Bed Bath & Beyond Inc (BBBY) 0 Q0 法說會逐字稿

Welcome to Bed Bath & Beyond's fiscal fourth quarter and fiscal year 2005 results conference call.

All participants are in a listen only mode for the duration of this call.

This call is being recorded.

A rebroadcast of the conference call will be available beginning at 6:30 PM Eastern time on Wednesday, April 5, 2006 through 6:30 PM Eastern time on Friday, April 7.

To access the rebroadcast, you may dial 1-888-203-1112, with a passcode ID of 8473531.

Now at this time I'd like to turn the conference over to Ron Curwin, Senior Vice President of Bed Bath & Beyond.

Mr. Curwin please go ahead.

Thank you and good afternoon.

Welcome to Bed Bath & Beyond's fiscal fourth quarter of 2005 conference call.

Within the past hour we issued a press release covering our results for the three and twelve- month periods ended February 25, 2006.

During this call we will discuss our fourth quarter highlights and update guidance for fiscal 2006, which will be a 53 week year ending March 3, 2007.

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 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, Co-Chairman of Bed Bath & Beyond, leads off today's call.

Steven Temares, Chief Executive Officer, and a member of the Board of Directors, will follow Len.

The earnings guidance and some additional financial commentary will conclude today's call.

I'm now very pleased to introduce Leonard Feinstein: Len...

Thanks Ron.

As many of you have read in our press release issued within the past hour, Bed Bath & Beyond in fiscal 2005 achieved its 14th consecutive year of record earnings since becoming a public company in 1992.

We are particularly pleased with our results, as they were achieved at a time when other retailers operating in our sector continue to experience difficulties.

We're proud that in terms of earnings growth, cash flow generation and overall financial strength, our performance continues to be one of the most consistent, regardless of industry, among all public companies.

Our continuing store opening and relocation programs, exciting new merchandise initiatives, and superior customer service will be significant growth drivers for years into the future.

During fiscal 2005, we added 83 new Bed Bath & Beyond stores, bringing to 742 the number of stores operating at fiscal year end, located in 46 states, the District of Columbia and Puerto Rico.

In the fiscal fourth quarter, 17 Bed Bath & Beyond stores were opened.

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 2005 was somewhat larger than those opened in each of the preceding three fiscal years.

We also opened three Christmas Tree and four Harmon Stores in fiscal 2005, bringing their store totals at fiscal year end to 29 and 38, respectively.

Consolidated store space as of February 25, 2006 was approximately 25.5 million square feet.

We will continue our long-standing 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 customers' shopping experience.

Our new stores as a group continue to meet their sales productivity and earnings targets and we are confident that they will continue to achieve their performance goals as they grow and mature.

Although we will never be satisfied, we are pleased that our stores continue to improve over time, and have never been better than they are today.

We will continue to execute our store roll-out program and anticipate opening approximately 80 Bed Bath & Beyond stores in fiscal 2006; four of these have already been opened.

The opening of six Christmas Tree Shops, continued development of our Harmon concept, and the relocation or expansion of certain existing stores, are also planned for 2006.

We're also very pleased to note that our fiscal 2005 share repurchase program, authorized by our Board of Directors in the aggregate amount of $600 million, was substantially completed prior to our fiscal year end.

Since our first ever share buyback program was announced and completed in fiscal 2004, our Company has returned approximately $950 million to shareholders.

These actions enhance shareholder value and reflect our Board's confidence in the future of our Company.

We've been debt free for a decade.

Even after deducting cash used for our store opening and improvement programs, ongoing infrastructure enhancements and the share repurchase programs, cash equivalents and investment securities totaled about $1 billion at fiscal year-end.

We have long believed that home goods continues to be one of the most attractive sectors in all of retailing, as our consistent results attest.

The ongoing restructuring of the home goods sector presents Bed Bath & Beyond with exciting opportunities for continuing success and we fully intend to exploit them.

