Bed Bath & Beyond Inc (BBBY) 2017 Q1 法說會逐字稿

Welcome to the Bed Bath & Beyond's First Quarter 2017 Earnings Conference Call.

My name is Adrienne, and I'll be your operator for today's call.

(Operator Instructions) Please note, this conference is being recorded.

I'll turn the call over to Janet Barth, Investor Relations.

Janet Barth, you may begin.

Thank you, Adrienne, and good afternoon, everyone.

Joining me on our call today are Steven Temares, Bed Bath & Beyond's Chief Executive Officer and member of the Board of Directors; Gene Castagna, Chief Operating Officer; and Sue Lattmann, Chief Financial Officer and Treasurer.

Before we begin, I'd like to remind you that this conference call may contain forward-looking statements, including statements about or references to our internal models and our long-term objectives.

All such statements are subject to risks and uncertainties that could cause actual results to differ materially from what we say during the call today.

Please refer to our most recent periodic SEC filings for more detail on these risks and uncertainties.

The company undertakes no obligation to update or revise any forward-looking statements.

Our earnings press release dated June 22, 2017, can be found in the Investor Relations section of our website at www.bedbathandbeyond.com.

Here are some highlights from our financial results.

First quarter net earnings per diluted share were $0.53, including an unfavorable impact of approximately $0.05 from the adoption of the new share-based payment accounting standard.

Net sales for the quarter were approximately $2.7 billion, an increase of approximately 10 basis points compared to the prior year period.

Quarterly comparable sales decreased approximately 2%.

In addition, our Board of Directors today declared a quarterly dividend of $0.15 per share to be paid on October 17, 2017, to shareholders of record as of September 15, 2017.

I will now turn the call over to Sue, who will discuss our first quarter financial results in more detail.

Steve will then provide an update on the progress of some of our strategic initiatives and our ongoing efforts to be our customer's first choice for the home and heartfelt life events by building and delivering a strong foundation of differentiated products, services and solutions while driving operational excellence.

After our prepared remarks, we'll open up the call to questions.

I'll now turn the call over to Sue.

Thanks, Janet.

I'll start with a review of our first quarter results.

Our net sales were approximately $2.7 billion, an increase of approximately 10 basis points from the first quarter of last year, primarily due to an increase of 2.1% in noncomp sales, including PMall, One Kings Lane and new stores, largely offset by a 2% decrease in comp sales.

Our first quarter comp sales reflect a decrease in the number of transactions in stores, partially offset by an increase in the average transaction amount.

As we often say, we believe in an integrated and seamless customer experience.

And although we cannot tell you through which channel a sale was initiated, we can provide information based on where the sale was consummated.

As a reminder of how we reference certain omnichannel transactions, sales consummated on a mobile device while the customer is physically in a store location are referred to as customer-facing digital channel sales.

Customer orders taken in store by an associate through the Beyond store, our proprietary web-based platform, are referred to as in-store sales.

Customer orders reserved online and picked up in a store are also referred to as in-store sales, while purchases made online that are subsequently returned to a store are referred to as a reduction in store sales.

With that said, comp sales from our customer-facing digital channels continued to have strong growth, in excess of 20%, while comp sales from our stores declined in the mid-single-digit percentage range.

Gross margin for the quarter was approximately 36.5% as compared to approximately 37.4% of net sales in the first quarter of last year.

This decrease, as a percentage of net sales, was primarily due to, in order of magnitude; first, an increase in net direct-to-customer shipping expense as a result, in part, of the Bed Bath & Beyond free shipping threshold being at $29 for the full quarter this year while it was at $49 for about half of the first quarter last year; and second, an increase in coupon expense resulting from an increase in redemptions, partially offset by a decrease in the average coupon amount.

The inclusion of One Kings Lane reduced total company gross margin as a percentage of net sales by approximately 4 basis points, while the inclusion of PMall improved total company gross margin by 16 basis points.

SG&A in the quarter was approximately 31.1% of net sales as compared to approximately 29.6% of net sales in the prior year period.

This increase in SG&A as a percentage of net sales was primarily due to, in order of magnitude, increases in advertising expenses, payroll and payroll-related expenses and technology-related expenses, including related depreciation.

The inclusion of One Kings Lane and PMall increased total company SG&A expense as a percentage of net sales by approximately 28 and 5 basis points, respectively, in the first quarter.

As you probably know, the first quarter typically accounts for the smallest portion of our annual sales and earnings.

As a result, any fixed costs as a percentage of net sales are relatively more pronounced in the first quarter than they would be in any of the other quarters.

Net interest expense was approximately $16.6 million compared to $16.3 million in the prior year period and related primarily to interest on our debt.

Our income tax rate for the quarter was approximately 42.3% compared to approximately 37.7% in the prior year period.

The first quarter of 2017 includes the adoption of the new share-based payment accounting standard, which increased the tax rate by 5.9%, increased income tax by $7.6 million and decreased net earnings per diluted share by approximately $0.05.

As a reminder, as we said in our April call, the impact of the new accounting standard in 2017 was expected to be heavily weighted to the first quarter.

Also included in the first quarter of 2017 were net after tax benefits of approximately $2 million due to distinct tax events occurring during the quarter.

Approximately $500,000 of net after-tax benefits were included in the prior year.

Considering all of this activity, net earnings per diluted share were $0.53 for the quarter, including the unfavorable impact of approximately $0.05 from the adoption of the new accounting standard that I just mentioned.

Moving on to the balance sheet.

We ended the first quarter with approximately $565 million in cash and cash equivalents and investment securities.

Retail inventories for the quarter remained about the same as last year at approximately $2.9 billion at cost, and this year include the inventory balances from One Kings Lane and PMall, which were acquired during the second and third quarters, respectively, of 2016.

Retail inventories continue to be tailored to meet the anticipated demands of our customers and are in good condition.

Capital expenditures for the first 3 months of 2017 were approximately $81 million with more than 40% related to technology projects, including investments in our digital capabilities and the development and deployment of new systems and equipment in our stores.

The remaining CapEx was primarily related to investments in stores, our new Las Vegas distribution facility and our new customer contact center in Florida currently planned to open in late fall.

Also during the quarter, we opened 1 store and closed 1 store.

Share repurchases under our current $2.5 billion share repurchase program were approximately $127 million in the quarter, representing about 3.3 million shares.

This authorization had a remaining balance of approximately $1.6 billion at the end of our first quarter.

In addition, our Board of Directors today declared a quarterly dividend of $0.15 per share to be paid on October 17, 2017, to shareholders of record at the close of business on September 15, 2017.

Now let's turn to the full year.

At this time, we are not updating the full-year modeling assumptions we provided on April 5 during our year-end call.

Although the first quarter is typically the least impactful quarter for us in terms of annual sales and earnings, and while we continue to have strong growth in our customer-facing digital channels this quarter, we did see increased softness in transactions in stores, as well as higher net direct-to-customer shipping expense, coupon expense and advertising costs during the quarter.

It remains to be seen whether these challenges were more pronounced in, or unique to, the first quarter due to the smaller sales base in this period and/or a later start to the summer selling period.

