Bed Bath & Beyond Inc (BBBY) 2010 Q3 法說會逐字稿

Welcome to Bed Bath & Beyond's third quarter of fiscal 2010 results conference call.

(Operator Instructions).

A rebroadcast of this conference call will be available beginning on Wednesday, December 22, 2010, at 6.30 PM Eastern through 6.30 PM Eastern on Friday, December 24, 2010.

To access the rebroadcast, you may dial 1-888-203-1112 with a passcode ID of 6289006.

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 third 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 nine month periods ended November 27, 2010.

During this call, we will comment on some of the third quarter highlights, update our fourth quarter and full year planning assumptions and provide some preliminary fiscal 2011 planning assumptions.

Before proceeding, I will read the following statement and I quote.

"Bed Bath & Beyond's fiscal third 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."

Joining me on today's call are Leonard Feinstein, 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 Leonard Feinstein.

Len...

Good afternoon.

I am pleased to report that our Company's net earnings per diluted share increased approximately 28% in the fiscal third quarter to $0.74.

While the economic environment appears to have stabilized and is perhaps improving, it looks as if the consumer continues to face challenges resulting from the macroeconomic environment, such as historically high unemployment rates.

However, we are cautiously optimistic about the remainder of fiscal 2010.

During the third quarter, we opened five Bed Bath & Beyond stores, seven buybuy BABY stores, and five Christmas Tree Shops stores as well as relocated, expanded and renovated several Bed Bath & Beyond stores.

Consolidated store space at November 27, 2010 was approximately 34.7 million square feet, an increase of approximately 4% over last year's third quarter.

Since the beginning of the fiscal fourth quarter of 2010, we have opened two additional Bed Bath & Beyond stores and two buybuy BABY stores.

Including these openings, we currently operate 1,131 stores, including 978 Bed Bath & Beyond stores in all 50 states, the District of Columbia, Puerto Rico and Canada, as well as 66 Christmas Tree Shops, 42 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 32 stores we have opened to date, we anticipate that the total number of new store openings will be in the low forties across all of our concepts.

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

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 have 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 offerings.

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 interactive platforms, has afforded us additional opportunities to attract new customers to Bed Bath & Beyond.

At this time, in conjunction with our ongoing review of our capital structure, I am pleased to announce that our Board of Directors has authorized a new $2 billion share repurchase program.

We are currently planning that the new share repurchase program will commence in early fiscal 2011 after completion of the existing program.

Although the Board's authorization does not set a time limitation for the share repurchase, for planning purposes, the Company anticipates completing the program over the next two years or so after it begins.

It is currently anticipated that this new $2 billion share repurchase program will be funded from current cash and from present and future cash flows.

This new program reflects the Board's continued confidence in our future.

Since 2004, through the third quarter of fiscal 2010, our Company has returned approximately $2.6 billion to our shareholders through share repurchases.

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 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'll turn the call over to Steven Temares.

Steve...

Thank you Len.

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

We are pleased that our third 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 Len said, while it appears that the economic environment has stabilized and is perhaps improving, persistent high unemployment and uncertainty in the economy could continue to pressure consumers, and affect their spending.

However, as Len also said, 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 of our concepts, we expect, over time, to do more for, and with, our customers.

Turning to our fiscal third quarter performance, as reported earlier today, our net earnings per diluted share were $0.74, an increase of approximately 28% when compared to the $0.58 per share that we earned in last year's third quarter.

For the fiscal nine months, net earnings per diluted share were $1.95 compared with $1.44 last year, an increase of about 35%.

Net sales for the fiscal third quarter were approximately $2.2 billion, approximately 11.1% higher than in the corresponding 2009 period.

Third quarter comp store sales increased by approximately 7.0%, compared with an increase of 7.3% last year.

For the fiscal nine months, net sales were approximately $6.3 billion, about 12% higher than last year and comp stores sales for the fiscal nine months increased by approximately 7.6%, compared with an increase of 1.7% in last year's first nine months.

Gross profit for the fiscal third quarter was approximately 40.9% of net sales, compared to approximately 41.1% of net sales for the third quarter of 2009.

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

Selling, general and administrative expenses for the fiscal third quarter were approximately 27.0% of net sales as compared to approximately 28.7% of net sales in last year's third quarter, a decrease of approximately 170 basis points.

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

Payroll and occupancy expenses benefited from the approximate 7.0% increase in comp store sales.

Advertising expense decreased due to a reduction in the distribution of advertising pieces, although not at the rate achieved in our most recent quarters.

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

For the fiscal nine months, the operating profit margin increased by approximately 230 basis points.

