental performance of our Company 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 is unquestionably 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 2005 and to update our outlook for all of fiscal 2005 will be on Wednesday, June 22, 2005.

If you have any questions, we will be in our offices this evening, April 6, to take your calls.

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

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

Thank you all for listening.

You may now disconnect.