We believe we will have better visibility after the second quarter and, if necessary, we will update our full year modeling assumptions at that time.

We will provide further information related to the second quarter and full year 2017 on our next quarterly conference call on Tuesday, September 19.

I will now turn the call over to Steven.

Thank you, Sue.

Good afternoon, everyone.

As Sue said, we are not updating our modeling assumptions for the year at this time.

However, the quarter again exemplified the challenges presented by declining foot traffic in stores and the opportunities presented by omnichannel retailing.

It is an exciting and rapidly evolving period in retail driven by the swift adoption of ever-improving technology.

It is within this framework that we remain focused on our strategic mission to be trusted by our customers as the expert for the home and heartfelt life events by continuing to build a strong foundation of differentiated products, services and solutions, while driving operational excellence.

It is through these efforts that we develop deeper and more personalized relationships with our customers and be their first choice for the home.

Today, I'll provide an update on the progress of some of our strategic initiatives since our last call in April.

First, our digital channels - both web and mobile - they continue to grow at a very healthy pace, driven in part by a customer experience that keeps getting better.

Some of the improvements that we have made include adding to our online product assortment and service offerings; improving our content to be more inspirational; making enhancements to search and navigation; and creating a more frictionless checkout experience.

Specific examples include the piloting of enhanced type-ahead search capabilities, which improve the overall online experience by making it much easier and faster, through use of images, to find items on the Bed Bath & Beyond website.

Also in search, we continue to implement machine learning capabilities to further improve the relevancy of results.

We have simplified the navigation of our site and are introducing a "new mover" tab to make it easier for these customers to find relevant content and products.

In addition, we have also launched a simple coupon code in checkout to allow customers to apply their favorite Big Blue coupon to their online order.

In our mobile channel, we have improved the speed of our Bed Bath & Beyond and buybuy BABY mobile apps by optimizing some of the experiences for Apple and Android operating systems.

In the past few months, we have transitioned our My Offers, which is our coupon wallet, and our registry list view pages on our app to native experiences, which have greatly upgraded the speed and overall experience on the app.

While these improvements are generating great feedback and reviews from our customers, we continue to monitor the ongoing changes in technology to further our customers' experiences.

Second, our base of more than 1,500 stores continue to generate very profitable results.

We are always working to optimize the profitability of our real estate portfolio and, as I've said before, we believe in the benefits derived from a well-executed omnichannel experience.

Our omnichannel strategy captures operational efficiencies such as necessitating lower digital advertising expenditures than usual for pure-play online retailers; and provides for enhancements to customer convenience, including services for reserving an item online and picking it up in store, returning an online purchase to a store or scheduling an appointment online to meet with one of our registry consultants in store.

We also utilize our stores to ship online orders to our customers, and we are currently providing same-day delivery service from certain stores and piloting in several additional markets.

As we have said, the pace of our store openings have slowed, and we have increased the number of store closings over the past several years.

And as leases come up for renewal, if we cannot reach acceptable terms with our landlords, we would expect the pace of store closings to increase as a result of our assumptions regarding bricks-and-mortar store traffic in future years as well as the continuation of our market optimization strategy.

At the same time, we are making investments to evolve and improve existing store formats, enhance omnichannel services, integrate technology tools and create a more experiential shopping environment in our stores.

Third, with regard to marketing.

We continue to focus on improving the effectiveness and efficiency of our campaigns through personalization, improved targeting, customer contact strategies, channel optimization as well as branding activities to reinforce our position as experts for the home.

Using our 360-degree view of our customer coupled with advanced analytics and machine learning-based algorithms, we are moving effectively and are more effective today in targeting our customers.

All these initiatives are allowing us to further optimize our investments in our marketing campaigns.

We are also expanding the distribution of our catalogs to build awareness of our broad-based expertise and wide-ranging assortment of differentiated products, services and solutions to the home.

Our summer catalog titled Escape and Unwind was released during the first quarter and features a curated collection of furniture, decor and accessories for both indoor and outdoor living as well as inspirational pages of merchandise from our other core categories such as bedding, kitchen electrics and organization and storage.

In addition, we have broadened the awareness of My Offers to provide our customers nationwide with the convenience of being able to access their coupon offers.

Also, we are starting to convert many of our single channel coupons to be omnichannel, meaning they can be used both online and in-store, allowing our customers to enjoy these benefits as they desire.

Next, we remain encouraged by the early results of our BEYOND+ membership program.

We've slightly expanded the pilot program at the beginning of the first quarter and continue to monitor the activity of these members.

We are seeing favorable results across a variety of metrics, including frequency, sales and overall profitability.

While it is still very early in the analysis to determine the impact of this membership program on the lifetime value of these customers, we are planning an even further expansion of the pilot program during the summer.

In merchandising, we have many initiatives underway at Bed Bath & Beyond that support our objective to be viewed as the expert for the home and heartfelt life events.

For example, we continue to increase our online offering on the Bed Bath & Beyond website and specifically increased our offering of personalized products by leveraging our recently acquired capabilities from PMall.

These newer items are resonating well with our customers, and we will continue to add to the mix of products we offer.

Also, I'd like to share our progress on a few more merchandising initiatives at Bed Bath & Beyond, including our expanded window room offering, our tabletop makeover, our virtual bedding initiative and our life stage focus on college.

On our previous call, we introduced our new drapery design gallery, which is available in select stores and online for customers to order customized draperies for their home, choosing from 250 fabrics, 4 different lengths and 3 header styles.

We're adding to our omnichannel window room offering with the introduction of a blinds and shades gallery.

We have partnered with The Shade Store, a retailer that specializes in blinds and shades, to develop a new line of products under the brand GLOWE By The Shade Store, which is available online and will be available in select stores.

We have plans to test these 2 new offerings in 50 stores and online and have redesigned these stores' floor space to present the mix of merchandise in an exciting way, utilizing unique fixtures and wall displays to showcase our offerings.

These window initiatives will increase the breadth and depth of our selection while optimizing our inventory by leveraging our online capabilities.

We believe these initiatives will also provide another point of differentiation for us and further strengthen our position as the expert for the home.

Similarly, we are redeveloping our tabletop business in-store to create an integrated shopping experience that presents our offerings of both casual and fine tabletop and gifts together.

The remodeled floor plan, to be launched in 4 stores, will enable us to be more efficient with space by incorporating a simplified presentation of our assortment as well as virtual assortment options.

As a result, we will be able to maintain our breadth of assortment while carrying less inventory in-store.

We believe the improved look and feel for this department will resonate well with our customers.

We're also developing a similar omnichannel approach with our bedding department, which will emphasize the breadth of our assortment and our capabilities to fulfill through delivery.

Under the redesigned store layout, to be tested initially in a handful of stores, we will have an expanded assortment of approximately 200 different designs, which represent a significant increase from what we offer in a typical bedding department.

While the store will have inventory of the more popular designs, the entire assortment will be available to purchase for home delivery either online or through the help of one of our knowledgeable associates equipped with a tablet, who can further assist the customer through the Beyond Store.

This approach, again, allows us to show more product in store while carrying less inventory and provide an enhanced customer experience.

