Bed Bath & Beyond Inc (BBBY) 2017 Q3 法說會逐字稿

Welcome to Bed Bath & Beyond's Third Quarter Fiscal 2017 Earnings Call.

(Operator Instructions) Today's conference call is being recorded.

A rebroadcast conference call will be available beginning on Wednesday, December 20, 2017 at 8:00 p.m.

Eastern time to 8:00 p.m.

Eastern time on Friday, December 22, 2017.

To access the rebroadcast, you may dial (888) 843-7419, with the passcode ID of 46090929.

At this time, I'd like to turn the conference over to Janet M. Barth, Vice President, Investor Relations.

Please go ahead.

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, our 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 obligation to update or revise any forward-looking statements.

Our earnings press release, dated December 20, 2017, can be found in the Investor Relations section of our website at www.bedbathandbeyond.com.

Here is today's summary.

Net earnings per diluted share were $0.44 on net sales of approximately $3 billion.

Quarterly comparable sales declined approximately 0.3% and included strong sales growth from our customer facing digital channels and a low single-digit percentage decline in sales from our stores.

Sue will review our quarterly results in more detail.

But first, I will turn the call over to Steven, who'll provide an update on the progress we're making on the transformative initiatives discussed during our last several conference calls.

Thank you, Janet.

We're focused on our long-term strategy and continue to prioritize initiatives and align resources, as we execute our plans to transform many aspects of our business in support of our mission, to be the trusted expert for the home and heartfelt life events.

During our quarterly conference call in September, we discussed our 3 strategic customer-centric priorities, that we believe will further differentiate our business, deliver on our mission and position us for long term profitable growth.

First, assortment.

We want to present a meaningfully differentiated and complete product assortment for the home of the right quality and at the right value.

Second, services and solutions.

We want to provide services and solutions that enhance the usage and enjoyment of our offerings.

And third, experience.

We want to deliver a convenient, engaging and inspiring shopping experience that is intelligently personalized over time.

Concurrently, we also are driving several internally focused initiatives that are building upon our solid foundation of operational excellence.

I'd like to spend the next few minutes highlighting some of the progress we've made in these areas.

First, let's start with some elements of our assortment strategy.

We've developed a multifaceted approach to expedite our growth within the furnishings and decor category and further establish ourselves as the expert for the home and heartfelt life events.

As we've said before, this is an important category for us, not only for building credibility as the expert for the home, but also for driving incremental top line growth.

The approach we are taking to accelerate results is to assemble a highly cross-functional, dedicated team of internal experts to build and execute against all aspects of growing the furnishings and decor business, including assortment, store, marketing, supply chain and customer experience.

Some categories for us that continue to see strong growth are rugs, furniture, lighting and home office.

This is reflected in the more than 70% sales growth we've achieved year-to-date in Bed Bath & Beyond for total furnishings and decor that is fulfilled directly by our vendors.

We are excited by our progress, as we expand our market share within this category.

During this past quarter, we continued to make progress on the development of our business plan, our assortment strategy and resource needs to deliver on this critical objective.

We also accelerated our efforts in analytics, marketing, the store experience, fulfillment and SKU onboarding to further support this initiative.

Another part of the assortment strategy is the expansion of our newly evolved andThat!

concept.

With its ever-changing merchandise selection, deep value and treasure-hunt shopping experience, all of which continue to drive foot traffic and complement well the growth in digital channels.

During the quarter, we opened 2 andThat!

stores.

This makes 3 very recent openings reflecting our latest iterations of our store layout, merchandise assortment and store operations model.

The newness and freshness of the assortment, together with the deep value offered are important parts of the treasure-hunt shopping experience and encourage more frequent visits.

Each of these new stores is off to a good start.

Another key component of the assortment strategy focuses on how we ensure that the value we offer across all our products is fair, reasonable and competitive.

For example, we are dynamically pricing online and we remain committed to being consistently right-priced in our stores as well.

While market responsive price changes are more challenging to store-based product, we're taking the operational steps necessary to improve our ability to do so.

In the near term, we plan to relaunch our price match promise to our customers to further emphasize that we match competitive prices, including our own online prices where they may differ.

We are building upon our prior investments in pricing by incorporating additional tools and processes to identify pricing opportunities that will drive volume, margin dollars and enhance our overall value proposition to our customers.

Next, let's turn to services and solutions.

Here we remain strategically focused on our core life stage businesses, including wedding, baby, college and moving, as well as our newest service offering for decorating, which further support our mission.

Over the years, we have grown our leadership and expertise in these areas by helping customers manage through these exciting, but oftentimes, stressful life stages.

In our registry services, enhancements to our digital registry platform provide a simple, more personalized and guided experience to build and manage a registry.

To further differentiate ourselves with service, and strengthen our leadership position in registry, we're planning to expand our omni-channel service offerings and leverage our expertise and robust customer data to provide an even more engaging customer experience.

For example, we'll have live chat available for customers to connect online with one of our registry experts to get answers to questions or receive product recommendations.

We believe there is a tremendous opportunity to improve how we transition customers through these important, heartfelt life events and enhance the lifetime value of our customers.

