Bed Bath & Beyond Inc (BBBY) 2010 Q2 法說會逐字稿

30 PM Eastern time through 6:30 PM Eastern on Friday, September 24 of 2010.

To access the rebroadcast, you may dial 1-888-203-1112 with the passcode ID of 1824547.

Now at this time it's my pleasure to turn the conference call 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 2010 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 28, 2010.

During this call, we will comment on some of the second quarter highlights, and update our fiscal third quarter and 2010 fiscal year 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 and 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, approximate, estimate, assume, continue, model, 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 27, 2010.

The Company does not undertake any obligation to update its forward-looking statements." (end of quote)

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.

I'm now very pleased to introduce Warren Eisenberg.

Warren...

Good afternoon.

I am pleased to report that our Company's net earnings per diluted share increased approximately 35% in the fiscal second quarter to $0.70.

While the economic environment appears to have stabilized, it looks as if the consumer continues to face challenges as a result of the macroeconomic environment.

As such, and as we have said previously, we are cautiously optimistic about the remainder of fiscal 2010.

During the second quarter, we opened five Bed Bath & Beyond stores including our first store in our 50th state, Hawaii.

Additionally, we opened two buybuy BABY stores, as well as expanded and renovated several Bed Bath & Beyond stores.

Consolidated store space at August 28, 2010 was approximately 34.1 million square feet, an increase of approximately 5% over last year's second quarter.

Since the beginning of the third fiscal quarter of 2010, we have opened one additional Bed Bath & Beyond store, two buybuy BABY stores and one Christmas Tree Shops stores.

So, we currently operate 1,115 stores, including 973 Bed Bath & Beyond stores in all 50 states, the District of Columbia, Puerto Rico and Canada, as well as 62 Christmas Tree Shops, 35 buybuy BABY stores and 45 stores under the names Harmon or Harmon Face Values.

In addition, we are a partner in a joint venture which operates two stores in the Mexico City market under the name "Home & More."

During fiscal 2010, including the 15 stores we have opened to date, we now anticipate that the total number of new store openings will be in the mid to high forties range across all of our concepts.

As the year has progressed, this revised number primarily reflects greater visibility into the number of stores that will open in late fiscal 2010 versus opening in fiscal 2011.

As we have said in the past, a shift in store openings from late in the fiscal year into the next fiscal year has little impact on our current year earnings and long-term profitability.

We continue to apply our stringent standards to growth as we evaluate new store sites as well as continue to review our existing locations and lease terms for opportunities to relocate and/or right-size our stores in response to changing market conditions.

As we previously said, we believe that throughout the United States and Canada, there is an opportunity to operate in excess of 1,300 Bed Bath & Beyond stores as well as grow our Christmas Tree Shops and buybuy BABY concepts from coast to coast.

Additionally, we will continue to open Harmon Face Values stores and selectively place health and beauty care offerings in all our concepts.

We remain committed to and are excited about the continued growth of all our merchandise offering.

We continue to work to increase the productivity of our existing stores by evolving the merchandise offerings, 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 offerings, grow our bridal, baby and gift registries, and continue the development of our online sales capabilities, has afforded us additional opportunities to attract new customers to Bed Bath & Beyond.

The continued success of our Company is due, in large part, to the tremendous efforts of our associates and to our unique decentralized culture.

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

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.

We are pleased that our second quarter results exceeded our internal planning assumptions.

We believe the dedication and talents of our associates and their constant focus on improving the overall customer shopping experience, while at the same time creating a more productive and efficient company, are the keys to producing the continued strong results we have experienced.

As Warren said, while it appears that the economic environment has stabilized, persistent high unemployment and uncertainty in the economy could continue to pressure consumers and affect their spending.

However, we remain cautiously optimistic about the remainder of the year.

Although economic challenges persist, our fundamental business strategy has remained unchanged; to offer a broad assortment of merchandise at everyday low prices with superior customer service.

As always, we will continue to work to enhance our customers' overall shopping experience and we remain committed to being our customers' first choice for the merchandise categories we offer, domestically, interactively and, over the longer-term, internationally.

At the same time, we will continue to systematically challenge the costs associated with running our Company and strive to find opportunities to lower operating costs.

We are confident that our Company is well positioned to grow profitably, deliver superior shareholder value and to compete and increase our market share over time.

As always, we remain focused on building a business that stands the test of time.

In taking this 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 our best practices across all our concepts, we expect, over time, to do more for, and with, our customers.

Turning to our fiscal second quarter performance, as reported earlier today, our net earnings per diluted share were $0.70, an increase of approximately 35% when compared to the $0.52 per share that we earned in last year's second quarter.

For the fiscal first half, net earnings per diluted share were $1.22 compared with $0.86 last year.

Net sales for the fiscal second quarter were approximately $2.1 billion, approximately 11.6% higher than in the corresponding 2009 period.

Second quarter comp store sales increased by approximately 7.4% versus a decrease of approximately 0.6% last year.

For the fiscal first half, net sales were approximately $4.1 billion, about 12.5% higher than last year.

Comp store sales for the fiscal first half increased by approximately 7.9%, compared with a decrease of approximately 1.1% in last year's first half.

Gross profit for the fiscal second quarter was approximately 40.9% of net sales, compared to approximately 40.4% of net sales for the second quarter of 2009.