With regard to an important life stage event, Bed Bath & Beyond continues to be the destination for college essentials.

We were a first mover in recognizing Back to College as an important heartfelt life event, and we continue to be innovative in this space, not only with the quality of the merchandise we offer, but also the growing list of services and solutions we provide.

We feature college as a tab on our Bed Bath & Beyond website for customers to quickly and easily find information about all the products, services and solutions we offer for this significant life stage.

Earlier this week, we published our Campus Ready college catalog that highlights these products, services and solutions as well as the tools needed by our college-bound customers and their parents to transition smoothly to campus life.

The book features a variety of great products to design a stylish and well-organized home away from home, information on how to build a better bed as well as inspirational ideas on how to personalize your living space.

The catalog also describes all of the college shopping services that we offer such as creating a College Registry with the help of one of our experts, finding details about a specific college dorm in a library's information of nearly 1,500 schools, including more than 100 in Canada, and our popular Pack & Hold service, which allows you to shop our store close to home and then pick up your items at our store close to campus.

We also are working with colleges to expand our ship directly to campus program and our "move-in" events, which may take place on campus or at a store close to campus.

I would like to close out my quarterly update with some brief comments around our continual efforts to drive operational excellence.

In this rapidly evolving period in retail, we have been evaluating and taking various actions to drive change across our company, to improve operational efficiencies while maintaining a culture of providing exceptional customer service.

For example, in our information technology group, we have initiated a process to evolve our management and our engineering approach to developing technology that has allowed us to continue to scale our resources and deliver against our ever-increasing technology road map.

This, in addition to our growing strategic portfolio management office, is allowing us to better focus our resources to the areas which will provide the most significant benefit to our company.

As part of these efforts, we are utilizing internal expertise as well as developing, hiring and engaging additional resources to evaluate and assure implementation of best practices across all aspects of our operations.

These include evaluating our management structure to better align our resources, optimizing our processes to make them more efficient and rationalizing all spend to identify areas for cost savings and for strategically reinvesting to support our mission to be our customer's first choice for the home.

Some of the actions we are evaluating may have short-term costs, but will have long-term benefits.

As the retail environment evolves, we continue to actively transform many aspects of our business to reflect these changes.

While we work to grow our bottom line and improve our market capitalization, our ongoing investments and efforts have allowed us to create and maintain a strong balance sheet and produce some of the best returns in retail.

This is a powerful combination that allows us to take advantage of external opportunities and to make internal structural changes that will better position us for continued success in this rapidly changing period in retail.

As always, I want to thank our dedicated associates for their ongoing efforts to satisfy our customers and improve our competitive position in being viewed by our customers as the expert for the home and heartfelt life events.

I'll now turn the call back to Janet.

Thank you, Steven.

We'll now turn to the Q&A portion of our call.

Adrienne, we're ready to take questions.

A rebroadcast of the conference call will be available beginning on Thursday, June 22, 2017, at 7:30 p.m.

Eastern Time to 7:30 p.m.

Eastern time on Monday, June 26, 2017.

To access the rebroadcast, you may redial (888) 843-7419 with passcode ID of 45080392.

(Operator Instructions) We have Seth Basham from Wedbush Securities online with a question.

My first question is just around the Q1 comp trends.

You talked about some softness relative to expectations.

Could you break that down a little bit and give us some color as to how much you think the softness was due to things like a late start to the summer versus other factors?

Seth, it's Steve.

Honestly, we're not sure.

I mean, again, that's one of the things that we're assessing.

As Sue said that we did see increased softness in certain items like transactions in stores and higher expenses as a percentage of sales for things like our shipping expenses, our coupon expenses and our advertising costs.

And it wasn't clear to us whether those challenges were more pronounced in the quarter or maybe unique to the quarter, either because of the smaller sales base or because of the later start to our summer selling season that we experienced across all our concepts.

So on the one hand, we're not certain.

And on the second, as we assess it going forward, we see that the early read we have on sales, and again, it's only 20 days, so I wouldn't put as much stock into it.

But the sales now, we're tracking better or slightly better than last quarter and that the sales are generally in line with what we had anticipated when we provided our model back in April.

So like we said, the first quarter we knew was going to be the weakest, and we had planned on the fourth quarter being the strongest.

But we couldn't give you a certain answer to that, but we probably would have better visibility after the second quarter.

And if necessary, we would update our model at that time.

That's helpful.

And just as a follow-up, in terms of your couponing strategy, are you making any change to that?

We noticed some dollar off coupons as opposed to 20% off coupons recently.

Can you give us an update on how you're thinking about coupons going forward?

Sure.

The objective is to really speak to each customer on a more individual basis and not rely on a general coupon philosophy.

The fact that people see different coupons is something that's always been the case.

So whether it's 5 off, 15%, 20%, 10 off after a period of time, all these things are tested and they're done in different markets to different degrees.

But that's always ongoing.

But overall, the objective, really, is to speak more personally with our customers to know what their interests are, their life stages, what their passions are and to really tailor our communications to our customers over time in that direction.

And we're making a lot of progress in it, but we remain significantly driven by our coupon and it's significantly the value equation that our customer sees from us.

And so it remains extremely important to us today.

And our next question comes from Brian Nagel from Oppenheimer.

A couple of questions just on the online business.

I mean, first off, you discussed lowering here in the quarter.

I guess -- or lowering the threshold for free shipping.

The question I have there is, are you now consistent with competitors?

Better than competitors?

Or do you think that's a metric that we'll continue to see go lower to, sort of say, keep up with the competition?

So I'll take the first part of that.

So regarding the free shipping threshold, we did anniversary for Bed Bath & Beyond the $29 free shipping threshold for this particular quarter, the entire quarter was at $29, where compared to last year, about half the quarter was at $49.

In terms of competition, obviously, that's something that we're keenly aware of, and we look to see what the free shipping threshold is for others.

It's considered part of the value prop and we realize that the customer looks at that when making their purchasing decisions.

But for now, we feel the $29 for Bed Bath is a good spot to be in.

It's a sweet spot.

That's where we are for now.

Got it.

And then a follow-up to that, maybe bigger picture in nature.

But as the online business continues to grow and evolve, how are you thinking now about the overall profitability of an online sale versus a sale in your store?

Well, as we've said before, we believe in an integrated and seamless customer experience, and that there is tremendous overlap between channels.

I referenced a few of them on the call today, where you can reserve online and pick up in store, and that's considered a store sales.

A sale that's consummated on a mobile device while physically in a store is considered an e-com sale.

So historically, it's been difficult for us to try to really understand it and nail down exactly how you consider that, so that when you get into trying to evolve into a P&L perspective, it's difficult, it's an assumption-laden exercise where if you have certain expenses, it's difficult to say if those advertising expenses are really for something that you would consider online or was it a store purchase-type thing.

So bottom line is we've seen some folks look at that and come in with an 8% to 10% type range in terms of e-com.

But in the end, we feel that that's directionally okay.

And our overall goal is to do more for or with our customers in a profitable environment.

And like Sue said, I mean the need is to figure it out.

