Bed Bath & Beyond Inc (BBBY) 2005 Q1 法說會逐字稿

Thank you for standing by and welcome to Bed Bath & Beyond's First quarter 2005 earnings release 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 will be available beginning on Wednesday, June 22, 2005, at 6:30 p.m.

Eastern Time, through June 24, 2005 at 6:30 p.m.

Eastern Time.

To access the rebroadcast, you may dial 888-203-1112, with a pass code ID of 4955548.

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 first quarter of fiscal 2005 conference call.

As many of you are by now aware, we achieved or exceeded all of our financial targets for the three month period ended May 28, 2005.

During this call we will comment on some of the quarter's 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 first quarter press release and comments made during this call may contain forward-looking statements within the meaning of Section 21E 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 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 26, 2005.

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 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 then comment on the fiscal first quarter's results.

An update of our fiscal 2005 guidance and some additional comments relative to the recently concluded fiscal first quarter will be provided.

I'm now very pleased to introduce Leonard Feinstein.

Len...

Thanks Ron, and good afternoon.

I'm very pleased to report the results of our first fiscal quarter of 2005, during which we have once again achieved all of our performance objectives.

In terms of consistent earnings growth, cash flow generation and overall financial strength, our long-term performance continues to place us in the upper tier, regardless of industry, of all public companies.

Furthermore, the acquisitions of Christmas Tree Shops and Harmon Shops combined with our store opening and store upgrade programs, together with our constant focus on improving our merchandising, make us highly confident that our growth will continue for years into the future.

During the quarter, we added 11 new Bed Bath & Beyond stores, ending the period with 671 stores in 44 states and Puerto Rico.

Since the beginning of our fiscal second quarter, on May 29, 2005, we've added four additional Bed Bath & Beyond stores of the approximately 18 planned for the period.

As we said in our conference call in April, we expect to open approximately 85 new Bed Bath & Beyond stores for all of fiscal 2005.

Also as previously mentioned, we expect to open several new Christmas Tree Shops and Harmon Stores in fiscal 2005.

Of these, one Christmas Tree Shop and one Harmon Store are expected to open during the fiscal second quarter (which ends on August 27, 2005).

Bed Bath & Beyond stores opening in 2005 are expected to be slightly larger than those opened in 2004.

Consolidated store space, as of May 28, 2005, was approximately 23.2 million square feet.

We will also continue to upgrade existing stores to enhance their productivity and to improve our customers' shopping experience.

Home goods continue to be one of the most attractive sectors in all of retailing and Bed Bath & Beyond enjoys a dominant position as a sector leader.

Yet, despite our rapid successful growth, our share of the home goods market is estimated to be less than 6%.

Leading companies in other retail sectors typically command much greater market shares, and we fully expect that Bed Bath & Beyond's position in home furnishings specialty retailing will continue to show robust growth.

We have the opportunity to grow to well over 1100 Bed Bath & Beyond stores in the United States.

We continue to enhance the performance of all our stores through a combination of superior customer service and new merchandising initiatives.

We expect to expand or otherwise upgrade a number of our existing stores in the years ahead in order to better serve the markets in which they are located, and to achieve their full potential.

Opportunities for future profitable growth, domestically, interactively and internationally, are being regularly and systemically explored and we like what we see.

Our unique corporate culture, talented organization, growing financial strength and superior merchandising are just a few of the attributes which are expected to drive Bed Bath & Beyond forward in the years ahead.

While we are in an industry that has always been very competitive, we expect the performance gap between ourselves and others in our sector will continue to grow.

Our fiscal first quarter results reinforce our belief that 2005 will be another record year for Bed Bath & Beyond and our best ever.

I will now turn the call over to Steven Temares.

Steve...

Thank you Len.

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

As Len noted, a short while ago we released the news of another quarter of strong earnings growth, positive operating cash flows and new store development.

In addition, our balance sheet at quarter end was the best it's ever been.

In achieving these results we once again give credit to the over 33,000 associates in our Bed Bath & Beyond, Christmas Tree and Harmon operations.

Deeply rooted in our culture and in the mind-set of our associates is the core principle of customer service.

Daily, our associates take this core principle 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 a continuing testimony to the talent and effort of our people.

To briefly touch on the highlights of our first quarter, net earnings were approximately $99 million equivalent to $0.33 per share, up approximately 20.5% from the $82 million, or $0.27 per share earned in the first quarter a year ago.

