Bed Bath & Beyond Inc (BBBY) 2006 Q1 法說會逐字稿

Thank you for standing by and welcome to Bed Bath & Beyond's first quarter of fiscal year 2006 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 the conference call will be available beginning Wednesday, June 21, 2006 at 6:30 PM Eastern Time through 6:30 PM Eastern Time on Friday, June 23, 2006.

To access the rebroadcast, you may dial 888-203-1112, with a passcode of 4481741.

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

Mr. Curwin, please go ahead.

Thank you and good afternoon.

Welcome to Bed Bath & Beyond's first quarter of fiscal 2006 conference call.

Within the past hour we issued a press release covering Bed Bath & Beyond's results for the three month period ended May 27, 2006.

During this call we will comment on some of the quarter's highlights and update guidance for fiscal 2006, a 53 week year ending on March 3, 2007.

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 25, 2006.

The Company does not undertake any obligation to update its forward-looking statements."

Warren Eisenberg, 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 Warren.

Our earnings guidance for the fiscal second quarter and for all of fiscal 2006, and some additional financial commentary will conclude today's call.

I'm now very pleased to introduce Warren Eisenberg.

Warren?

I am very pleased to be able to say that once again in our first fiscal quarter of 2006, we've achieved record sales and earnings as we have every single quarter since becoming a public company in 1992.

During the quarter, we added 10 new Bed Bath & Beyond stores, ending the period with 751 stores in 46 states, the District of Columbia and Puerto Rico.

Since the beginning of our fiscal second quarter, on May 28, 2006, we've added three additional Bed Bath & Beyond stores of the approximately 12 planned for the period.

For all of fiscal 2006, we expect to open between 75 and 80 new Bed Bath & Beyond Stores.

We also expect to open four additional Christmas Tree Shops before year-end, which, together with the two new stores already opened, will bring to six the number of Christmas Tree Shops opening for all of fiscal 2006.

Consolidated store space as of May 27, 2006 was approximately 25.8 million square feet.

Our new stores as a group continue to perform well and we are confident that they will continue to achieve their operating goals as they grow and mature.

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

We are highly confident that our solid growth will continue for years into the future.

We believe we can operate approximately 1300 Bed Bath & Beyond stores in the United States, as we continue the expansion and integration of our Christmas Tree Shops and Harmon Store concepts.

We have increased our investment spending to create the infrastructure that will be required to support this expansion.

While doing so, we continue to review and consider other productive uses of our growing capital, including acquisitions, international activities, and additional share repurchases.

Our fiscal first quarter results reinforce our view that 2006 will be still another record year and that all of our performance goals for the year will be achieved.

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

Steve...

Thank you Warren.

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

Within the past hour, we were pleased to have reported a solid fiscal first quarter, the beginning of what we are confident will be our best and most profitable year ever.

Our financial results are a continuing testimony to the talents and efforts of our over 34,000 associates, and to their core principles of superior customer service and corporate decentralization.

To briefly touch on the highlights, net earnings for the fiscal first quarter, which include expenses associated with FAS 123R stock option accounting rules, and related compensation plan changes, were approximately $100 million, equivalent to $0.35 per share, compared with approximately $99 million, or $0.33 per share earned in the first quarter a year ago.

Excluding the impact of FAS 123R and the related compensation plan changes, earnings per share for the quarter would have been approximately $0.38 per share, up about 15.2% from a year ago.

Net sales for the fiscal first quarter were approximately $1.4 billion, about 12.2% higher than in the corresponding fiscal 2005 period.

First quarter comps were up 4.9% versus a comp store gain of 4.4% a year ago.

Our fiscal 2006 business plan continues to model same store sales growth in the 3 to 5% range.

Gross profit for the fiscal first quarter was about $590 million, or 42.3% of net sales, compared with $521 million, or 41.8% of net sales, during the first quarter of 2005.

The gross profit improvement resulted from a number of items including a reduction in inventory acquisition costs.

Selling general and administrative expenses for the fiscal first quarter were about $441 million or 31.6% of net sales, compared with approximately $370 million, or 29.7% of net sales, in the corresponding quarter a year ago.

SG&A deleveraged by approximately 190 basis points for the quarter, due primarily to the expensing of stock options and the related changes in our employee compensation programs.