I mean that we're going to be interacting with our customers how they wish to be interacted with.

We always said that we've always had this philosophy about merchandising the mix.

So whether we were selling items and we're making 60, 70, 100 points off of it, or we're losing money on stock pots.

The objective is to figure it out.

And when we provide these services in stores that didn't necessarily make sense, taking returns years after somebody bought something or taking expired coupons, to years of carrying inventory, the breadth and depth of which wasn't being reasonable for decades, all these things are part of the overall equation of how we can drive and optimize our profitability.

So again, there's no doubt that we have to be great digitally, and we have to figure out a way to optimize the profitability.

And we understand that the people or everybody doing their models they have --- they need to understand can you be, how much would you be, how much margin do you give up?

And that all remains to be seen.

So we're very sensitive to it.

But again, that's a -- the onus is on us to figure out, just like we merchandise the mix, is to figure out how we treat and integrate these experiences for our customers so that we're satisfying them in a way that they think of us first and they're optimizing our profitability.

So unfortunately, we can't give you that, the model number, but we know the objective.

And the next question comes from Michael Lasser from UBS.

So Steve, you've made a lot of investments over the last few years.

The sales are declining at an accelerating rate.

So are you just not seeing the return on these investments?

Or is the environment a little tougher than what you thought?

And does that make you rethink how you're investing in the business and you look at the asset base?

Michael, I'll give you the general answer.

The general answer is that the investments we've made have been essential for us.

And to the degree that they've been good investments, they have been necessary and good investments.

I mean, if you look at where we would be without these investments, you're looking at the people that we were considered best-in-class with 7, 8, 9 years ago, across all the big boxes.

Many of them don't exist today.

So it's -- unfortunately, from a bottom line perspective is that as the world evolves, these investments aren't producing growing earnings, but they're sustaining our relative position in the landscape, that we remain when we look across now 46 different competitors, one of the most successful retailers out there with some of the best returns.

But we're not satisfied with that.

But these investments need to be made.

If we didn't make these things, we wouldn't exist today.

So listen, the frustrations that you have -- we're such a better company today than we were 18 months ago or 3 years ago or 5 years ago, so you would think that would correlate with making -- being more profitable.

But the business and the competitive framework has changed and this business goes in so many different directions.

The competitive landscape is different and the profitability and the margins people operate under, the transparency in pricing, all these things are a reality.

So the investments have been very necessary.

They've been successful.

We wouldn't be here today without them.

At the same time, we're crazed by the fact that we're not more profitable and we continue to drive towards that.

But part of that, and which is critical, is that we create this trust with our customers, that they think of us first for the home and that we're successful in this.

Now we do this through the differentiated product, the better services and solutions that we offer that we really continue to drive the bed and bridal, baby, decorating, college, camp, and all the experiences that we want them to have.

And that we look across the organization and we make sure that our analytics group, that our IT group, that our digital experience, that our customer contact center, that our in store's recognition of the customers through POS, and all this is integrated with marketing to be slightly ahead of the customer, to be speaking to our customer in a personalized nature, that they think of us first and that they come to us so that we can again drive that growing profitability.

So it's frustrating, but we're in it for the long haul and we intend to and continue to be the best.

And to do that, these investments are necessary.

So that's a very long-winded answer to your question.

I apologize, Michael.

No problem at all.

My follow-up question is if the environment remained tough and sales remain under pressure, and it sounds like you are going to take more decisive actions on the cost structure, so can you quantify the opportunity of total cost savings you see in your cost structure, assuming the top line trajectory remains as its been?

And as part of that can you also just give a sense for how you're thinking about share repurchases.

You continue to buy back the stock pretty aggressively, if you remain on this protracted decline, wouldn't it make more sense just to preserve your capital?

I appreciate it.

I'll take the second part of that first.

Listen, if we could have foreseen what the stock was going to be doing, we would have acted differently.

But at the same time, buying back stock is the last thing we do.

First thing we're doing is investing in our business.

The second thing is we look for the opportunities in terms of acquisitions.

The third thing we're doing is the dividend, and the fourth thing we're doing is the share repurchase.

But it is a constant conversation at every board meeting.

And it continues to be looked at and the rate of it or whether we do it at all really requires us to have some sense of where the company is going and what we think of the stock price.

We know the company is getting better, so that's what we know.

When it turns into additional profitability and how the market reacts to it, those are greater unknowns.

But it gets assessed on an ongoing basis.

And yes, from what we've learned and what we've seen that we should be more critical of what we do with regard to our share repurchase.

But again, it's a board decision and it's a constant conversation.

The first part of the question, I'm not sure, Michael, are you still on, was...

It was on -- the cost savings.

You know what, we've always been very cost conscious as a company.

So as we look at the organization, so really, the opportunity to a great extent is really aligning the organization with the evolution that we're seeing and putting our money in the places that reflect where the customers are going and where we think we could drive the customer experience and satisfy the customer.

And so those are the opportunities for us.

And in terms of the dollars and how it affects the model, as the year goes on, I would expect that we would provide greater clarity on that when we have better numbers and ideas and things are -- the communication around it is coordinated.

During those points, we would be able to discuss those with much more specificity.

And our next question comes from Steve Forbes from Guggenheim.

I have a multipart question on furniture.

So I guess, first, as you think about the category or your category exposure today and where you see the market going, what is the strategic importance of the furniture category?

And obviously, the assortment you have online in total?

And how important is it as a driver of new customer acquisition?

Steven, we think it's critically important.

It's a significant opportunity for us to be inspirational, to show our expertise in all the other categories.

If we could master the furniture and home decor categories and show it to our customers in that inspirational way.

It's also a great opportunity because it's a business that -we're in and to some degree in some of our concepts, - we're really taking market share when it comes to furniture.

So the opportunity to pull together, to tell the story, to communicate to the customer expertise across the home and the ability to take market share, for all those reasons, it's extremely important to us.

And I guess on that regard as my follow-up here, where do you want to position the brand within the furniture category as it relates to quality, value and convenience?

And, I guess, where do you view the greatest opportunity to differentiate your offering versus what you see in the marketplace today?

Right, great question.

A lot of internal debate over it.

So listen, we know what One Kings Lane is, and we know what Bed Bath & Beyond is.

And so the degree that we're viewed as a generalist and we communicate to the customers across there for moderate to better to high.

So the question is where are we going to be and how do we differentiate ourselves?

What's the story we're going to tell?

And why us, why should someone shop furniture with us?

So all those things have been road mapped for us.

And I don't want to competitively tell you where we're going before the customer sees it.

But it is a great question and it's a challenge.

And of course, like anything else, we'll learn from the customer as we go down this path and will adjust accordingly.

But -- again, is that we do have the Bed Bath customer and we are able to sell across a spectrum of the customers and we do have furniture that does well at buybuy BABY in categories, at Cost Plus World Market.

We're in the knockdown business, basically, to some degree at Bed Bath and Christmas Tree.

So the good news also is that we get a lot of inputs from our vendor basis because it's very desirable for the vendors to open up these doors for them.

So I would ask you to be patient so that when it's out there for people to see, we have a little bit of a head start.