Within the decorating initiative, we are leveraging Decorist, our newly acquired online interior design firm and their growing designer network and platform to integrate design services across many of our concepts, including Bed Bath & Beyond, buybuy BABY, Cost Plus World Market and One Kings Lane.

We're in the early stages of rolling this out both online and in-store.

To start, we have launched a nursery design services landing page on buybuybaby.com, and recently introduced interior decorating services on bedbathandbeyond.com, both powered by Decorist.

Cost Plus World Market has also introduced Decorist to its customers in an e-mail marketing campaign during the summer and will launch interior design services on its website in 2018.

In store, we've been conducting a few test and learn experiences to refine our approach as we move forward.

For example, we recently launched an initial test, which includes custom-built store applications to drive engagement in-store to online.

By bringing these services to a broader audience and providing customers with an affordable and convenient solution to interior design, we strive to create a competitive advantage and further enhance our credibility in the furnishing and decor space.

Turning now to our third area of focus.

Delivering a convenient, engaging and inspiring shopping experience that's intelligently personalized over time.

Experience, a key initiative with this -- within this objective is the development of a modified store format for Bed Bath & Beyond that creates a more engaging environment for our customers.

The newly designed format will essentially transition our Bed Bath & Beyond stores to include additional elements of retail that are working well today, both in our own stores as well as in the broader bricks and mortar retail environment.

For example, we know that deep value product and the treasure-hunt experience are driving foot traffic in-store, encouraging browsing and increased purchases and promoting frequent visits.

We know this from our own performance across several of our categories within our concepts, as well as from seeing the traffic and results of other retailers.

Deep value can be represented in consumables, such as health and beauty care and food and beverage, as well as within the core Bed Bath & Beyond offering, Treasure hunt is represented in a differentiated mix of merchandise consisting of product that is new, fresh and/or has limited availability.

These types of products exist across many of our categories, including furnishings and decor and our seasonal departments.

Going forward, we plan to put a greater emphasis on these elements in our Bed Bath & Beyond stores and incorporate our successes from across all of our retail concepts to more fully leverage them.

Beginning in March 2018, new Bed Bath & Beyond stores will be noticeably different to our customers, as these factors become more significant components of the store.

The existing space of core Bed Bath & Beyond merchandise will be reduced.

However, through our show more, carry less initiative, we can show the customer all we offer today in-store and more.

As we continue to enhance the store experience and incorporate new infrastructure within our stores, our associates will have devices that will greatly expand their ability to service our customers, coupled with an increased emphasis on selling skills training, we will be able to create a better experience for our customers and drive future sales growth.

Approximately, a dozen newly formatted Bed Bath & Beyond stores, including a combination of relocated and renovated stores, are planned to open by the end of our fiscal 2018 third quarter.

And then we will assess, refine and iterate for future openings and rolling back to additional existing stores.

To further deliver a noticeably different and better shopping experience online, we are elevating the shopability of our digital channels.

We'll do this by providing a complete and differentiated assortment that is easily searched, having the right information and content to help our customers make confident purchase decisions, as well as ensuring that the experience is frictionless at all stages and intelligently personalized.

Our investments in digital innovation are both foundational and meant to create further differentiation for us.

We are focused on those initiatives that communicate our expertise throughout the online experience, including through content and curation, as well as through guided selling tools, idea boards and interactive checklists, all to help the customer more easily find, manage and purchase the items they are interested in, and receive them when and where they want.

For example, on the Bed Bath & Beyond website, we continue to update and refresh our Trends & Ideas tab, where customers can browse curated collections of product for inspiration.

We recently added a feature to the site that allows customers to tag items they like and save them to an Idea Board for future reference.

This feature has become very popular very quickly, with thousands of idea boards created every day.

Of course, achieving digital shopability goes hand-in-hand with ensuring that we have smooth and efficient fulfillment processes for our customers across all of our product categories.

For this objective, we are examining all aspects of our logistics network to improve speed and efficiency, convenience and the overall delivery experience for our customers, especially, as we expand our position within the furnishings and decor category.

For example, we are comprehensively evaluating our supply chain and utilizing industry-leading optimization software to accomplish this goal.

This supply chain study will help us optimize structure and resource our current infrastructure for future business demands.

Our focus on our assortment, our services and solutions and the shopping experience we provide are, as I mentioned, more customer facing in nature.

In addition to those initiatives, we are driving an integrated portfolio with internally facing projects that will build upon our strong foundation of operational excellence and improve our efficiencies over time.

With the assistance of our SPMO, we've identified several strategic priorities, including: customer service transformation, gross margin enhancement, inventory optimization and supply chain.

These initiatives are ongoing.

And for some are executing against the roadmap, whilst others we're aligning resources and completing the road map.

Let me give you an example from our customer service transformation initiative, since it's the furthest along.

As we described during our call last quarter, CST is focused on transforming our store operating model to better meet the evolving needs of our customers in an omni-channel environment.

During the quarter, industrial engineers completed an assessment of our Bed Bath & Beyond store operations as planned.

