Bed Bath & Beyond Inc (BBBY) 2009 Q2 法說會逐字稿

Welcome to Bed Bath & Beyond's second quarter of fiscal 2009 results conference call.

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

This call is being recorded.

30 PM Eastern time on Friday, September 25, 2009.

To access the rebroadcast, you may dial 1-888-203-1112 with a passcode ID of 4121763.

Now at this time it is my pleasure to turn the conference over to Gene Castagna, Chief Financial Officer and Treasurer of Bed Bath & Beyond.

Mr.

Castagna, please go ahead.

Thank you and good afternoon.

Welcome to Bed Bath & Beyond's second quarter of fiscal 2009 conference call.

Within the past hour we issued a press release announcing Bed Bath & Beyond's results for the three and six month periods ended August 29, 2009.

During this call we will comment on some of the second quarter's highlights, provide our third and fourth quarter planning assumptions and update our fiscal 2009 planning assumptions.

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 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, 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, 2009.

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

Joining me on today's call are Warren Eisenberg, Co-Chairman of Bed Bath & Beyond, and Steven Temares, Chief Executive Officer and member of the Board of Directors.

Some additional financial commentary will conclude today's call.

I am now very pleased to introduce Warren Eisenberg.

Warren?

Good afternoon.

Our press release issued within the past hour, showed that our Company earned $0.52 per diluted share in the fiscal quarter ended August 29, 2009 compared with $0.46 per diluted share last year, an increase of approximately 13%.

While the outlook for the overall retail environment remains challenging, we remain committed to continuing to improve the overall financial performance of our Company.

During the fiscal second quarter, we opened nine new Bed Bath & Beyond stores, including four additional stores in Canada; one Harmon Face Values store, and three buybuy BABY stores, bringing the number of our fiscal first-half openings to 21 versus 23 in 2008.

We continue to add fine china departments in additional Bed Bath & Beyond stores, as well as Harmon Face Values health and beauty care departments in additional Bed Bath & Beyond, Christmas Tree Shops and buybuy BABY stores.

Consolidated store space at August 29, 2009 was approximately 32.5 million square feet.

Since the beginning of the fiscal third quarter, we have opened three new Bed Bath & Beyond stores, which includes our 10th Canadian store, and three buybuy BABY stores.

Including the two stores closed in fiscal 2009, we currently operate 946 Bed Bath & Beyond stores in 49 states, the District of Colombia, Puerto Rico and Canada, as well as 53 Christmas Tree Shops stores, 22 buybuy BABY stores and 41 stores under the names Harmon or Harmon Face Values.

In addition, through a joint venture, we operate two stores in the Mexico City market under the name Home & More.

In fiscal 2009, including stores already open to date, we anticipate opening approximately 58 new stores across our concepts, including approximately 35 Bed Bath & Beyond stores in the United States and Canada, approximately seven Christmas Tree Shops, approximately 12 buybuy BABY stores and approximately four Harmon Face Values stores.

This reflects our continued prudent approach to growth in the current challenging macroeconomic environment, including our stringent standards in approaching opportunities in the real estate market.

We also plan to continue to add Harmon Face Values health and beauty care departments within additional Bed Bath & Beyond stores, Christmas Tree Shops, and buybuy BABY locations, as well as continue to add Fine China departments to Bed Bath & Beyond stores.

We believe that throughout the United States and Canada there is an opportunity to open in excess of 400 additional Bed Bath & Beyond stores and we also strive, over time, to become the leading home furnishings retailer in the other countries in which we do business.

We continue working to increase the productivity of our stores by introducing new merchandising initiatives, as well as by expanding, renovating, remodeling and/or relocating stores to enhance our customers' shopping experience.

Our ability to leverage the breadth and depth of our merchandise offering, grow our bridal, baby and gift registries, and continue the development of our online sales capabilities affords us additional opportunities to attract new customers to the Bed Bath & Beyond experience.

As we have repeatedly said, we will continue to capitalize on the unique strengths of our decentralized culture, which has enabled us to build the strong, exciting business we have today.

This culture, which takes advantage of the knowledge, independence and customer focus of our associates, has always been the foundation of our long-term performance and allows us to respond more quickly as economic conditions change on a market by market basis.

We fully expect that, despite the challenging macroeconomic environment, we will be able to look back on this period as one which afforded us an exceptional opportunity to solidify and enhance our position in the merchandising categories we offer our customers.

