Bed Bath & Beyond Inc (BBBY) 2005 Q2 法說會逐字稿

Welcome to Bed Bath & Beyond's fiscal second quarter of 2005 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 beginning at 6:30 p.m. eastern time on Wednesday, September 21st, 2005 through 6:30 p.m. eastern time on Friday, September 23rd, 2005. To access the rebroadcast, you may dial 888-203-1112 with a passcode ID of 9947067. Now at this time I'd like to turn the conference over to Steven Temares, President and Chief Executive Officer of Bed Bath & Beyond. Mr. Temares, please go ahead.

Good afternoon. In the past three weeks Hurricane Katrina, and its aftermath, have greatly impacted a significant portion of the Gulf Coast of the United States. Like people everywhere, we are deeply saddened over the loss of life, and suffering, inflicted on the people in that region. Fallout from these events is ongoing. Many of our associates, their families and our customers have been impacted, some to a heartbreaking degree. In response to the needs created by this catastrophe, Bed Bath & Beyond on behalf of all of our Bed Bath & Beyond, Christmas Tree Shops and Harmon associates, in addition to monetary commitments, which include the matching of donations made by our associates, has been in contact with FEMA, the American Red Cross, and other organizations involved in relief efforts to coordinate the donation of essential items. We are also proud that many of our associates have offered their own time, money and assistance. Throughout, the emphasis and the primary concern has been to assist those most affected.

We are also aware of the questions raised by our associates, shareholders, vendors and others with regard to the impact of these events on the operation of our business. With the exception of the Metairie, Louisiana and Gulfport, Mississippi locations, which will remain closed for an indefinite period pending resolution all of the remaining stores in the region have resumed operations after varying periods of disruption. More importantly, a number of our associates have been forced to relocate into temporary housing, some requiring continuing assistance, which we will provide. Our Company will continue to do what needs to be done to aid our associates and to provide other assistance to the communities impacted by the hurricane. Although the ultimate full effects of these events on our operating results are not presently determinable, we do know that we have a strong balance sheet and that we have achieved exceptional, long-term operating results. In addition, the geographic distribution of our stores, and the relatively small number of locations in the Gulf Coast region, are expected to mitigate any financial impact resulting from Katrina. However, again, we wish to be clear that it is our intention to assist our people and respond to the needs of the communities impacted.

About four years ago, we spoke to you in the aftermath of the terror attacks of 9/11, a truly horrific time, which dramatically changed the world. Other significant challenges have arisen since, and uncertainties continue to exist, the rapid increase in energy costs being a recent example. Despite this, we know that our operating performance during the past four years has, nonetheless, continued at a high level, exceeding our growth targets time and time again. Our over 33,000 associates deserve, as always, the credit for our accomplishments during these challenging times and we know that they will continue to excel as we move forward. Before turning the call over to Ron Curwin, allow me to emphasize again that, at this time, obviously with the facts as we now know them to be, we believe that Katrina and its aftermath will not have a significant impact on our results. Our immediate attention remains focused on the myriad of things we can do, and are doing, to render assistance to those who have suffered from Hurricane Katrina. Let us continue to keep everyone affected by the hurricane in our thoughts and prayers as we go forward.

I'll now turn the call over to Ron Curwin, Chief Financial Officer and Treasurer. Ron.

Thanks Steve. Obviously, each of us here shares Steve's sentiments, as we work and pray for improved conditions for the victims of Hurricane Katrina. You should have by now received a copy of our Second Quarter press release, which discloses another very productive period for our Company. We hope that management's review of the results of operations, financial condition, cash flows and other comments relative to our Company will be useful to you. 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 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.” Warren Eisenberg, who as you know, co-founded our Company in 1971 with Leonard Feinstein, and together with Len, serves as Co-Chairman of Bed Bath & Beyond, will comment on our overall outlook for the remainder of fiscal 2005. Following Warren's comments, Steve Temares, President and Chief Executive Officer, and a Member of our Board of Directors, will review the fiscal second quarter and fiscal first half results. An update of our fiscal 2005 guidance and some additional comments relative to the fiscal second quarter will also be provided.

I’m now very pleased to introduce Warren Eisenberg. Warren.

Good afternoon. As Steve said earlier, the events that began with Hurricane Katrina three weeks ago have weighed heavily on all of us. As we prepared for the release of our second quarter results and for this call, they have continued to do so. Before proceeding with my comments relative to our second quarter results, I'd like to reiterate our Company's commitment to providing assistance to our associates and to the victims of this catastrophe. The strong start we experienced during the initial quarter of fiscal 2005 was followed by another excellent period in the fiscal quarter ended August 27, 2005, with net earnings up 17.8%. Our Company continues to perform at impressive levels, in terms of consistent earnings growth, cash flow generation and overall financial strength. We opened 15 new Bed Bath & Beyond stores during the fiscal second quarter, ending the period with 686 stores, compared with 606 stores a year ago. We've opened six additional Bed Bath & Beyond stores since the beginning of our fiscal third quarter, bringing the total as of today, including the two hurricane affected stores, to 692 stores in 44 states and Puerto Rico. We expect the number of new Bed Bath & Beyond stores for all of fiscal 2005, including those opened year-to-date, to be in the low 80s.