Over the next several months, we will begin to implement certain of the recommended changes that will drive operational efficiencies.

In addition, we are in the early stages of implementing a new learning management system to deliver e-learning and training programs.

We plan to convert existing content and develop new e-learning material, specifically for our store-based associates to provide them more efficient and effective product and sales training, so they can better assist our customers and demonstrate our expertise for the home and heartfelt life events.

On a cumulative basis, we continue to project that these SPMO initiatives and other ongoing internally facing initiatives will produce savings in excess of $150 million over the next few years.

As we've said previously, we do plan to strategically reinvest a portion of these savings to drive future growth.

While it's too early to say how much will be reinvested, our focus remains on driving customer satisfaction, which should manifest in additional top line growth.

In this rapidly changing environment, we are moving fast.

By leveraging our newly established SPMO team, adding skilled resources, both with internal and external expertise where needed, and reprioritizing the efforts of our talented and dedicated associates, we have further advanced our ability to accomplish our mission.

We've made considerable progress in our ability to align organizational resources to accelerate our strategic priorities.

Each of the initiatives we are working on has its own framework and structure, both around cross-functional coordination to expedite results to further our mission and to drive greater efficiencies to achieve operational excellence.

We believe we have the right priorities that will move our business forward and strengthen our position as the trusted expert for the home and heartfelt life events.

In closing, I'd like to thank our dedicated associates for their ongoing efforts as well as their enthusiasm in embracing the transformation of our company.

We have never had better people or capabilities in our organization to move as aggressively as we are today, to satisfy our customers and position our company for long-term success.

I'll now turn the call over to Sue who will review our quarterly results in more detail and then discuss our modeling assumptions for the year.

And for all, best wishes for a Merry Christmas, a happy holiday season and a healthy and happy New Year.

Sue?

Thank you, Steven and good afternoon, everyone.

During the quarter, we experienced better than expected top line performance, benefiting from the opportunistic marketing spend and increased promotional offerings that we had planned going into the quarter, which correspond to the higher advertising costs and lower margins we incurred this period.

As the holiday season approached in our third quarter, the retail environment continued to be more promotional, potentially pulling sales forward.

This justified in the short-term a more aggressive approach to satisfy customers, which has continued to be necessary as we approach Christmas.

Now, I will review our quarterly results in more detail.

Our net sales were approximately $3 billion, relatively flat to the third quarter of last year, primarily due to 0.3% decrease in comp sales, offset by an increase in non-comp sales, including One Kings Lane, PMall and new stores.

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

We've previously said we believe in the 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 this sale was consummated.

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

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

Customer orders received -- reserved online and picked up in a store are also treated as in-store sales.

While purchases made online, that are subsequently returned to a store, are treated as a reduction in store sales.

With that said, directionally, comp sales from our customer facing digital channels continued to have strong growth in the quarter, while comp sales from our stores declined in the low single-digit percentage range.

Gross margin for the quarter was approximately 35.2%, as compared to approximately 37% of net sales in the third quarter of last year.

In order of magnitude, this decrease as a percentage of net sales was primarily due to a decrease in merchandise margins, an increase in coupon expense resulting from increases in redemptions and the average coupon amount and an increase in net direct to customer shipping expense.

SG&A in the quarter was approximately 31.6% of net sales as compared to approximately 29.8% of net sales in the prior-year period.

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

As a reminder, we anniversary-ed the acquisition of PMall at the end of November, which did not have a meaningful impact on our third quarter operating margin.

Net interest expense was approximately $13.6 million compared to $18.3 million in the prior-year period.

This decrease in net interest expense was primarily the result of a $4.7 million favorable change in the value of our nonqualified deferred compensation plan investment, which was fully offset in SG&A and therefore, did not impact net earnings.

Our income tax rate for the quarter was approximately 35.3% compared to approximately 34.5% in the prior-year period, and reflected net after-tax benefits of approximately $3.3 million and $6 million respectively, due to distinct tax events occurring during these quarters.

Considering all of this activity, net earnings per diluted share were $0.44 for the quarter.

Now looking to our balance sheet.

We ended the third quarter with approximately $561 million in cash and cash equivalents and investment securities.

Retail inventories of $3.1 billion at cost were down approximately 2% and continue to be tailored to meet the anticipated demands of our customers and are in good condition.

We were pleased to see some of the early benefits from our inventory optimization initiatives that Steven mentioned earlier.

Capital expenditures for the first 9 months of 2017 were approximately $264 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 our stores, our new distribution facility in Las Vegas, which began direct shipments to customers during the third quarter, and the new customer contact center in the Orlando, Florida, area.

Also during the quarter, we opened 14 stores and closed 6 stores.

Share repurchases under our current $2.5 billion share repurchase program were approximately $24 million in the quarter, representing a little over 900,000 shares and has a remaining balance of approximately $1.5 billion at the end of our third quarter.

In addition, our Board of Directors today declared a quarterly dividend of $0.15 per share to be paid on April 17, 2018, to shareholders of record as of March 16, 2018.

Before I discuss our outlook for fiscal 2017, I want to address the topic of tax reform.