We are confident that we have the people, the resources, and the capability to achieve our near and long-term goals.

And now I will turn the call over to Steven Temares.

Steve...

Thank you Warren.

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

While retailers, including us, continue to be broadly affected by the current economic challenges, our second quarter operating results, though never completely satisfactory to us, did meet or exceed most of our internal planning assumptions.

During the second half of fiscal 2008, we intensified our focus on managing expenses.

We continue to make progress in our expense control initiatives, and continue to systematically challenge the costs associated with running our Company, although we will begin to anniversary many of these initiatives during the fiscal third quarter of this year.

Despite the economic challenges that we are facing, we have not changed our fundamental business strategy; to offer a broad assortment of merchandise at everyday low prices with superior customer service.

And as always, we remain committed to making the required investments in our Company's infrastructure to help position us for our continued success.

Our balance sheet and overall financial health are extremely strong, and we remain focused on building a business that stands the test of time.

We continue to look for ways to enhance our customers' overall shopping experience and remain committed to becoming our customers' first choice for the merchandise products we offer, domestically, interactively and, over the longer-term, internationally.

We continue to believe strongly that the current retailing environment, though difficult, provides an excellent opportunity for us to strengthen our long-term prospects.

We are confident that our Company is well positioned to grow profitably and deliver superior shareholder value and that we are effectively managing our business to compete and capture market share over time.

Our capital spending in the first half of fiscal 2009 was approximately $68 million.

We continue to scrutinize and prioritize our capital needs while making investments in our Company; principally for new stores, existing store improvements, information technology enhancements, and other projects whose impact is viewed as essential to our future.

In taking a long-term approach to building our Bed Bath & Beyond, Christmas Tree Shops, buybuy BABY and Harmon Face Values concepts, and through the ongoing effort to cross merchandise and leverage the best practices of each of our concepts, we expect, over time, to do more for, and with, our customers.

Turning to our second-quarter performance, as reported earlier today, net earnings per diluted share for the quarter were $0.52, an increase of 13% over the $0.46 a share earned a year ago.

For the fiscal first half, net earnings per diluted share were $0.86 compared with $0.76 last year.

Net sales for the fiscal second quarter were approximately $1.9 billion, approximately 3.3% higher than the corresponding fiscal 2008 period.

Second quarter comp store sales were down approximately 0.6%, at the favorable end of our comp store sales planning assumption.

For the fiscal first half, net sales were approximately $3.6 billion, about 3.1% higher than last year.

Comp store sales for the fiscal first half decreased approximately 1.1%.

We believe net sales and comp store sales continued to be negatively affected by the economic slowdown.

Gross profit for the fiscal second quarter was approximately 40.4% of net sales, compared with approximately 39.9% of net sales during the second quarter of 2008.

The approximate 50 basis point increase in the gross profit margin resulted from a decrease in inventory acquisition costs partially offset by a shift in the mix of merchandise sold to lower margin categories, and relative increases in markdowns and coupon redemptions.

Selling, general and administrative expenses for the fiscal second quarter were approximately 28.8% of net sales as compared to approximately 29.8% in last year's second quarter.

The decrease of 100 basis points in SG&A resulted from a relative decrease in payroll, a relative decrease in advertising due to a decrease in distribution of advertising pieces, and a relative decrease in other controllable expenses.

Reflecting the movements in gross profit margin and SG&A expenses, the operating profit margin for the fiscal second quarter was higher than in the period a year ago by approximately 150 basis points.

For the fiscal first half, the operating profit margin increased by approximately 140 basis points.

Our tax rate continues to fluctuate as taxable events occur and exposures are reevaluated.

For the fiscal second quarter, our tax rate was approximately 39.4% compared to approximately 37.3% for the comparable quarter last year.

We have consistently stated, and we continue to believe, that we will be able to look back at this period as one which afforded us an exceptional opportunity to continue to gain market share.

By providing the best possible shopping experience for our customers, our entire organization remains dedicated to accomplishing our long term goals.

We again want to thank our associates for their ongoing efforts which produce Bed Bath & Beyond's long-term success.

Through their efforts, we look forward to meeting the challenges that lie ahead, and seizing the opportunities to satisfy our customers; and by doing so, continuing to improve our competitive position in the merchandise categories that we offer.

I will now turn the call back to Gene.

Gene...

Thanks Steve.