Also, at quarter end, we operated 27 Christmas Tree Shops and 36 Harmon Stores. Including stores opened year-to-date, total fiscal 2005 new store openings for Christmas Tree Shops and Harmon Stores are expected to be three and four, respectively. Consolidated store space as of August 27, 2005 was approximately 23.7 million square feet. We also plan to open additional Harmon Health and Beauty Care departments within Bed Bath & Beyond stores prior to year-end. New Fine China departments will also be opened, and we will expand or remodel a number of existing stores.

As we've said previously, we believe home goods continues to be one of the most attractive sectors in retailing, and Bed Bath & Beyond enjoys a dominant position as sector leader. Yet, despite our rapid growth, our share of the approximately $100 billion 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 well over 1100 Bed Bath & Beyond stores in the United States. We continue to enhance the performance of all of our stores through a combination of superior customer service and new merchandising initiatives. We expect to continue to expand or otherwise upgrade a growing number of our existing stores in the years ahead. Opportunities for future profitable growth, domestically, interactively, and internationally, are being regularly and systematically explored.

For over three decades our unique, decentralized culture has resulted in a long-term record of outstanding financial performance, which few, if any, other companies are able to match. Importantly, we are extremely well-positioned for a continuation of this controlled growth and our entire organization is dedicated to the attainment of our ambitious long-term goals. New initiatives and our long-range plan give us ample 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 2005 will be our best year ever. Before turning the call back to Steve, I'd like to personally acknowledge the extraordinary efforts of many of our associates during the recent crisis and to thank them all for what they've done and are continuing to do. Steve.

Thank you Warren. 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 three in the period ended August 27, 2005. 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. We 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 marketplace.

Turning to the financial highlights of our fiscal second quarter, net earnings were approximately $141 million, equivalent to $0.47 per share, compared with net earnings of $120 million, or $0.39 per share a year ago, an increase of approximately 17.8%. For the six months, net earnings were approximately $240 million, equivalent to $0.80 per share, compared with $202 million, or $0.66 per share, earned a year ago, an increase of 18.9%. Since our IPO in June of 1992, we've achieved over 13 consecutive years of uninterrupted earnings growth. Our financial results are a continuing testimony to the talents and efforts of our associates. Net sales for the fiscal second quarter were approximately $1.43 billion, about 12.3% higher than in the corresponding quarter a year ago. For the first half, net sales advanced to approximately $2.68 billion, which was 12.7% higher than in the similar period last year. Comp store sales for the quarter increased by approximately 4.5%, and for the six months, comp store sales came in at about 4.4%. 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 2005 financial targets.

Gross profit for the fiscal second quarter was approximately $602 million, or 42.1% of net sales, compared with $531 million, or 41.7% of net sales, during the second quarter of 2004. The 40 basis point increase in the gross profit margin was driven primarily by the reduction of inventory acquisition costs and was consistent with plan. Selling, general and administrative expenses were about $384 million during the fiscal second quarter compared with approximately $342 million in the corresponding quarter a year ago. SG&A as a percentage of net sales for the quarter remained the same as a year ago at 26.8%. Increased expenses, in part, due to payroll and payroll related items, including previously mentioned changes to our compensation plan, and lease accounting clarifications, were offset by reduced litigation and insurance expenses. We are continuing to systematically reduce and eliminate costs throughout our operations, wherever possible. We also continue to invest in our infrastructure in order to support the much larger business we are building. This balanced strategy of reinvesting for the Company's future, while achieving planned current operating results, remains a major focus. Principally, as a result of the gross profit margin improvement, we experienced a net increase in the operating profit margin of approximately 40 basis points for both the fiscal second quarter, and the fiscal first half.

Warren commented earlier about our fiscal 2005 expansion plans. We continue to make substantial progress with respect to our fiscal 2006 new store openings, and our 2007 new store program is also well underway. 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. Although, we are pleased with our year-to-date performance, we believe there is always room for improvement, and we strive to do better. We also continue to study alternative uses of our growing cash resources and how they may best be used to support future growth initiatives. Taking all known factors into consideration, we continue to believe that our fiscal 2005 financial goals are achievable, and that we will end the year in the strongest financial position in our history.

So to recap, Bed Bath & Beyond's fiscal second quarter produced earnings of $141 million or $0.47 per share, about 17.8% higher than a year ago, on an approximately 12.3% increase in net sales, and a 4.5% gain in same store sales. Over the past 13 years, Bed Bath & Beyond's store count has grown from 34 stores in nine states to 686 stores in 44 states and Puerto Rico. We vastly improved our infrastructure, putting us in a better position than ever to support our future growth. Our organization has never been stronger. Again, we remain committed to giving our Bed Bath & Beyond, Christmas Tree Shops, and Harmon customers the very best shopping experience possible, and through these efforts, continuing to produce exceptional financial results.