First of all, we are excited and look forward to the future benefits of a lower federal corporate tax rate.

Second, we are in the process of reviewing the components of the tax reform plan including, like most companies, evaluating a one-time noncash expense related to a decrease in the value of our net deferred tax assets.

We'll have more to discuss on tax reform during our next quarterly conference call.

Now let's turn to our modeling assumptions for fiscal 2017, which do not include any assumptions for tax reform.

Given our actual comp for the first 9 months, plus the fourth quarter comp to-date, as well as our assumptions for the remainder of the year, including the critical days leading up to Christmas, comparable sales for the full year are estimated to decline in a low single-digit percentage range.

As a reminder, sales of PMall will now be included in our fourth quarter comp sales as the 1-year anniversary of the acquisition passed at the end of November.

We are modeling consolidated net sales for the full year to be relatively flat to slightly positive, including a slight benefit from the 53rd-week.

We continue to model gross margin deleverage for the full year, including a decrease in merchandise margins and increases in net direct-to-customer shipping expense and coupon expense.

We continue to model SG&A as a percentage of net sales to deleverage for the full year, including increases in payroll and payroll-related expenses, advertising expense, the store management restructuring charges taken in the second quarter, technology-related expenses including related depreciation, and the cost related to hurricanes Harvey, Irma and Maria.

We are modeling 2017 depreciation expense to be in the range of approximately $310 million to $320 million.

We are estimating net interest expense of approximately $70 million for the full year.

We are modeling our 2017 tax rate to be higher than last year, but still within the mid to high-30s percentage range, primarily due to the impact of adopting the new share-based payment accounting standard.

We also anticipate the net after-tax benefits from other distinct tax events will be lower than in 2016.

Capital expenditures are modeled to be in the range of $350 million to $400 million, which remains subject to the timing and composition of projects.

We continue to believe that for the foreseeable future, we are plateauing at about these levels.

In addition, approximately half of the 2017 spend is planned for technology-related projects in support of our growing omni-channel capabilities.

We have opened 20 new stores to-date with a potential of 2 or more openings before year-end.

And we plan to close approximately 15 stores, all of which would result in a net reduction of 5 Bed Bath & Beyond stores.

We continue to expect our positive cash flow to fund our operations and capital expenditures, as well as our quarterly dividends and the share repurchase program, which is subject to several factors, including business and market conditions.

We believe we will end the year with approximately the same or slightly higher cash and investment balances than last year.

All of this considered, we are continuing to model net earnings per diluted share for the full year to be about $3.

We are currently working through our financial planning assumptions for fiscal 2018.

We will provide further information related to these assumptions during our fourth quarter conference call on April 11, 2018.

And on behalf of all of us here, we wish you a safe and enjoyable holiday, and a happy New Year.

Adrienne, we can now open the call to questions.

(Operator Instructions) And our first question comes from Michael Lasser from UBS.

Can you give us a little bit more detail on the merchandise margin decline?

And how far are you willing to take down your gross margin in order to drive sales?

Sure.

Hi, Michael.

It's Sue.

I'll take your question.

So regarding merchandise margin for -- for the quarter was your question?

Yes, for the third quarter.

And then prospectively, how far are you willing to take down your gross margins in order to drive sales?

Sure.

So for the quarter, in order of magnitude, we did have a decline in merchandise margins, coupons and net direct-to-customer shipping expense.

Merchandise margin includes all kinds of things in order to get the goods to the stores or available for sale at -- through the e-com site.

So it would include things such as mark on, mix of merchandise that's purchased, freight, markdowns, so those types of items were included in merchandise margin.

In terms of margin stabilization, we don't know when the margin pressure will stabilize, and there's many factors that go into it.

Price transparency, merchandise margin items I just discussed, shrink, whatnot.

So when you consider all of that, and knowing that it remains a competitive environment and that we need to continue to be as, Steven talked about, being at the right price and offering services and solutions, we compete with that as well.

We continue to have, as Steven talked about, strategic focus from a gross margin enhancement perspective.

We have a team that's focused on that.

And always looking to continue to see how we improve in that space.

Yes, Michael, also just to add to that is that, like Sue said, is that obviously, the objective is to keep our customers and to attract new customers.

So pricing is a critical component.

And we're doing a lot today with regard to dynamically pricing and making sure that we're priced right in our stores.

But we work hard still today and we have a number of initiatives around meaningfully differentiated product, that is the gross margin enhancement initiatives that we're doing.

And even around pricing, pricing isn't just one wave.

So opportunities within pricing to drive volume and margin dollars there are as well.

So these are significant initiatives.

So we're not satisfied with the fact that we should get erosion.

That's not a satisfactory conclusion for us.

But that is where we are today.

My follow-up question is, it looks like your fourth quarter guidance is implying, based on a low single-digit decline for the full year and what you've done year-to-date, looks like it's implying maybe a down 2% to 3% comp for the fourth quarter.

All the signs have been that holiday spending has been encouraging.

So are you suggesting that maybe Bed Bath hasn't been participating in what's been a better holiday season so far?