Also contributing to the SG&A deleveraging were occupancy costs, including real estate and other taxes, depreciation and utilities, advertising expenses which include increases in paper costs and postal rates, and preopening expenses primarily due to the changes in lease accounting rules.

Please note, as we said in our last conference call, since the first quarter typically accounts for the smallest portion of our annual earnings, any deleveraged items, on a percentage basis of net sales, are relatively more pronounced in the first quarter than they would be in any of the other three quarters.

As a result of the movements in our gross profit margin and selling, general and administrative expenses, we experienced, as previously forecasted, a decrease of approximately 140 basis points in the operating profit margin for the first quarter.

As we have often said, we're committed to being efficient and effective in everything we do.

Given our country's concerns over energy costs, dependence on foreign oil; the rate of consumption and environmental impacts of fossil fuels; deforestation and global warming, our desire for efficiency naturally extends to the areas of our energy usage and the consumption of natural resources.

As we know, our country's concerns must be our concerns as well.

Our local response to these broad concerns ranges from changing the temperature in our stores, to spending millions of dollars to better manage energy efficiency in our stores, distribution facilities and offices, to using new, "cooler" materials for our roofs and more efficient lights to illuminate our stores.

These are just a few of the measures we've taken, and we continue to evaluate other opportunities to reduce our use of energy and the consumption of our natural resources.

While the rising costs of raw materials have impacted construction and occupancy costs, we are making acceptable progress with both our fiscal 2006 and 2007 new store opening programs.

However, we will not compromise our economic requirements when conducting negotiations for new stores.

In the short-term, this might result in several stores, previously included in our plans for this fiscal year, either being delayed or possibly not coming to fruition.

We will continue to maintain a long-term approach to growing our business.

As you will hear from Ron, with all these factors considered, including the revised 75 to 80 new store opening range, we expect to achieve all of our second quarter and fiscal 2006 financial targets.

At May 27, 2006, our balance sheet and statement of cash flows were solid, and continue to provide us with a distinct competitive advantage.

Competition, as we all know, is not new to retailing, or to the sector we serve.

As we've often said, we are very aware of our competitors and respect them.

Nevertheless, our performance over the years has been strong despite the competition.

Chains like 3D, Strouds, Pier 1, House to Home,Lee-Jays, Lechters, Pacific Linens, Sears Great Indoors, Conran's, Home Express, HomePlace, Waccamma, Cost Plus, Brandons, Home Depot Expo, JCPenney Home Stores, HomeGoods and Linens 'n Things are some that come to mind.

Some of these store concepts continue to operate with mixed results, while the majority have discontinued operations entirely.

Meanwhile, the department stores, national chains and discounters with whom we compete, including Federated/May - now primarily Macy's, Target, Kohls, Wal-Mart and Costco, just to name a few, continue to work to reposition themselves when it comes to our merchandise categories.

Change is not new.

We expect that Bed Bath & Beyond's place in our customers' mindset will continue to grow in the years ahead; and we will accept nothing less.

We must continue to respond to our customers by providing them with the best shopping experience for home-related merchandise that they can find anywhere.

Our experience is that the home goods sector is vibrant and strong, and abounds with opportunities for continuing, profitable growth.

As you will hear during the guidance portion of this call, we are now budgeting capital spending for all of fiscal 2006 to be approximately $350 million; in April, our capex target was $300 million.

The capex estimate has been increased to reflect items including the potential investment in additional distribution capabilities to support the growth of our Bed Bath & Beyond, Christmas Tree Shops and Harmon operations.

We are confident in the future of our Company.

We recognize the opportunity and need to support their future by building on our existing foundation to support our planned growth.

Whether it be an increasing number of self-developed new stores instead of landlord provided turnkeys; or merchandising initiatives that have proven successful with our customers, including fine tabletop and health and beauty care; or growing our Christmas Tree Shops and Harmon Store concepts; or working to be world class with our information technology platforms and our supply chain capabilities; with proper investment and oversight, each will contribute to the attainment of our ambitious long-term goals.

Again, by taking a long-term approach to building the Bed Bath & Beyond, Christmas Tree Shops and Harmon Store concepts, and by making these, and other, essential investments in our infrastructure, we expect that all aspects of our business will continue to contribute to the achievement of our goals in the years ahead.