And our next question comes from Simeon Gutman from Morgan Stanley.

Steve, a follow-up -- slight follow-up to an earlier question.

The business has been transformed for the past several years and the top line's disappointing.

Looking at it from a top line perspective, can you talk about the capabilities that don't exist today that can drive the -- or that are being built today that can drive future growth?

Well, listen.

The capabilities that it's -- of course, every aspect of our business.

So if we wanted to talk about what we're doing in IT or analytics or pricing with dynamic pricing, well, we've talked about it with the IT world about growing the assortment or improving the content or enhancing search and navigation or creating a more frictionless environment for our customers or improving the speed or the experience to all the many things we're doing in store line to increase the experience at store, to the many, many things we're doing from a CRM capability aspect, the deep dives we're doing in analytics to tie it together, all the things that we're doing from a marketing, from a content approach to be more inspirational, I mean, there isn't any aspect of the business and I invite you to come in and talk to us because it really deserves a lengthy conversation.

But it's every area of the business that has a road map for constant improvement.

So if you want to focus on any one, I'd be happy to, but I think it's a very long conversation.

I guess, the reason I asked it is there's a disconnect with how -- I mean, some of these things are happening today and you talked about some progress with some of the analytics and the top line rate is slipping a bit, and so it would imply that some of these have not yet reached maturity or that there's either some core erosion that's masking some of the progress that they're making.

And that's what, I think, the disconnect to the market -- or at least what this quarter, which could have been a blip to your point, right, if the business is running a little healthier?

And that was the point of the question.

So let me -- so again, it's hard to explain the dynamic.

But as we get better, we're losing foot traffic and that's the lion's share of our business.

So even though we've been able to sustain very healthy growth in the digital world, when the big base deteriorates, that's a big hit for us.

And there's only so much we can do to drive a customer into the store.

And we don't want to take them some place they don't want to be.

We're not going to win at that.

Then you have an environment where the business leaks in a lot of different ways.

So, so much available online with so many different people, so many ways to get product today.

So even if we're getting significantly better at everything we're doing, the idea that that's going to translate necessarily into growing the top line doesn't hold water anymore.

What it holds water to is that the erosion is less than we would otherwise see, so that's not good enough.

We don't accept that, but has been the reality.

At a certain point, if we continue to grow the digital business and digital business becomes a bigger portion of our business and we can continue this growth, those numbers in and of itself will turn around.

But the reality is that it's that we are historically a bricks-and-mortar operation that's seeing less foot traffic, and that's a hard thing to make up.

And so -- and again, I can't say that we could do short-term things to try to buy the customer to come into the store, but we're just fooling ourselves if that's not where they want to be over time.

And the next question comes from Alan Rifkin from BTIG.

Steve, you said that possibly going forward, you expect the pace of store closings to increase.

I was wondering if you can maybe shed a little bit color on what the store portfolio looks like.

How many stores are not meeting their cost of capital?

What's the average lease term remaining?

A couple of things like that, and I do have a follow-up.

Sure, Alan.

Listen, we've been criticized for not closing stores.

The problem is that all -- the stores are profitable and the stores are returning well.

And so we've always done and our people have done a good job with the real estate.

And we've looked ahead, like we've said 5, 6, 7 years out anticipating a drop in foot traffic and increase in our cost structure.

But now, we do have a lot of leases that are coming up for renewal, so whether it's 80 to 100 stores that are coming up for renewal, that's a clear opportunity for us to say, okay, over the next 5 years, what do we see happening?

If you take it out the next 5 years, do we still have a profitable store that meets our return criteria?

So -- and in looking at that, this is an opportunity now with all those renewals is to drive an occupancy structure that gives us great confidence that we should continue to have those stores.

If we're not able to negotiate those types of renewals, then we will close the stores.

So -- and in each case, by the way, there are stores that are profitable that we do close and have closed because when we look at the market and the optimization within the market that we deem it not necessary to have that particular store.

But again, we go back to the fact that it is omnichannel and that the stores provide great value, that the stores -- listen, they are very profitable, which is wonderful.

The stores also allow us to have a much lower advertising expense than a traditionally pure-play people have because of their availability -- they're basically an advertisement and an awareness issue for us to shop -- type in bedbathandbeyond.com that we're able to have people buy online and return in the store, reserve online and pick up in the store, call a store and make an appointment schedule, walk the store with somebody they want to have a registry for baby or for bridal.

So there's so many experiences that -- and moving forward, to have other experiences like decorating experiences and other things.

So again, as we look at this holistically, but we're realists and we have recognized that in looking at -- into all these options that are coming -- that are available to us is an opportunity to make sure we're getting the right deal, to make sure that the profitability going forward is everything we would expect and the return criteria is met.

Follow-up, Alan?

Yes, thank you.

So since you are a realist, I mean, do you agree that the pace of things and the pace of change is intensifying?

And I know, you and I have known each other a long time, you've always talked about not being in a hurry to make a mistake.

But is there a greater sense of urgency in terms of when you're looking at programs to make decisions, to try to change the course of things today versus in the past?

I would agree with that, that the rate of change continues to become more rapid.

I think that we've known each other long enough to know that you should know that I'm a neurotic idiot.

So the idea that...

I did not say that Steven.

Yes.

So there is no patience and there's never been any patience.

We still want to make the right decisions.

So yes, there's a huge sense of urgency because we don't want to be viewed as losing or not meeting expectations or disappointing our shareholders or our associates or you.

So we don't want it to have that.

So we're neurotic about that, so if that makes us any more neurotic to act any quicker, I don't know, it's hard to say because that's kind of who we are.

We've always focused on the things we don't do right, not on the things we do right.

We've always have that type of culture within the company of having thick skin and broad shoulders and attacking things that we don't do well and talking about what those things are, not worrying about whose feelings we're hurting.

So that's who we are.

So we understand what you're saying, but we're not in a greater hurry to make a wrong decision, but we have a sense of tremendous urgency because we don't want anybody thinking ill of us.

And our next question comes from Seth Sigman from Credit Suisse.

Maybe just a follow-up to some of the prior questions.

Steve, can you give us a sense of where you think you're holding your own category wise?

Where you're actually able to recapture some of the sales online, accepting that store sales are down, but you are growing your online business.

What is working online, category-wise, besides furniture?

And then can you give us a sense of whether there's specific categories where more challenge, you're maybe losing share?

Can you just walk us through that?

Sure.

Well, first of all, we are adding a lot of assortment so that's an advantage right there because we have more to offer the customer.

And then really, because of the rate of growth has been so strong now for an extended period of time, really, there's every category -- and I say every, but generally, every category shows great strength.

And again, so that's all the good news.

But I do think that the growth of the home decor and furniture business will help drive all the other businesses.

You know somebody's buying a rug that they're looking to redo a room.

And so what other opportunities does that present for us?

So again, right now, it's a good story, been a good story, been a good opportunity, but we got to continue to drive it, because we're comping -- we continue to comp very strong numbers.

Are you seeing major changes or differences in performance between big ticket and small ticket or branded and unbranded categories, different customer segments?