For the fiscal third quarter, our provision for income taxes was approximately 38.6% which is consistent with the comparable quarter last year.

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

Our capital spending during the first nine months of 2010 was approximately $142 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.

As Len said, our Board of Directors has authorized a new $2 billion share repurchase program.

Our Board took this action based upon its continued confidence in our Company's long-term growth potential, financial outlook and cash flow generation.

It is currently anticipated that this new $2 billion share repurchase program will be funded from current cash and from present and expected future cash flows.

That said, our Company's Board of Directors continues to review our capital structure on an ongoing basis.

In addition to providing value to our shareholders through share repurchase programs, our strong operations should allow us to continue to invest in our infrastructure and maintain our flexibility to take advantage of opportunities as they may arise.

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.

Gene...

Thanks, Steve.

As you heard from Len and Steve, our results exceeded our planning assumptions, and we earned $0.74 per diluted share in our fiscal third quarter and $1.95 per diluted share for the first nine months of fiscal 2010.

We remain encouraged by our positive fiscal third quarter results and continue to be cautiously optimistic about the remainder 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 32 stores open so far this year, we expect the total number of new store openings across all of our concepts to be in the low forties.

2.

If you recall, last year's comp stores sales improved in the fourth quarter by approximately 11.5%.

Taking this tough fourth quarter comparison into consideration, for this year's fourth quarter, we are modeling a low single digit percentage increase in comparable store sales.

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

3.

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 fourth quarter of fiscal 2010 and by a high single digit to low double digit percentage for all of fiscal 2010.

4.

Assuming these sales levels, and modeling advertising events that are consistent with the fourth quarter of fiscal 2009, in addition to planning the continuation of the shift in the mix of merchandise sold to lower margin categories, we are modeling our operating profit as a percentage of sales to deleverage in our fourth quarter.

For all of fiscal 2010 we expect leverage in our operating profit.

5.

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

6.

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

7.

Capital expenditures for fiscal 2010, principally for new stores, existing store refurbishment, information technology enhancements and other projects, are now planned to be in the range of $190 million to $210 million, which of course, remains subject to the timing of projects.

8.

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

9.

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

10.

As previously discussed, we expect to continue our share repurchase program.

Based on these and other planning assumptions, we are now modeling net earnings per diluted share to be approximately $0.91 to $0.95 for the fiscal fourth quarter of 2010 and approximately $2.86 to $2.90 for all of fiscal 2010.

This would represent an increase of approximately 25% over fiscal 2009, up from our previous model of approximately 20%.

Turning to fiscal 2011, while we are still in the process of preparing our budget for next year and while we still believe that the continued uncertainty in the macroeconomic environment makes it difficult to forecast future results, our preliminary planning assumptions include the following.

1.

We anticipate opening approximately the same number of stores as the current year.

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

2.

We expect to continue our program of relocating, remodeling, renovating and expanding a number of our stores in fiscal 2011.

3.

Our operations will continue to be entirely funded from internally-generated sources.

4.

As previously discussed, we anticipate completing the current share repurchase program in early fiscal 2011 and begin our new $2 billion share repurchase program thereafter, which we are planning will take two years or so to complete after it begins.

5.

In fiscal 2011, the Easter holiday falls three weeks later than in fiscal 2010.

This may affect sales trends in the early part of the year.

6.

We expect continuing variability in our quarterly tax rates.

We expect to provide further information related to the fiscal first quarter and full year 2011 on our next quarterly conference call on April 6, 2011.

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

Our balance sheet remains strong and debt-free.

We ended the fiscal third quarter with cash and cash equivalents and investment securities of approximately $1.6 billion.

This includes approximately $121.3 million of investments related to auction rate securities.

These securities have an estimated temporary valuation adjustment of approximately $2.9 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 third quarter, we had approximately $2.5 million of redemptions of auction rate securities, 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 condition.

As of November 27, 2010, inventories were approximately $2.2 billion or $62.59 per square foot, an increase of approximately 6.8% on a per square foot basis versus last year, and 2.9% higher than in 2008.

Consolidated shareholders' equity at November 27, 2010 was approximately $3.8 billion, which is net of all share repurchases, including the approximately $211 million, representing approximately 5 million shares, repurchased during the fiscal third quarter of 2010.

As a reminder, our next conference call, to review operating results for the fourth quarter and full year ending on February 26, 2011, will be on Wednesday, April 6, 2011.

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

As always, we appreciate your interest in Bed Bath & Beyond and we wish you a happy holiday season and a healthy new year.

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

Thank you all for listening.

You may now disconnect.