No.

The first and second quarter were slightly less than we expected.

This quarter was slightly more and the fourth quarter remains to be seen.

So no, we were not trying to imply anything about the quarter.

There's nothing noteworthy really about the quarter to-date.

We have a lot of the quarter remaining in front of us.

And we have, obviously, 5 significant days leading into Christmas.

And then thereabout after -- about 50% of our sales remain to be achieved for the quarter.

So, no.

That wasn't the intention.

And our next question comes Simeon Gutman from Morgan Stanley.

Sorry about that.

Can you hear me?

Yes, we can.

Steve, what you're trying to build in terms of omni-channel and sales and transform the company.

I think is a lot bigger down the road than how the business is performing today.

How do you get comfortable that you're not teaching sort of bad habits, the gross margin being down more than, I guess, we had expected, or the Street had expected.

Sales improved.

But I guess, talk about the trade-off and how you gain comfort that while this transition period's happening, you're not eroding how the customer shops you?

It's a great question.

And there is an element of like when the company gets behind something the spigot's either open or closed.

So there is always that concern.

But I think we have, first of all, we have a good -- or obviously, a great culture here.

We're putting the customer first.

So certain things don't change.

But we try to really communicate what the objectives are and what we're trying achieve and why we're trying to achieve them.

We've redoubled our efforts to really communicate across the company the things we're doing, why we're doing them, so that people understand what we're driving today.

And we try to remain consistent that today should fit into the big picture.

So -- but it's a good question.

But so I think it comes from a lot, really a lot of the conversation and a lot of education within the company.

But I think that's fundamentally who we are.

That hasn't changed.

The things that are most -- or the priorities for us in terms of the customer, that remains the same.

We should always be asking ourselves, what are we doing to satisfy the customer, to exceed their expectations.

And so, if their expectations change, we have to be honest with it.

So they're expecting same-day delivery, they're expecting transparency in pricing, if they're accepting different prices online than in the stores, all these things, have to be things that we recognize as part of the retail environment and the customers' expectations.

So we stay grounded in that.

And again, and if we give the customer the best experience and we really truly provide them with differentiated product, the assortment that we're working to provide them, better services and solutions and an experience that really excels in our category, and for these heartfelt life events, then we'll be able to turn the dial on these other things.

Okay.

And then my follow-up, the top line run rate certainly improved if you look at it on 2- or 1-year basis this quarter.

As you look forward, and granted, we can do the math on the guidance, how -- are you confident that any of the improvement you're seeing is from some of these initiatives gaining traction?

Sue did mention that we still don't know how much of it might have been pull-forward, so that kind of left an impression that things have slowed.

And I guess, the guidance would suggest it.

But curious how you're separating the internal improvement from things you're doing versus sort of the environment?

So you really have to get granular, I think.

Certain things you can measure real clearly.

I mean, with the andThat!

initiative, you can really look at profitability, but growing, the decorative furnishings business and what we're doing there's -- there's metrics to everything we're doing.

So we could really measure, and to see if they're improving.

And now when we look at the inventory, we see that things that we're doing and affecting.

There are certain things, like you said, with sales whether you pull them forward or you don't pull them forward, because of heightened activity or being a little bit more promotional.

Those are good questions.

Those are kind of more to be determined types of things.

But for most of these initiatives, we have very concrete metrics that we're looking at.

And we're very close to them, because we want to be able to turn left or right based upon what we're seeing.

So again, it's a question that's an individualized answer to each of the initiatives that we're working on.

And our next question comes from Steve Forbes from Guggenheim.

Maybe to start here, can you touch on how the newly hired CTO and CIO are impacting the company's strategic business plan?

And Steve, if you can, like where do you think the greatest opportunity is for them to increase the brand's customer value proposition as you go through this transformation?

Well, first of all, they've been wonderful.

And I say that in hoping they're listening.

But they truly have been.

We had experience with Kevin before, because Kevin, for family reasons, had left us previously.

But Sanjeev and Kevin have done wonderfully well.

They communicate extremely well.

Their experience is right on point for us.

Their levels of expertise, the way they manage the group, the way they interact with the company, how they're driving collaboration within the business, how they're focusing on the big picture, and as they've been able to identify the things we really need to be working on and the things that are blockers, and they've been able to alleviate a lot of that.

They've really been fabulous.

So they've even exceeded our very high expectations of them.

So I'm not sure if I've answered the question, if there's something specific, I'll follow, you go ahead and let me know?

No, just curious, right.

If you can kind of touch on where you think the greatest opportunity for them is to improve the customer value proposition maybe over a shorter-term duration, right?

Sooner rather than later.

Is there something specific that they're working on that gets you excited?

Or any color you can give?

No, we've made this transformation from this waterfall methodology to an agile methodology that they sort of walked into.

So the value streams and the work streams that they're now leading and the way we're doing business and the stand-ups that they're involved in, and even bringing in and recognizing the talent within the group, these are all the things that they're able to leverage.

So you know, it's very difficult for any individual to change the movement of a ship.

But what they've done is that they've really, I think, driven the great talent that we have within the company.