I'm just trying to understand where you're seeing the most improvement and where you're still seeing challenges.

You know what, listen, we don't really provide that level of specificity.

But of course, those exist.

There's businesses that we've been in and you're probably aware of them that is being sold everywhere today.

So they've been under the greater pressure.

There's businesses today that everybody is getting into.

There's a migration of customers, whether it's into electronics or to categories that presents opportunities for us.

There's businesses that have been very small for us so as we grow them, their growth numbers look substantial.

So all those things do happen, but truthfully, because the business is growing so well and it remains relatively immature for us is that we're seeing growth along all of it and we have the expectation to do so.

And then the real key is for us is really to find out what -- to segment the population to find out what they want and to drive each of those opportunities with those segments of our customers.

And our next question comes from Matt Fassler from Goldman Sachs.

I've got one financial question and then a strategic follow-up.

First of all, on the financial side, Steve, you spoke about the imperative to invest.

If you look at expenses per square foot or some proxy for that, they continue to go up pretty consistently kind of by a nontrivial amount.

And, obviously, in a quarter like this when the sales took a bit of a hit, the expense ratio tends to blow up a bit.

What is your sense of the portion of SG&A that is controllable?

And in the quarter like this, did you pull back?

And is there capacity to pull back a bit more than you have so far while still investing as you see appropriate?

Yes, your question on the expense per square...

So that's Gene jumping in, first of all.

I'm sorry.

which is good because Gene is sitting here and Sue's sitting here and when you said a financial question, everybody perked up because they thought I would shut up finally.

[As you can see], so I'll let Matt or Sue jump in -- or I mean Gene or Sue.

I thought you just were concerned that the question wouldn't be up to your standards, you wanted to make sure it wasn't you who will answer.

But the expense per square foot, if you're dividing all of our expenses by our retail square footage, you know, as we grow the online business, that's going to be an expense increase that doesn't have a square footage growth when we give our square footage because we don't include the warehouses in our retail square footage.

So that just might be something you have to look at in the calculation.

But we do -- we are continuing to invest.

All those investments would increase disproportionate of square footage.

Square footage is staying relatively flat with store openings, store closings netting out to the tens or so on a base of 1,500, but a lot of the expenses that we have for all of our investments that are going to be flowing through at a rate that's going to increase our cost per square foot on a retail basis.

Understood.

And then on the strategic front, you talked about CRM and analytics.

What's your core strategy for deploying what you've learned and really engaging the consumer more directly on an ongoing basis, and presumably, kind of on a more real-time basis on mobile as they shop the store.

Is there a way or a general strategy you have for pursuing that angle?

Yes, the opportunity to communicate the "why us" to our customer is significant.

I think that in each -- in a lot of the growth areas of the business, we're getting better, we're growing these parts of the business, but we don't really take the customer today and have been able to tie together from a customer's view where are they in their life, what are they doing.

I'm Matt Fassler, I have an apartment, I might have a summer home, my kids are going to school, they're going to camp or someone's going to college.

Today, somebody's getting married, somebody's having a baby.

We don't take and communicate this across our customer so we don't really have that view of the customer to optimize our communication with them.

So using the analytics and being able to tie them to our marketing campaign and to be able to really be a step ahead of our customer and really provide value and real service to our customer, then to communicate our differentiated products, services, solutions to our customer so then they really believe in us and think of us first.

The "why us" that's where we think the opportunity is.

First of all, we're building together the mosaic of how we're going to get there and a lot of the individual things that we would start with and the tactics that we're going to begin with to be able to be successful on that strategy is underway.

And our next question comes from Greg Melich from Evercore ISI.

I have one numbers question and a follow-up.

Maybe just to understand a little bit more the top line drivers, you did mention ticket was supportive.

And I'd love to have a little more color on that.

Was that mix or maybe items in the basket or average unit retail?

What was helping there?

No, we really just provide the ticket information.

So I'm sorry that's not helpful for you, but just as we have said, we did see some growth in excess of 20% from our customer-facing digital channels.

And we did see some softness in the store, in-store transactions.

But that's as -- the detailed level that we get to.

All right -- but maybe a different way.

Just then if we look at the digital channel, that 20% growth, I'm assuming now it's up like a double-digit figure as a percentage of sales.

Will that be a fair assumption?

I don't know if we've ever provided that also, but the...

Yes, I don't think that's something that we've done.

But if we have done it, it is in excess of it, in excess of 20%, that is the growth that we're seeing online.

That's where you'd be up to.

Okay.

And then last...

Yes, go ahead.

Go ahead.

I was going to say, as you know, I mean we look at it holistically right, so it's all -- the comp is all in one and we try to provide this information directionally as Sue said in her prepared remarks just for those various reasons of how customers can shop with us.

But directionally, we have seen it move in that excess of 20%.

And I know I have seen some folks model things out a while ago that we're getting to that 9%, 10% range.

Obviously, we've continued to grow, but we haven't provided -- we don't look at it that way that the digital business is x percent versus the whole.

It's all part of the one.

Got it.

And I guess, the last thing, now that you have a full year of the lower shipping threshold, how important is that?

I mean, is that the kind of thing that is the difference between getting a customer you find to really transact with you in that bucket?

I mean, is that are now a majority of online sales in that $29 threshold?

I think it's a moving target, Greg.

But for now, we think that's the sweet spot.

But again, you're talking about Bed Bath concept specifically, but even if you look at our other concepts, they're all over the place.

Christmas Tree and that, so you're looking at what Harmons at, you're looking at Cost Plus World Market, you're looking at PMall, you're looking at One Kings Lane, you're talking about buybuy BABY.

They each have their own formula in trying to figure out who their competitor set is, what drives the customer experience, the customer thought process, how much differentiation do we offer, so what's the value that needs to be provided in terms of shipping.

But for the Bed Bath & Beyond concept, that's for the period of time appears to be the sweet spot because we continue to test to some degree with the limited customers other things.

But again, these things continue to be a moving target, but that's what we found to date.

And our next question comes from Laura Champine from Roe Equity.

With everything that you've already said today, Steve, as you look out at your businesses -- some of your banners are less mature than others.

Are you certain that your store count will decline in future years?

Or is the goal to get better deals with landlords so that the mature businesses stay stable and you grow a little bit in the smaller concepts?

You know what, you're asking us to predict something.

So listen, if every landlord was charging us $1 a square foot, we would have these stores, even when we look to optimize markets probably.

But if you're asking us to predict or to guess the future, I think that it would -- we would be fairly comfortable saying that, probably, a reduction in our store base, both because I think that it takes a while for the landlords to recognize some of the things that we believe in, in terms of foot traffic and cost structure in the stores.

And -- so for that reason, we would think that there would be fewer stores.

And also, as we look out just in the opportunities to optimize markets by having fewer stores, that there is still even with profitable stores, that's a pretty high bar to overcome in some markets where we think that we can retain a significant amount of the business and be much more profitable by closing a store in the market.

So while if we had to predict, I would say fewer stores.

And our next question comes from Peter Benedict from Robert Baird.

Quickly, just to clarify, Steve, I think, you said 80 to 100 store leases coming up for renewal.