Despite our substantial growth, our share of the estimated $100 billion home goods market remains relatively modest, and we expect to further increase our share.

Based upon our most recent real estate analysis, we have updated the number of Bed Bath & Beyond stores targeted to open in the United States.

We now anticipate that we can grow to approximately 1,300 Bed Bath & Beyond stores in the United States, in addition to continuing the expansion and integration of our Christmas Tree and Harmon Store concepts.

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

Other possible opportunities, including international expansion, acquisitions and additional share repurchases, continue to be regularly and systematically explored.

For 35 years, our decentralized culture has been the foundation for our long-term record of outstanding financial performance.

Our entire organization remains dedicated to the attainment of our ambitious long-term objectives.

We have the organization and the financial strength to take advantage of profitable opportunities as they appear in the future.

We are pleased that our fundamental performance has continued at a very high level.

We believe that through the efforts of our associates, this will continue.

We're confident that fiscal 2006, which began about five weeks ago, will 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 fiscal 2005.

As we have said for the last 14 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, earnings per share for the fourth quarter, which includes the expenses associated with the early adoption of the SFAS 123R new stock option accounting rules and related compensation plan changes, were $0.67 per share, an increase of approximately 13.6% from the $0.59 per share earned in the final quarter a year ago.

Had we not early adopted 123R and not made our related compensation plan changes, earnings per share for the fourth quarter would have been approximately $0.70 per share, up about 18.6%.

For the full year, earnings per share, which includes the expenses associated with the early adoption of 123R beginning in the fiscal third quarter and related compensation plan changes, were $1.92 per share, an increase of approximately 16.4% from the $1.65 per share earned in fiscal 2004.

Had we not early adopted 123R at mid-year and not made our related compensation plan changes at the beginning of the year, earnings per share for fiscal 2005 would have been approximately $1.98 per share, up by about 20%.

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

As I cannot emphasize enough, this is a tribute to the talents and accomplishments of our over 33,000 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.

We continue to work to offer our customers a constantly evolving and improving shopping experience, featuring a wide-range of attractive, desirable merchandise, at every day low prices, accompanied by knowledgeable, attentive, helpful service.

Operationally, we have maintained our focus on selection and service, while achieving industry leading margins, profitability and return on capital.

Our performance for about 3.5 decades has been based on placing the interests of 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.

Consolidated net sales for the 13 weeks ended February 25, 2006 were approximately $1 billion 685 million, or about 14.8% higher than in the corresponding quarter a year ago.

Fourth quarter consolidated comp store sales increased by 6.3% on top of a 5.1 comp achieved a year ago.

Comp store sales for the fiscal fourth quarter also improved over those achieved during the hurricane-affected fiscal third quarter.

We strongly believe that our fiscal fourth quarter results, accomplished as they were during a period when others in our sector, and, for that matter, in other retail sectors, were reporting soft sales and below-plan earnings, and were reducing earnings guidance, further validate our successful business formula, and again demonstrate, our unique culture and its resultant ability to execute effectively.

For all fiscal 2005, consolidated net sales advanced to $5 billion 810 million, about 12.9% higher than the $5 billion 148 million achieved a year ago.

Consolidated comp for fiscal 2005 grew by 4.6%, compared with 4.5% a year ago.

The gross profit margin for the full year, including a slight improvement in the fiscal fourth quarter, improved by approximately 30 basis points, primarily due to lower inventory acquisition costs.

This was the fifth consecutive year of gross profit margin improvement.

Selling, general and administrative expenses for the fiscal fourth quarter were about $442.9 million or 26.3% of net sales, compared with approximately $366.9 million, or 25% of net sales, in the corresponding quarter a year ago.

SG&A deleveraged by approximately 130 basis points for the quarter and by 60 basis points for the fiscal year.

The deleveraging of SG&A is primarily from the expensing of stock options and the related changes in our compensation program, reflecting our early adoption of the revised stock option accounting rules.