This increase in the gross profit margin resulted primarily from a decrease in coupon redemptions as a percentage of net sales, partially offset by a shift in the mix of merchandise sold to lower margin categories.

Selling, general and administrative expenses for the fiscal second quarter were approximately 27.1% of net sales as compared to approximately 28.8% of net sales in last year's second quarter, a decrease of approximately 170 basis points.

This decrease can primarily be attributed to lower advertising, payroll and occupancy expenses as a percentage of net sales.

Advertising expense decreased due to a continued reduction in the distribution of advertising pieces.

Payroll and occupancy expenses benefited from the approximate 7.4% increase in comparable store sales.

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 same period a year ago by approximately 230 basis points.

For the fiscal first half, the operating profit margin increased by approximately 280 basis points.

Our provision for income taxes continues to fluctuate as taxable events occur and exposures are reevaluated.

For the fiscal second quarter, our provision for income taxes was approximately 38.9% compared to approximately 39.4% for the comparable quarter last year.

Our capital spending during the first half of 2010 was approximately $84 million, principally for new stores, existing store improvements, information technology enhancements, and other projects whose impact is viewed as important to our future.

While we continue to review and prioritize our capital needs, we remain committed to making the required investments in our Company to help position us for our long term success.

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 to 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.

Thanks, Steve.

As you heard from Warren and Steve, our results exceeded our planning assumptions and we earned $0.70 per diluted share in our fiscal second quarter and $1.22 per diluted share for the first six months of fiscal 2010.

We remain encouraged by our positive fiscal second quarter results and continue to be cautiously optimistic about the second half of fiscal 2010.

The continued uncertainty in the macroeconomic environment makes it difficult to forecast future results.

However, the following are our major planning assumptions for the remainder of fiscal 2010.

1.

Including the 15 stores opened so far this year, we expect the total number of new store openings across all of our concepts to be in the mid to high 40s range.

As always, we remain flexible to take advantage of real estate opportunities that may arise.

2.

We expect to continue our program of expanding, renovating, remodeling and/or relocating a number of our stores in fiscal 2010.

3.

If you recall, last year's comp store sales improved from a decrease of approximately 1.1% in the first half to an increase of approximately 9.5% in the second half.

Taking this more difficult second half comparison into consideration, for the third and fourth quarters of fiscal 2010, we are modeling a low single digit percentage increase in comparable store sales.

This would result in a mid single digit percentage comp store sales increase for all of fiscal 2010.

4.

Based on our results to date and our comparable store sales assumptions, we are modeling consolidated net sales to increase by a mid single digit percentage in the third and fourth quarters of fiscal 2010 and by a high single digit percentage for all of fiscal 2010.

5.

For the remainder of the year, assuming these sales levels and modeling advertising events that are consistent with the second half of last year, and in addition to planning the continuation of the shift in mix of merchandise sold to lower margin categories, we are modeling our operating profit as a percentage of sales to be relatively flat in the third quarter and to deleverage in our fourth quarter.

For all of fiscal 2010, we would expect to leverage our operating profit.

6.

Interest income is expected to be relatively flat in the back half of 2010 versus the same period in fiscal 2009.

7.

The third quarter and full year tax provisions are estimated in the high 30s percent range with variability as taxable events occur.

8.

Capital expenditures for fiscal 2010, principally for new stores, existing store refurbishment, information technology enhancements and other projects continue to be planned at approximately $225 million, which, of course, remains subject to the timing of projects.

9.

Depreciation from fiscal 2010 is estimated to be approximately $180 million.

10.

We expect to generate positive operating cash flow in fiscal 2010 and continue to fund operations entirely from internally-generated sources.

11.

We expect to continue our share repurchase program and evaluate the amount of repurchases based upon business and economic conditions.

Based on these and other planning assumptions, we are modeling net earnings per diluted share in the fiscal third quarter to be in the range of approximately $0.61 to $0.65.

For all of fiscal 2010, we are now modeling net earnings per diluted share to increase by approximately 20%, up from the previous model of approximately 15%.

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 investment securities of approximately $1.8 billion.

This includes approximately $123.8 million of investments related to auction rate securities.

These securities have an estimated temporary valuation adjustment of approximately $3.1 million to reflect their current lack of liquidity.

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

During the second quarter, we had approximately $26 million of redemptions of auction rate securities, at par.

Subsequent to the second quarter, we had approximately $2.4 million of auction rate securities redemptions, at par, leaving a balance of approximately $121.4 million of these securities.

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 condition.

As of August 28, 2010, inventories were approximately $1.9 billion, or $55.78 per square foot, an increase of approximately 3.4% on a per square foot basis versus last year.

Consolidated shareholders' equity at August 28, 2010 was approximately $3.8 billion, which is net of share repurchases, including approximately $193 million, representing approximately 4.9 million shares, repurchased during the fiscal second quarter.

As a reminder, our next conference call, to review operating results for the third quarter ending on November 27, 2010, will be on Wednesday, December 22, 2010.

If you have any questions, Ken Frankel and I will be in our offices this evening, September 22, to take your calls.

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

Ladies and gentlemen, this concludes today's conference.

Thank you all for listening.

You may now disconnect.