Did you mean next year?

Or did you mean over the next few years?

You know what, I think that -- I don't know the exact number, so maybe I shouldn't have -- I'll be reprimanded afterwards, but I think that we're anniversary-ing a period of time that we were doing about 80 to 100 stores a year.

So I think this is like if you go out 10 years or so or 10 to 15 years when we're doing 10-year leases, some 15, I think, that, that's about the rate.

Okay, what is Sue saying that, that's correct.

There you go, Peter.

Yes, that's what we thought.

And I didn't mean to get you reprimanded, Steve.

So the next question will just be around omnichannel.

I mean, you've done a of talking about omnichannel today.

What percentage of the store -- of the online sales are fulfilled by the store?

I mean, you've got a pickup in store, you got deliver from store.

Can you give us a flavor for how active the stores are in fulfilling online orders?

We don't set a target goal.

There are certain products that are more efficiently fulfilled out of a store, there's other products that are more efficiently filled out of a distribution center.

But depending on the labor is usually leveraged more in a distribution center but you might be able to gain efficiencies in freight if it's closer to the customer or the store.

So it really depends.

We have algorithms that calculates and try to optimize that, so it really depends on the mix of products purchased through the channels that will have direct delivery to our customers.

And as Janet was pointing out also, as we're talking about same-day delivery and the growth of same-day delivery, which is as we look at the algorithms probably will be driving more of the fulfillment from local stores because of the cost savings.

So all that will be directional.

But again, we were -- early on, we had the capability of doing that and we're leveraging it and we continue to develop best practices around it.

And our next question comes from Brad Thomas from KeyBanc Capital.

Hoping to ask about the non-Bed Bath & Beyond chains and any color that you're able to share on how they performed in the first quarter?

One of the competitors of buybuy BABY, in particular Toys "R" Us, had called out a weak environment in the first quarter for baby products.

And then more strategically, maybe if you could talk about the importance of actually owning these other physical stores and might it be possible to simplify the store base, divest some of these businesses, considering they do make up about 1/3 of your store base today?

Sure.

So I think, noteworthy is that when we looked across, for example, the summer selling period and the merchandise that we would expect across our concepts to be selling, it was consistent across the concepts that they were all struggling with summer seasonal.

So in a way, that's upsetting; in a way, it's comforting.

And then like you said, then you read what other retailers are saying.

When you talk about Toys specifically, I guess, Toys just said, the cooler spring hurt their sales and they listed things like bikes and pool toys and a bunch of things in their categories, but they pointed out that as well.

So -- but we don't break them out to one segment for us and one concept.

And we try to leverage each so it's like we always say is that the store within the store is important to us.

So defining the commodity products you would find at Harmon within Bed Bath & Beyond or Christmas Tree Shops or finding the seasonal product at Christmas Tree Shops in Bed Bath & Beyond or finding food and beverage at Cost Plus now in Bed Bath & Beyond.

All of these things we're trying to integrate.

And now, even the studios that One Kings Lane provides and using a white label in what Decorist does to be able to provide decorating services to our customers.

We really are customer-centric in saying how do we use all this clay to better service our customers and then how we're using our analytics to understand our customer and how we're using our marketing to deliver upon a better experience for our customer, both digitally and in our stores.

So I'm sorry, I touched upon, I guess, a bunch of parts of the answer.

Do you have anything more specific?

If you're still with us Brad, I'd be happy to follow-up.

I mean, I guess, just in terms of do you need a store fleet for all these different banners?

Or might it be worth divesting some of them or shutting some of them down, since you're able to sell many of those products in the core Bed Bath & Beyond stores?

You know what, again, we're not locked in to merit anything.

We have opened up not that many Harmon stores, Face Value stores, but primarily the growth has been in store within a stores, both in Christmas Tree and Bed Bath & Beyond.

That we're putting babies stores -- we're opening up baby stores but we haven't moved forward as if we're opening up the numbers of Bed Bath that we're doing stores within a store or we're doing smaller stores.

So we're not a lot -- we don't view them as a stand-alone concepts, trying to achieve a specific objective as much as we view them as clay to how do we satisfy the customer.

It's by individual store front optimizes our ability to do that, then we would do that.

But if that's not the way to do it, then we won't.

And the next question comes from Budd Bugatch from Raymond James.

Sue, you -- SG&A bolted up -- let me -- I'm going to try just to kind of piggyback on Matt's question.

SG&A bolted up by 2 and -- $42.5 million in the quarter, can you talk to whether that was within your plan or in your modeling assumptions?

And maybe give us a breakdown of what were the differences in SG&A for the quarter?

Sure.

So for example, one of the items we talked about, in fact, it was PMall and One Kings Lane were new to this particular quarter versus last year.

We also mentioned that we saw increases in advertising as well as payroll and digital, and in our technology space and the depreciation associated with that.

So those are the items that we called out that increased our SG&A.

As a percentage of sales...

As a percentage, right.

So I think, when you quote a number that it's $2.4 million or whatever number you quoted higher, that's not necessarily the case.

I mean, the anticipated spend, and I don't want to speak out of turn.

So Sue, correct me, but if the anticipated spend to what we expected but our sales came in light, we're seeing this deleverage that we mentioned when we talked about SG&A.

Against plan, yes.

Well, that was the question, was the SG&A -- was the dollar value or dollar amount of the SG&A what you expected to spend?

Was that in your modeling or in your assumptions?

I understand the deleverage and the ratio went higher than -- because of the sales, but I was trying to understand just the dollar amount if there were any surprises in that to you?

Well, for example, it really does depend in terms of when you're looking at our plan, we were -- we had softness in our sales.

So you need to adjust from a variable perspective when it turns to your sales team.

So it's a little difficult to answer your question.

I'm trying to answer it as -- adjusting for the sales piece.

Yes, because we have variable, semi-variable and fixed cost within the SG&A.

So a lot of the fixed costs are more predictable and they were probably in line.

We'd have to check.

The occupancy doesn't vary much from plan because we have very good visibility to that.

Other areas like store payroll, which is a semi-variable and other components that are completely variable like credit card and settlement, they'll go up and down with sales.

So we'd have to go category by category, but -- and so it's never exactly what we plan because it is somewhat dependent on sales.

But we'd really have to -- maybe you call us after or -- you know we'd have to go through it with more detail.

And again, I don't want -- so we're not trying to avoid the answer, but we'll focus on some numbers here.

But let me just tell you because again, advertising, we didn't spend more than we had planned to spend so we gave you the plan in April.

Payroll and payroll-related items, I don't believe we spent more than we anticipated.

Those are the 2 big ones that increased as a percentage of sales.

I don't think technology is anything unexpected, so I don't think that any of it was unexpected, so I'd be surprised if anything was above plan, but they're flipping through the pages just to confirm that.

But I -- the answer, Budd, is I don't think so.

I just want to add, though.

Even if the numbers were the same, that wouldn't mean that's exactly what we planned because if sales were lower, you might expect them to be lower so there might be some components that were higher so I wouldn't want to just say even if they were the same, it's exactly what we planned because there would be ups and downs within the categories.