And a lot of the things that we've been doing, whether it's moving things out of the cloud or whether it's looking to internalize resources or to do something overseas and outsource that -- that's an opportunity, all of these things, with their experience that they've identified.

And really, the focus that they're providing on the initiatives that we're working on, to say here, this is -- and to help us think through these things, to accelerate them, those have been the big wins.

So they've married up to a process that was well underway, because we have many talented people in the organization that were really driving these things before.

But they really provide a great leadership and they're clearing the decks for us to accelerate the things we're working and deliver much more quickly.

And our next question comes from the Dan Binder from Jefferies.

You covered a lot of ground today.

I was just wondering if you could comment on few things.

First on store remodels, it sounds like you have a format that you think might be worth rolling back to the rest of the base once you've tested it.

I'm just curious, when you look at the store base today, what percentage of the base would you say is in need of meaningful remodel activity?

And how quickly can you do that?

Is it part of your plan?

That's -- as we move through bringing in these aspects of retail that are working within our concepts, being the deep value, being the commodity product, being the -- what we call treasure hunt product, we would like to really roll it back.

So again, when you ask what percentage or what numbers of stores would we like to remodel, that really would be something that would be ideal to touch all those stores.

It's not really realistic in terms of how we would go about it.

How much of lease term do we have?

Does it make economic sense?

Some of these cases that's -- there's exclusives, that other retailers have in these centers that we might not be able to do certain things.

Some cases, the stores are too small, might not make sense, because the things we do might not even be as productive as the things we'd be taking out.

So all those things are part of the thought process, but we've laid out a game plan that will allow us to go fairly quickly.

It would be a significant capital expenditure.

But as it's proven over time, it would be iterated, and to the degree that we're successful and that we're seeing the results, tied to the other uses of capital, to a great degree will determine that.

So yes, the big picture answer is that, yes.

I think that all the stores are candidates to be better, in the terms that we've learned and what we're learning.

And at the same time, it's unrealistic to go exceptionally quickly in addressing what is about 1,200 Bed Bath stores.

This is just a follow-up question.

Can you give us an update on your loyalty?

Your BEYOND+ program?

And then also, what that extra week is worth this year, in terms of dollars?

I can take the second part of the question regarding the extra week.

It's an average week for us.

So there's a slight benefit.

It falls at the end of the quarter end of the February-quarter timeframe.

So it's an average week.

I believe back in, I think it was fiscal '12, we had a 53 week, and around then, I think we said it was about $0.05.

And as far as BEYOND+, listen, it's -- by all the metrics we're looking at, it's going well.

There's many things that are important about the program that aren't there yet.

Because we don't want it just to be about the 20% off.

So a lot of the things that we're working on, and we've rolled out some small wins to the participants, but really, we're still in the test and learn to understand the lifetime value of the customer.

And we really are developing the bells and whistles around the program, so that the program really has deep value to the customer as opposed to just being about a discount.

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

I wanted to just follow-up on pricing.

So -- as you analyze your pricing, can you give us a sense of where you think you have the biggest gaps today versus some of your competitors?

And as you think about the price investments you're prepared to make here, how widespread will they be?

And then just the final piece of that, thinking about it in relation to the existing couponing strategy, can you help us just balance those 2 different strategies?

With regard to the pricing, it's -- we're dynamically pricing online today.

And we're changing prices throughout the day, on 1,000s of items.

I shouldn't say a number, but I think it's in excess of that.

But anyways, that's something that we do every day.

And it's something that we need to be at the right price and the right value.

With stores, obviously, it's more difficult to be changing back and forth.

But generally speaking, we tend to be fairly right on price.

Listen, what we need and are committed over the next months to come, to make sure we are.

And there's a number of initiatives that will allow us to be closer to dynamically pricing in the stores in the sense that if not every item was priced, we would be able to change more quickly.

If we would -- have signage that permitted an area pricing as opposed to every item pricing, that might be easier.

If we had the ability really to identify and to narrow down the right price so that if something's between $16.99 and $17.49 online, if we were at $17.19 or $16.99, that we could stay there and be comfortable that we're at the right price.

So that initiative, in the stores, which is again a little bit more difficult to tackle.

We will be aggressively getting there.

But we don't think they're that far off.

And again, it's funny because when you look at all these pricing studies.

And they're really beneficial for us.

But something -- we look, if it says there's 100 items and we're priced wrong.

Some people say we're priced right on 70.

Some say we're priced wrong on 70.

So we take a look at it, and then so we give it to our pricing group.

And they go through the items.

And again, so it turns out that there is only 32 items that really match.

And out of the 30 only -- 32 -- some of it is secondary goods that we're looking at.

It's not really comparative goods.

Now does the customer understand that?

That's a good question.

But we might be wrong on 7. So some study might come out and suggest that we're way off but when we look at it internally, we're not.

But then what's the customer seeing.

So again, those are really important because -- so we got to in those cases communicate better.

Why is it a different product, are we really meaningfully differentiated on the goods we're looking at?

So that's all part of the customer understanding, if they're looking at our one set of towels, are they looking at the same towel there or a different towel and why is it a different towel?