As you heard from Warren and Steve, we earned $0.52 per diluted share in our fiscal second quarter and $0.86 per diluted share for the first six months of fiscal 2009.

Looking ahead to the remainder of our fiscal year 2009, we have assumed that the overall business climate will remain challenging.

While we will continue to assess our prospects as the year develops and will reflect changes in our outlook, if any, in future conference calls, the following are our major playing assumptions for the remainder of fiscal 2009.

1.

Including the 27 stores opened so far this year, we expect to open approximately 58 new stores across our concepts, including 35 new Bed Bath & Beyond stores throughout the US and Canada, approximately seven Christmas Tree Shops, approximately 12 buybuy BABY stores, and approximately four Harmon Face Values stores.

We also plan to continue to add Harmon Face Values health and beauty care departments within additional Bed Bath & Beyond, Christmas Tree Shops and buybuy BABY locations, as well as continue to add Fine China departments to Bed Bath & Beyond stores.

We anticipate the remaining new store openings will occur equally throughout the third and fourth quarters.

2.

We are now modeling consolidated comparable store sales to be relatively flat to slightly positive for the third and fourth quarters and slightly negative to relatively flat for the full fiscal year 2009.

3.

Consolidated net sales are expected to increase by a mid single digit percentage in the third and fourth quarters and by a low to mid single digit percentage for all of fiscal 2009.

4.

We expect some improvement in the operating profit margin for the third quarter and for all of fiscal 2009.

However, as Steve mentioned, we expect the improvements we have seen in SG&A to moderate as we anniversary the expense control initiatives we began implementing during the third quarter of last year.

5.

Interest income is expected to be lower than in fiscal 2008 as a result of anticipated lower interest rates.

6.

The full year tax provision continues to be estimated in the high 30's percent range with anticipated variability as much as 200 to 300 basis points in quarterly tax rates as taxable events occur.

7.

Capital expenditures for fiscal 2009, principally for new stores, existing store refurbishment and information technology enhancements continue to be planned at approximately $250 million, and will continue to be reviewed on an ongoing basis.

8.

Depreciation for fiscal 2009 is estimated to be approximately $180 million.

9.

Our share repurchase program will continue to be influenced by several factors, including business and market conditions and developments in the auction rate securities market.

10.

We expect to continue to generate positive cash flow in fiscal 2009 and entirely fund operations from internally-generated sources.

The uncertainty of the overall macroeconomic environment makes it difficult to forecast future results.

In our last conference call on June 24, 2009, we said consensus estimates of $1.59 per diluted share for all of fiscal 2009 appeared reasonable.

Based on comp store sales coming in at the favorable end of our planning assumptions and better than planned results from our expense control initiatives in the second quarter, as well as a slight increase in the comp store sales and operating profit margin planning assumptions for the third and fourth quarters of fiscal 2009, the current consensus estimates for net earnings per diluted share of approximately $0.38 for the fiscal third quarter ending November 28, 2009 and approximately $1.79 for the 2009 fiscal year now appear reasonable.

Before concluding this afternoon's call, a few additional comments relative to our recently concluded fiscal second quarter.

Our balance sheet remains strong and debt-free.

We ended the fiscal second quarter with cash and cash equivalents and investments securities of approximately $1.2 billion.

This includes approximately $192 million of investments related to auction rate securities.

These securities have an estimated temporary valuation adjustment of approximately $2 million to reflect their current lack of liquidity.

Since this valuation adjustment is deemed to be temporary, it did not affect the Company's earnings.

During the second quarter we had redemptions of approximately $20 million at par.

As we have said in the past, and as we have experienced to date, we believe that given the high credit quality of these investments, we will ultimately recover at par all amounts invested in these securities.

Inventories continue to be tailored by store to meet the anticipated demands of our customers, and are in good shape.

As of August 29, 2009, inventories were approximately $1.8 billion or about $53.97 per square foot, a reduction of approximately 8% on a per square foot basis versus last year.

Consolidated shareholders' equity at August 29, 2009 was approximately $3.3 billion, which is net of share repurchases, including approximately $20 million repurchased during the fiscal second quarter.

As a reminder, our next conference call, to review operating results for the fiscal third quarter ending on November 28, 2009, will be on Wednesday, January 6, 2010.

If you have any questions, Ken and Lisa will be in their offices this evening, September 23, to take your calls.

As always, we 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.