As a result of the full year deleveraging of SG&A, partially offset by the improvement in the gross profit margin, we experienced, as previously forecasted, an approximately 30 basis point reduction in our operating profit margin, from 15.4% to 15.1%.

The operating profit margin for the fourth quarter was lower by approximately 120 basis points, again, reflecting the accounting changes.

As Len noted, we have substantially completed the $600 million share repurchase program authorized in 2005.

Our balance sheet at February 25, 2006 was strong, free of debt and we continue to be cash flow positive.

In our opinion, our financial flexibility continues to provide us with a distinct competitive advantage.

Len also commented earlier about the successful completion of our 2005 new store opening program.

We currently anticipate opening approximately 80 Bed Bath & Beyond stores in fiscal 2006, as well as 6 new Christmas Tree Shops and continuing to develop our Harmon concept.

By taking a long-term approach to building the Bed Bath & Beyond, Christmas Tree Shops and Harmon concepts, 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.

Over the last 14 years, including the four stores opened since the beginning of our current fiscal year, Bed Bath & Beyond's store count has grown from 34 stores in 9 states, to 746 stores in 46 states, the District of Columbia and Puerto Rico.

During this time we have vastly improved our infrastructure.

Our Company has never been stronger or better positioned to compete.

So to recap, Bed Bath & Beyond's fiscal fourth quarter produced record earnings per share of $0.67, about 13.6% higher than a year ago on a 14.8% increase in net sales and a 6.3% gain in same-store sales.

For the full year, earnings per share were $1.92 a share up about 16.4% from fiscal 2004 on a net sales increase of approximately 12.9% and a comp store sales increase of 4.6%.

Again, had we not early adopted 123R, and not made the changes to our compensation plan, our earnings per share increases would have been still higher on a comparable basis for both the fourth quarter and the full fiscal year.

Fiscal 2005, with its opportunities and challenges, was successful by any measurement, and finished stronger than we had earlier projected.

We remain steadfast in our dedication to serving our customers, and by so doing, achieving all of our performance objectives in fiscal 2006.

Our people, the culture they have created and their outstanding efforts in serving our customers are the principal reasons for our success, and we should never lose sight of this.

To all our associates and other business partners, I want to say "Thank You" for the great job you did in 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 Len and Steve, we are pleased with the record results of our fiscal fourth quarter, and full year 2005.

Turning to our fiscal 2006 guidance.

As many of you will recall, the changes in our compensation plan and revised stock option accounting, which has become required of all companies, will continue to impact earnings comparisons through the first half of fiscal 2006, as they have done in the past 6 months, as previously disclosed.

The substantially non-cash charges resulting from the implementation of the accounting changes, and other changes made to our overall compensation plan, will continue to deleverage SG&A expenses in the fiscal first and second quarters of 2006.

The resulting impact on earnings continues to be estimated at approximately $0.03 per share in each of the first two quarters of 2006, or approximately $0.06 per share in the fiscal first half of 2006.

Reflecting this and other planning assumptions, we are presently estimating net earnings of $0.35 per share in the fiscal first quarter of 2006, ending on May 27, 2006.

Since our first fiscal quarter typically accounts for the smallest portion of our annual earnings, the impact of these new charges, on a percentage basis, is relatively more pronounced in that period than in any of the other three fiscal quarters.

For the fiscal second quarter of 2006, which ends on August 26, 2006, we are presently targeting earnings of $0.51 per share.

Again, were it not for the changes in our compensation plan and revised stock option accounting, we would be estimating increases in our earnings per share for the fiscal first and second quarters of 2006 of approximately 15%.

That is in each quarter.

As a reminder, we stated that the changes to our compensation program, which were initiated during the first quarter of fiscal 2005, are expected to have a favorable long-term financial impact to that which would have otherwise resulted from the application of new stock option accounting rules had we not changed our compensation program.

Also, as we previously pointed out, the changes to our compensation program permits us to continue to reward our people while providing greater predictability and control over a significant element in our business planning.