But we're really not that far off, and online, we're basically, we're there.

And in the stores, there is product that is differentiated.

And there is product that, because of the vendor base, that could be MAP product.

So there is price maintenance by the vendors.

And then there is prices that we could be wrong on at any given point in time.

But we want to be right on that as well.

So it's not, I think, that in some cases, there is a perception that's not matching up with reality.

But the perception is reality, so we've better change that perception.

That's helpful.

And just a follow-up on one of your points.

Are you working with the vendors any differently than in the past to ensure that the value is where it needs to be and that you don't necessarily have to take the full impact from these investments where you're going to make them?

I think that there's always a heightened awareness when things are changing dramatically and there's great transparency in pricing.

But our vendor relationships are critically important to us.

And when we talk about some of the things with deep value in the stores, there are opportunities to partner with our vendors to create it.

There is opportunities whether we're looking at transitioning goods, or there's an opportunity to do great buys or whether we decide to work shorter.

But those vendor relationships are critical to us.

And most importantly, really to drive with those vendors differentiated products, so it's not about price.

But I would hope that the vendors would tell you, especially if they're in the holiday mood, that their relationships with us are good ones.

And that we have a common goal.

And that is to create differentiated product, great value to the customer that really drive the sales of their products.

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

I have 2 questions.

And my first is also on pricing, but specifically, Steve, you made mention of the price match offer and the goal you have, I think, of reemphasizing it or perhaps remerchandizing -- remarketing it to the customer in some way.

Can you talk about what you have in mind to make that price match impression stronger?

You're right.

That's exactly what we said and that's what we intend to do.

That the execution of it I think is messaging in the stores.

Most importantly is our associates really being committed to it and understanding, like we said, the spigot's open or closed.

And if people think that they're doing the company a service because there is a certain item that might be on a website that they are not aware of, or that something doesn't seem right to them.

Again, those are part of the issues.

But I think in part is that as we differentiate prices online, even ourselves, from what we are in the stores, it's critically important that everybody understands that we match competitors' prices.

And when we look at what other retailers have done well and when we look at Best Buy, I mean there's models out there, where people have done a great job of messaging the price match promise.

And so, I think, there's messaging that we will do with signage and opportunities there.

But it really comes down to our execution in the stores, really of our associates really believing it, wanting to stand for it and being comfortable with it.

So that's a significant component of it.

My follow-up question relates to tax reform.

For better or worse, you might be the first company holding a conference call since this actually was signed into law.

And the question I would ask is, is there anything that you all have wanted to do as a company where you have felt constrained by capital or by your cost structure, where the windfall associated with this in terms of liquidity and the relief in the federal tax rate might enable you to move even more aggressively?

And you've been quite aggressive in what you've done.

Yes, we've said generally speaking, we have not been limited by capital.

However, there's so many initiatives today that we're trying to accelerate we brought in a lot of talented people and we want to go faster.

And it's critically important for us to go faster.

And we have created an environment where we could fail faster than we've ever done before and test and learn and move forward.

And so we are -- we are in an investment phase.

So the capital to us is really a good thing.

And that again -- that our primary focus is investing in our company.

So we're very favorably disposed with this opportunity that this is presenting for us.

And our next question comes from Kate McShane from Citi.

You can move onto the next question.

Maybe she'll come back in the queue.

Next question, Adrienne?

(technical difficulty)

And our next question is from Matt Fassler -- or Matt McClintock from Barclays.

I was a little worried about that.

Steve, so much talk about price and pricing and all of that.

I was wondering -- higher level, taking it up to the next level, what is it that the consumer actually wants.

Because we look a lot at Amazon.

We talk a lot about Amazon.

But it doesn't seem like they're competing as much on price as they used to.

And it seems like some of the better performing retailers today are competing more on service.

So can you -- from your perspective today, I mean (inaudible) consumers might change constantly, but from your perspective today, what is it that the consumer actually wants?

Well, I think that there is not one answer to that, because even across the things that we sell, in the categories we sell, we want to excel when it comes to the home and these heartfelt life events and we really want to be trusted as the expert.

So for us, really bringing new product to market and having differentiated product is critically important to us, for us really to have better services and solutions, as we look at the registries, as we look at the college, the new movers, we look at what we're trying to do in decorating.

When we look at the experience that we're giving the customer, we want it to be personalized.

We want it to be targeted to our customer.

We want to give them a better digital experience.

That's critically important to us, for them to think of us first, because they are wedded to us.

Because we're providing inspiration for them, that we're slightly ahead of them, that we talk about in our Baby World and the CRM programs that we're doing.

Internally, we refer to it as the book What To Expect When You're Expecting.

We expect to be that.

We expect to be slightly ahead of the customer.

We want to be able to suggest the things that they are going to need before they realize it.

And so those are important things, because we want to be the expert.

So that's critically important.

So we want to have a voice.

We want to be -- so again, that's why our catalogs are so important.

That's why showing the entire room is so important.

That's why decorative furnishings are so important.

All these things to really be the expert and for the customer to look at us as a voice, as somebody they could trust.