I look forward to our next call, on Wednesday, December 21, 2005, when we will review the accomplishments of our third quarter and the first nine months of fiscal 2005. We will also, at that time, comment on our fiscal 2006 outlook. With so many new stores scheduled to open before the end of our fiscal year, and with the Fall selling season well underway, the rest of the year promises to be an exciting, productive time for Bed Bath & Beyond. At the conclusion of this call, both Ron and Ken Frankel, our Director of Financial Planning, will be in their offices to take your questions. Ron.

Thanks Steve. Before updating guidance for the remainder of fiscal 2005, we believe that a few explanatory comments would be helpful. In our April 6th conference call, we explained that, including anticipated changes in our compensation plan, revised stock option accounting and lease accounting clarifications, our earnings per share for all of fiscal 2005 were being targeted 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 target 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 second half of the fiscal year.

In our last conference call, we increased our full year earnings per share target for all of fiscal 2005 to approximately $1.88 per share, which included the aforementioned accounting changes. At this time, adjusting for our fiscal first half results, 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 are now raising our earnings per share target to approximately $1.89 per share for all of fiscal 2005. For the fiscal third quarter ending on November 26, 2005 we are targeting earnings per share of approximately $0.45 per share. Before reviewing the updated planning assumptions, upon which these earnings targets are based, we remind you of our decision in June, to expense stock options beginning with our fiscal third quarter. Had we opted to postpone the expensing of stock options until the beginning of our next fiscal year, as is now permitted by the revised accounting rules and consequently to postpone the changes in our overall compensation plan, our earnings per share target for all of fiscal 2005 would have been approximately $0.06 to $0.07 per share higher than the current target of approximately $1.89 per share. Also as previously explained, the changes to our compensation plan, which were implemented at the beginning of fiscal 2005, have increased payroll and payroll related items, and will continue to do so in the near-term. However, the changes are expected to have a favorable financial impact over the long-term. Importantly, they permit us to continue to reward our associates, and also provide greater predictability and control in our business planning process.

The other major planning assumptions for the balance of fiscal 2005 upon which our current earnings targets are based, are as follows: One, we expect the number of new Bed Bath & Beyond stores for all of fiscal 2005 to be in the low 80s, of which 26 were opened during the first fiscal half. An additional six stores have opened so far in September. Of the remaining stores to be opened this year, approximately 60% will open in the third quarter with the balance in the fourth quarter. In addition, we anticipate opening two Christmas Tree Shops and three Harmon stores between now and the end of our fiscal year. Total store space being added in fiscal 2005, as a result of opening new Bed Bath & Beyond stores, Christmas Tree Shops, and Harmon Stores, and the expansion of existing stores, is expected to be approximately 2.6 million square feet, increasing Company-wide total store space at the end of fiscal 2005 to approximately 25.5 million square feet.

Two, our expansion will continue to be funded with internally generated funds. Three, we continue to project Bed Bath & Beyond new store net sales of between $160 and $185 per square foot in the first twelve months of operation. Consolidated net sales are expected to grow in the low double digit percentage range. Comp sales are projected to grow in the 3% to 5% range. Four, while we expect the gross margin to improve slightly, the changes in accounting for stock options, changes in our compensation plan and clarifications for lease accounting will cause deleveraging in SG&A expenses resulting in a reduction in operating profit margin for the year. Five, based on what we know currently, we believe that Katrina and its aftermath will not have a significant impact on our results. Six, interest income is expected to increase, due to a combination of higher average cash balances and interest rates. Seven, the rate used to calculate the provision for income taxes continues to be estimated at approximately 37.4%. Eight, capital expenditures for fiscal 2005 are now estimated at approximately $260 million, principally for new Bed Bath & Beyond stores, Christmas Tree Shops, and Harmon Stores, Information Technology enhancements and other infrastructure investments. We continue to estimate depreciation for fiscal 2005 at between $110 and $120 million.

Before concluding this afternoon's call, a few additional comments relative to our fiscal second quarter. One, our debt free balance sheet as of August 27, 2005 remains strong and flexible. Cash and cash equivalents and short term investment securities approximated $1 billion. In addition, we had $354 million invested in long-term investment securities. Even after our $350 million share repurchase in last year's final quarter, the combined total of cash, cash equivalents, short-term and long-term investment securities of approximately $1.35 billion was about $96 million, or 7.6% higher than their total of about $1.26 billion a year ago. Two, merchandise inventories at August 27, 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 fall selling season. Three, capital expenditures for the first fiscal half, primarily for 28 new stores and Information Technology, amounted to approximately $88 million compared with about $65 million in the fiscal first half a year ago. Four, depreciation for the fiscal first half approximated $52 million; a year ago it was about $46 million. Five, shareholders' equity at August 27, 2005, after taking into consideration the $350 million share repurchase in fiscal 2004, was approximately $2.49 billion, compared with about $2.21 billion a year ago.

As a reminder, our next conference call, to review our fiscal third quarter and nine months results and to update our outlook for the remainder of fiscal 2005, will be on Wednesday, December 21, 2005. We will also, at that time, comment on our early outlook for fiscal 2006. Ken and I will be in our offices this evening, September 21, to take your calls. Have a pleasant evening.

Ladies and Gentlemen this concludes today's conference call. Thank you all for listening. You may now disconnect.