In our December conference call we said that we were comfortable with our fiscal 2005 earnings per share target of $1.89, and that based on a yet to be finalized 2006 business plan, earnings were expected to grow from 10 to 11% or to about $2.08 to $2.10 per share in 2006.

Since December, our fiscal fourth quarter results have come in above plan, we substantially completed our fiscal 2005 share repurchase program, and, as mentioned in our December call, we will be reducing our effective tax rate for fiscal 2006.

Considering all of these factors, we're now expecting fiscal 2006 earnings per share to grow by approximately 13%, to about $2.17 per share, based on the following major planning assumptions:

One, in fiscal 2006, we expect the number of new Bed Bath & Beyond store openings to be approximately 80.

Including 4 which have already opened, approximately 10 are expected to open during the fiscal first quarter, and approximately 15 in the fiscal second quarter.

Also, included in our fiscal 2006 store opening program will be 6 Christmas Tree Shops and the continuing development of our Harmon concept.

We anticipate that the Company's new store openings in fiscal 2006 will occupy approximately 2.5 million square feet of total store space.

Two, Bed Bath & Beyond new stores are expected to generate net sales of between $160 and $185 per square foot in the first 12 months of operation.

Consolidated comp sales are expected to increase from 3 to 5% and net sales, including the 53rd week, are expected to increase between 13% and 14%.

Three, primarily due to the changes in accounting for stock options and changes in our compensation program, our plan provides for a reduction in operating profit margin for the full year.

Four, based on the current interest rate environment, interest income is expected to be somewhat higher than in fiscal 2005.

Five, the rate used to calculate the provision for income taxes for fiscal 2006 is presently being estimated at approximately 36.6%.

Six, average outstanding diluted shares for all of fiscal 2006 is presently being estimated at approximately 288 million.

Seven, we continue to invest in our Company in order to support future growth.

Capital expenditures for fiscal 2006, principally for new stores, the refurbishment of existing stores, information technology enhancements and other infrastructure investments, and the purchase of our corporate office building is presently being estimated at $300 million; depreciation in fiscal 2006 is expected to be approximately $125 million.

Eight, as previously mentioned, fiscal 2006 will be a 53 week year; the additional week will be included in the fiscal fourth quarter, making it a 14 week period.

Consistent with prior practice, we will update our fiscal 2006 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 the just-concluded fiscal 2005;

One, our balance sheet and cash flows were strong throughout the year.

Even after our 2005 share repurchase program of approximately $600 million, cash, cash equivalents and investment securities as of February 25, 2006 approximated $1 billion.

Two, merchandise inventories as of February 25, 2006 were on plan at approximately $1.3 billion.

On a per square foot basis, consolidated inventories at year-end were about $51 per square foot.

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

As you may be aware, in our decentralized operation, much of the merchandise is replenished by our store associates and we continue to be very pleased with the condition of our inventories.

Three, again, even after the substantial completion of our 2005 share repurchase program, shareholders' equity at February 25, 2006 was approximately $2.3 billion.

Four, capital expenditures, primarily for new stores and information technology, were approximately $240 million for the fiscal year.

The purchase of our corporate office building in Union, New Jersey, expected to be closed prior to the end of fiscal 2005, actually occurred at the beginning of fiscal 2006.

Depreciation was about $111 million in fiscal 2005.

Five, consolidated store space as of February 25, 2006, as Len mentioned, was approximately 25.5 million square feet.

Although we're 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 we believe is the premier offering in the retail sector that we serve, Bed Bath & Beyond is poised for profitable growth for years into the future.

As a reminder, our next conference call, to discuss results for the fiscal first quarter of 2006 and to update our outlook for all of fiscal 2006, will be on Wednesday, June 21, 2006.

If you have any questions, Ken and I will be in our offices this evening, April 5, to take your calls.

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

Have a pleasant evening.

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

Thank you all for listening.

You may now disconnect.