On a fundamental basis, we have now experienced 13 consecutive years of uninterrupted earnings growth since our IPO in June of 1992.

We are pleased with this performance, and, importantly feel that our infrastructure has never been better positioned for continued growth.

Our primary financial goals have been and remain, the generation of strong net earnings, combined with a solid balance sheet and positive operating cash flow.

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 creating a culture that enables us to better serve our customers, we’ve been able to achieve our consistent long-term performance.

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

Net sales for the fiscal first quarter were approximately $1.24 billion, about 13% higher than in the corresponding fiscal 2004 period.

First quarter comps were up 4.4% versus a comp store gain of 5.1% a year ago.

Going forward, we continue to model increase in comp sales in the range of 3% to 5%, which when combined with our other major planning assumptions, should enable us to achieve our financial targets for the year.

Gross profit for the first quarter was about $521 million, or 41.8% of net sales, compared with $457 million, or 41.5% of net sales, during the first quarter of 2004.

The gross profit improvement resulted primarily from the reduction of inventory acquisition costs.

Selling, general and administrative expenses were about $370 million during first quarter compared with approximately $328.1 million in the corresponding quarter a year ago.

As a percentage of net sales, selling, general and administrative expenses for the first quarter were 29.7% compared to 29.8% a year ago.

SG&A expense leveraged slightly, despite charges related to new employee compensation programs which we adopted in anticipation of revised stock option accounting rules and recent clarifications for lease accounting.

We also continue to invest in, and strengthen, our infrastructure, in order to better position our Company for continued long-term growth.

As a result of these movements in our gross profit margin and selling, general and administrative expenses, we experienced an increase in operating profit margin of approximately 40 basis points during the first quarter.

Since 1992, Bed Bath & Beyond's store count has grown from 34 stores in nine states to 671 stores in 44 states and Puerto Rico.

We also completed two acquisitions, Harmon Stores in fiscal 2002, and Christmas Tree Shops in fiscal 2003, and have vastly improved our infrastructure.

The remaining locations planned to open this year are well underway.

We have also made substantial progress with respect to our fiscal 2006 new store opening program and our 2007 new store program is also well underway.

Our organization has never been stronger.

We continue to be excited about numerous opportunities including those presented by Christmas Tree Shops’.

We expect that our long-term approach to building the Christmas Tree Shops business will have a positive impact on our corporate results for many years into the future.

Our long-term growth has been largely achieved with internally generated funds, and we’ve been debt-free for over nine years.

Cash and investments at quarter end exceeded $1.24 billion.

Our balance sheet and operating cash flow continue to strengthen, affording us exceptional financial flexibility.

So to recap, Bed Bath & Beyond's fiscal first quarter produced earnings of approximately $99 million or $0.33 per share, about 20.5% higher than a year ago, on an approximately 13% increase in net sales and a 4.4% gain in same store sales.

The fundamental performance of our Company, our strong balance sheet and our positive cash flow continue to support our optimism as we look ahead.

Although we’ve always operated in a competitive marketplace, we feel strongly, and our performance demonstrates, that for us, the home goods sector is vibrant and strong and abounds with opportunity for continued growth.

With a still small, but expanding, share of the market for home goods, and with, what we have demonstrated to be the premiere offering in the home goods space, Bed Bath & Beyond is extremely well positioned for the years ahead.

We expect to realize our growth objectives by remaining dedicated to providing the best possible shopping experience for our millions of valued customers and by so doing, continuing to earn their business.

With our Annual Meeting of Shareholders scheduled to take place one week from tomorrow, we would like to thank our shareholders, in advance, for their continuing support.

We encourage shareholders who have not yet voted to take advantage of electronic voting either via the Internet or by telephone.

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.

Before updating our fiscal 2005 guidance, we thought a brief refresher would be helpful.

In our last conference call on April 6th, we explained that, after taking into account the then updated planning assumptions, including anticipated changes in our compensation plan, revised stock option accounting and lease accounting clarifications, our earnings per share for fiscal 2005 were being planned at approximately $1.87 per share.

We further explained that, while the exact impact of each of these variables was dependent on events still to occur, and as such, could not be finally determined at that time, our $1.87 per share earnings estimate did reflect added expenses of approximately $0.06 to $0.07 per share, for the changes in our compensation plan and revised stock option accounting, and as much as $0.02 per share added expense for the lease accounting clarifications with most of the impact being in the back half of the fiscal year.