I think we all understand the fixed variable and semi-variable componentry of SG&A.

I was just trying to get to a feeling of whether or not you did some things during the quarter that were kind of heroic or trying to get the sales up that may have cost you some SG&A leverage and deleverage.

No.

So the answer is that -- as we pointed out, the 3 largest items as a percentage of sales that went up that we -- they weren't unanticipated spend above budget for, so that would be the answer.

Not materially above the budget.

Okay.

And just -- I know this is always ongoing, the reviews are always ongoing, but you're reviewing your management structure, I think, trying to become even leaner or more efficient, as I think you've said.

When do you think that will be done?

Or when do you think we'll see some actions that may have resulted from the current period of review?

Okay.

So first of all, Sue is saying that payroll was slightly above where we had planned.

Yes, not materially.

And again, a lot of it is chasing wage rates.

So I want to clarify, so 2 out of 3 weren't, one was.

And then with your answer -- I'm sorry, Budd, the other question regards to some of the changes we're making to our management structure and the second question regarding it was?

The timing, when do you think...

When will you think it will be completed and when we might see some actions that resulted from the review?

Right.

So some of the things that we've done have been done already.

We've made structural changes in some of the responsibilities within the organization for parts of our businesses, so those things have been done.

A lot of the things that we've done in terms of our technology, our IT world to better align our resources, our engineering approach to be product oriented, to [realign] workflows and workforces to get the work done, a lot of that work has been done although there's probably 6 weeks or so, hopefully, until completion of that.

In terms of some of the other things that we're looking at that the PMO is working on in some of the bigger opportunities, both maybe some cost short term and savings long term.

I think we'll be in a better position to discuss on our next call, because like I said, it's all wrapped up into completing the phase we're in, including communication phases of things.

And so I would anticipate when we speak next, we'll be able to put more color around it.

And our next question comes from Curtis Nagle from Bank of America.

So could you just remind us in terms of what's driving, I guess, better expectations for 4Q, and it's just having, I guess, for a matter of having your initiatives more in place?

Or is there something else we should think about?

And then I just have a quick follow-up.

Sure.

The 53rd week is included in our fourth quarter, so that's a piece of it for sure.

Right.

So it's not so much on a comp basis, you were just talking total sales then?

One of the things that, again, I think that maybe you'll see in retail, I think, but I'd be curious if anybody's heard the conversation around the election last year and what they thought that, that might have -- what impact that might have had on businesses and whether people see that as an opportunity.

But I think that we did see some additional softness in and around the election so that might be an opportunity as well.

But as Sue said, the 53rd week is clearly the thing that we could clearly point to.

Fair enough.

And then you talk about expanding your assortment of bedding product in the store.

Would you guys consider rolling out actual beds in stores?

I know you have an online assortments online.

Or is that something that just would require too much in terms of perhaps labor training, advertising?

Is it something that you might do?

No.

First of all, we wouldn't telegraph something until the customers saw it.

Just historically, we did sell beds.

We've been in the business, we've been out of the business, we had stores that did it.

So it is a -- it's complementary to what we do as you move into the furniture and home decor business, it might be.

It is a huge user of space, and if you really want to show a proper assortment, a very large user of space, so there's pros and cons to it.

And we do know that there's a great comfort that people have today in buying mattresses online.

So for all those reasons, continues to be an opportunity and whether that opportunity is primarily online or online and in-store, that's something that remains to be seen.

And our next question comes from Adrienne Yih from Wolfe Research.

This is Doug Drummond on for Adrienne.

I want to circle back to the furniture opportunity.

I believe this is your third seasonal catalog issue at this point, so can you share any insight from early learnings there or any metrics on that customer relative to your legacy customers?

Anything there will be helpful.

And a follow-up after that, if I may.

We've learned enough to be committed to being great at this business.

That's -- okay, I guess, we'll see that unfold.

Then I guess, looking at pricing, I know you guys are -- always have a careful eye looking at pricing both in store and online.

Any update during the quarter on more -- are you seeing any more competition or price cutting from your competitors, whether it'd be Amazon or some of the furniture guys?

No, I think that it's -- as we've crawled our competitor's websites, as we integrate pricing in throughout the organization, the buyers, the planners of what they do every day, every week, as, you know, bring more product online that we sell only online so that we need to be dynamically priced, we see a lot more movement in prices within our company because of that.

More of our assortment is subject to it as we have more online that we don't carry in the store.

So -- and if you're asking whether people are becoming more promotional or we're seeing more pressure when it comes to pricing, I think that -- I think it's very fair to say that there is more awareness and ability to shop pricing each and every day, so the transparency just becomes clearer to people.

And as a result, especially with dynamic pricing, responsiveness steps up.

So for all those reasons, I think that you see an advantage that the consumer is experiencing and we think that that's a great thing for our customers and for the country.

So -- but at the same time, there is an impact on retailers who want to be priced right.

And our next question comes from Dan Binder from Jefferies.

I just wanted to talk a little bit about your coupon expense.

I'm assuming your redemptions are up since your expense is up.

And I was curious, is that simply the function of greater accessibility?

And if you could tell us a little bit about coupon redemption with new customers versus existing customers.

In other words, are you seeing a trend of more new customers redeeming?

Or is it primarily being driven by existing?

Yes, as far as coupon accessibility, we do have our coupon available in most of the areas that people are looking for and whether it's on an online app or directly delivered to your home or to your inbox or to your mobile device.

We've also rolled out the ability recently to most of our customers that they can now redeem their big blue coupon that we mail online also so that is now an omnichannel offer where historically, it has been simply an in-store offer.

And regarding the coupon expense for the quarter, it was resulting from an increase in redemptions, partially offset by decreasing the average coupon amount.

And what about new versus existing customers?

What are you seeing in those trends?

Sometimes, it's a self-fulfilling prophecy because if you mail the coupon to your existing customers, you're probably not going to see much shift in that.

When we are using the coupons to prospect, that's where you're going to see the highest percentage of new customers.

I don't have the weighted comparison, this year and last year of new versus existing customers, but it is a constant churn of the list.

Like any retailer, you have new customers coming in, your existing customers and then some people fade.

But I don't have the numbers this year and last year as far as percentages.

Okay.

If I could just fit one more in.

On the ad spend, I know that was up.

Can you just tell us a little bit about where that spend went and the effectiveness as you measured it?

Well, we have digital spend in advertising as well as we talked about our summer catalog and our college catalog so there's some print and we continue to issue a coupon associated with that.

So that's the general makeup of the advertising spend.

Yes.

That means directionally, the digital spend is increasing more as a percentage of its growth than the other areas because the business is growing disproportionately.

And this concludes our question-and-answer session.

I'll now turn the call over to Janet Barth for closing comments.

Thank you all for joining us today.

We look forward to having you join us again on our next quarterly earnings call on September 19, and we'll be around a little bit tonight, so if you feel like you need to have further answers to your questions, feel free to e-mail me or to call.

Otherwise, have a good evening.

Thank you.

Thank you, ladies and gentlemen.

This concludes today's conference.

Thank you for participating.

You may now disconnect.