During the last 14 years, through reinvesting in our Company, we have vastly improved our infrastructure.

Simply put, our Company has never been stronger or better positioned to compete.

Our long-term growth has been largely achieved with internally generated funds, and we've been debt free for over 10 years.

Cash and investments at quarter end approximated $1.1 billion.

Our balance sheet and operating cash flow continue to strengthen.

So to recap, Bed Bath & Beyond's fiscal first quarter, including the impact of 123R, produced earnings of approximately $100 million or $0.35 per share, on an approximately 12.2% increase in net sales, and a 4.9% gain in same store sales.

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 will be in their offices to take your questions.

Ron...

Thanks Steve.

As you heard from Warren and Steve, we are pleased with the results of our fiscal first quarter.

As many of you know, the changes in our compensation plans and revised stock option accounting will continue to impact earnings comparisons through the fiscal second quarter ending on August 26, 2006.

These substantially non-cash charges are estimated to be approximately $0.03 per share for the fiscal second quarter, and approximately $0.06 per share for the fiscal first half of 2006.

Reflecting this and other planning assumptions, we continue to target net earnings of approximately $0.51 per share in the fiscal second quarter, consistent with our prior guidance, and up about 9% from the year earlier period.

Were it not for these accounting changes, earnings per share for the fiscal second quarter might have been expected to increase by approximately 15%.

Similarly, for all of fiscal 2006, after updating our major planning assumptions, we continue to expect earnings per share to grow by about 13% from fiscal 2005, to approximately $2.17 per share, again, consistent with prior guidance.

As mentioned, this would be after absorbing a charge of about $0.06 per share due to the aforementioned accounting changes.

Were it not for these changes, earnings on a per share basis might have been expected to increase by approximately 16% for all of fiscal 2006.

In sum, we remain comfortable, at this time, that our quarterly and annual targets for fiscal 2006, will be met.

As we've said before, the changes to our compensation program are expected to have a favorable long-term impact to that which would have otherwise resulted from the application of the new stock option accounting rules had we not changed our compensation program.

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

A summary of our major planning assumptions at this time are as follows: One, we expect to open between 75 and 80 new Bed Bath & Beyond stores for all of fiscal 2006, of which 10 were opened during our fiscal first quarter.

In the fiscal second quarter, approximately 12 Bed Bath & Beyond stores, including three which have already opened, are expected to make their debut.

Our second Christmas Tree Shops store opening this year occurred in early June, and the remaining four additional Christmas Tree Shops stores openings for fiscal 2006 are expected to occur during the fiscal third quarter ending in November.

Approximately two-thirds of the second fiscal half Bed Bath & Beyond new store openings are expected to occur during the fiscal third quarter.

We anticipate that consolidated store space at the end of fiscal 2006 will be in a range of approximately 27.8 to 28.0 million square feet.

Two, for all of fiscal 2006, which will be a 53 week year, and for the fiscal second quarter, we expect net sales to increase in a low double digit percentage range, and consolidated comp sales to increase from 3 to 5%.

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

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

Four, based on increased interest rates, interest income is expected to be somewhat higher than in fiscal 2005.

Five, the rate used to calculate the provision for income taxes continues to be estimated at approximately 36.6%.

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

Seven, as Steve discussed, our capital spending plan for fiscal 2006 is presently being estimated at $350 million; depreciation in fiscal 2006 is expected to be approximately $130 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 our fiscal first quarter: One, our consolidated balance sheet as of May 27, 2006 remains strong and flexible.

Even after substantially completing our $600 million share buyback program in last year's final quarter, the combined total of cash, cash equivalents and investment securities was approximately $1.1 billion.

Two, merchandise inventories at May 27, 2006 were on plan at approximately $1.4 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 selling season, which includes the important back-to-college period.

Three, cash outlays for capex in the first quarter, including the acquisition of the Union, New Jersey headquarters, new stores and information technology, amounted to approximately $79 million.

Four, depreciation for the fiscal first quarter approximated $31 million.

Five, shareholders' equity at May 27, 2006, after taking into consideration the fiscal 2005 share repurchase, was approximately $2.4 billion.

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 2006, will be on Wednesday, September 20, 2006.

If you have any questions, Ken and I will be in our offices this evening, June 21, 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.