At this time, adjusting for our fiscal first quarter's results, the impact of the changes in our compensation plan, revised stock option accounting and lease accounting clarifications, as well as other updated major planning assumptions, which I will discuss in a few moments, we now have an earnings per share target for all of fiscal 2005, of approximately $1.88 per share increased from April's $1.87 per share, full year target.

Also, at this time, we believe that based on our updated planning assumptions and other factors that might affect our results, consensus earnings estimates of approximately $0.46 per share for our fiscal second quarter ending on August 27, 2005, appear reasonable.

Before reviewing the other major planning assumptions, which support our revised fiscal 2005 earnings per share target, we note that since our last conference call, on April 6th, the Securities and Exchange Commission has pushed back the effective date of statement 123R, the Financial Accounting Standards Boards revised rule on expensing stock options.

Under this pushback, companies are permitted to delay the expensing of stock options, until the beginning of their next fiscal year.

Had Bed Bath & Beyond chosen to do so, our estimated fiscal full year earnings per share target would have been increased by an after-tax equivalent of approximately $0.07 per share.

However, we have decided the SEC's most recent pronouncement on this matter notwithstanding, to stay the course and we will begin expensing stock options in our fiscal third quarter, as we said we would, in April.

Just to be entirely clear, let me repeat that our revised earnings per share target of approximately $1.88 per share for fiscal 2005, reflects all of our updated planning assumptions, including changes in our compensation plan and lease accounting clarifications, and commencing with our third fiscal quarter, the expensing of stock options.

With respect to the changes in our compensation plan, which were effective beginning with our fiscal first quarter, although these changes include items that increase compensation expense, over the long-term they are 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 plan permit us to continue to reward our people while providing greater predictability and control over a significant element in our business planning.

Our other major updated planning assumptions at this time, are as follows: 1. we expect to open approximately 85 new Bed Bath & Beyond stores for all of fiscal 2005, of which 11 were opened during our fiscal first quarter.

Approximately 18 Bed Bath & Beyond stores, including four which have already opened, one Christmas Tree Shop and one Harmon Store are now expected to open during the current fiscal quarter.

Most of the remaining 2005 Bed Bath & Beyond store openings and the opening of several additional Christmas Tree Shops and Harmon Stores are expected to occur during our fiscal third quarter.

We anticipate that, in the aggregate, the approximately 85 Bed Bath & Beyond stores opened, or to be opened in fiscal 2005, will occupy approximately 2.5 million square feet of total store space. 2.

Net sales of new Bed Bath & Beyond stores in their first full year of operation continue to be projected at between $160 and $185 per square foot.

We have planned a low double-digit percentage increase in consolidated net sales for the fiscal second quarter and for all of fiscal 2005.

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

3.

Due to the changes in accounting for stock options, changes in our compensation plan and clarifications for lease accounting, our plan provides for a slight reduction in operating profit margin for the full year. 4.

Interest income is expected to increase due to a combination of higher average cash balances and interest rates. 5.

The rate used to calculate the provision for income taxes continues to be estimated at approximately 37.4%. 6.

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 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 will provide updated guidance on a quarterly basis.

Before concluding this afternoon's call, a few additional comments relative to our fiscal first quarter: 1. our consolidated balance sheet as of May 28, 2005 remains strong and flexible.

Cash, cash equivalents and short-term investment securities approximated $877 million.

In addition, we had $362 million invested in long-term investment securities.

Even after our $350 million share repurchase program in last year's final quarter, the combined total of cash, cash equivalents short-term and long-term investment securities of approximately $1.24 billion was about $120 million, or 11% higher than their total of about $1.12 billion just a year ago.

2.

Merchandise inventories at May 28, 2005 were on plan at approximately $1.24 billion.

Inventories continue to be tailored by store to meet the anticipated demands of our customers, and are in excellent condition going into the summer season, which includes the important back-to-school selling period. 3.

Capital expenditures for the fiscal first quarter, primarily for new stores and information technology, amounted to approximately $32 million compared with about $23 million in the year ago period. 4.

Depreciation for the fiscal first quarter approximated $26 million, compared with $22 million a year-ago. 5.

Shareholders’ equity at May 28, 2005, after taking into consideration the $350 million share repurchase in fiscal 2004, was approximately $2.32 billion, compared with about $2.08 billion a year ago.

As a reminder, our next conference call, to review our fiscal second quarter and fiscal first half results and to update our outlook for the remainder of fiscal 2005, will be on Wednesday, September 21, 2005.

If you have any questions, we will be in our offices this evening, June 22nd, 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.