That's why when we say there are things we're doing in our registries to get a person when you call that's an expert in registry.

There's the things that we're doing with our checklist and suggesting things.

And what we're doing, with our targeting personalization.

All these things is for the customer to recognize that we provide value to them.

That we're an added resource, that's why they're coming to us, it's not just about price.

At the same time, we're not going to accept providing a lesser value than somebody else.

And then if I could follow-up on that same question, it's -- end of the day, I feel like if I wrote you a blank check, you could spend a lot of money on a lot of things that would provide value to the customer, but how do you think about putting a capital allocation framework over that, right?

How do you know that if you spend more money and you renovate some of your Bed Bath & Beyond stores that you're going to get the return over a period of time of 5 to 7 to 10 years or whatever it is that you do your NPV analysis on.

How do you get comfort with that in today's environment?

Well, first of all, you have to recognize the environment and how quickly it's changing.

You have to build things -- first of all, you have to build it out in a way that you test and learn.

You have to build it out in a way that gives you flexibility, so that if you're not sure, that you're making sure that you have a lot of headroom.

So that if you're wrong by 5% or 10%, that you let yourself, that you have the returns and the financial returns that you're looking for.

But the other thing is that -- listen, that's always been the case that we've been -- and nobody wants to hear it, but we've been doing this, I've been here for 26 years, that's -- we've been running the business.

It's been fairly successful, but we look at a business that, in an industry, that if you were around 26 years ago, you would say don't enter.

You would say the department stores all walked away from it.

You looked at Linens 'n Things which was part of [Nevels].

[3D Strauds], [LeeJay's], [Home Express], [Pacific Linens].

You looked at JCPenney Home, [Brandons], which was part of Target . All these people are out of business.

They didn't do it.

We did the same thing, and we made some of the best returns in retail.

So again, these are -- a lot of these things, it's an art; it's not a science.

It's about people.

It's about judgment.

It is about intuition, it's about making tracks and not following other people's paths, but learning, being informed from the decisions that we make.

This is what we do.

We're committed to being great.

And then, so again, the one thing I would tell you again and again is that we've never had more opportunity in the company.

We've never had better people in the company.

And that's, each and every day, I'll tell you, a week goes by and we look at what we've added and where we're going in -- both in terms of opportunity and people and you couldn't be more excited.

So yes, there's judgments involved in these things, but most of these things we'll be able to test and learn.

And again, we should leave ourselves enough room that if we're wrong, we could turn left or right and still be happy with the results.

And that's the way we move.

You know us, I guess, Matt, that -- listen, we've never been somebody to bet the house on something.

But we've always tried to make deductive, systematic, logical decisions.

So we've always tried to measure everything we do, that's how we've grown the company.

But now we have to do those things quicker than ever.

So it is, it's a good question, but again, those rules of engagement are significantly the same and it still remains significantly an art married to the quantitative facts that we have and we're betting on us, big time.

(Operator Instructions) And our next question is from Laura Champine with Roe Equity.

Sue, I wanted to get a better sense of what your comments on a pull-forward of demand into Q3 meant?

Are you seeing a change in the cadence of sales in December compared to what you saw in prior years?

Well, what I meant by that was that we had an opportunistic marketing spend planned in Q3, which we executed upon that.

And we saw some good results.

We may, like I said, we potentially may have pulled forward some sales.

However, we have 5 critical days left within Christmas, leading up to that.

And the shopping pattern is different this year compared to prior years.

Christmas falls on a Monday.

So, therefore, there's a full Saturday shopping.

So, we're really not going to know, if we potentially did pull sales forward or not, until we have the full picture.

We'll be able to share more of that with you in fourth quarter.

Got it.

And then secondly, your share buyback this quarter is less than it has been, does that just reflect seasonal cash needs or is there something else driving that lesser buyback rate?

Well, first of all, our board reviews our capital structure on a regular basis and our cash flow remains strong.

I think we've discussed before the priorities of how we take a look of using our cash.

First, we look at investing it back into the business.

Then, we take a look at acquisitions.

We obviously have our dividend program and then any excess cash could be used for share repurchases.

Keep in mind, I did mention, that we want to maintain the same or higher cash balance at the end of the year so that factors also into the capital allocation structure and how we're approaching it for this quarter.

And our next question is from Peter Benedict from Baird.

Just on the 12 stores you're going to be -- the test stores remodeling to -- a bit, I mean, how's the margin profile of those categories, the deep value, the more commodity stuff as well as treasure hunt?

How does that compare to maybe the company average?

And then what categories are being replaced or pared back to make room for those?

The margin opportunities run the gamut.

Because -- a lot of that is differentiated product when you look at our seasonal department, the ability to buy right and to bring in treasure-hunt product, that is not continuity.

That's in-and-out.

There's a huge opportunity for us.

But most importantly, just so that we paint the complete picture, the idea is not that we're going to be doing less Bed Bath business, the idea is that, we will be generating additional foot traffic.

Though, we could shrink today the Bed Bath assortment in most stores, and be able to present even more product than we currently present when we don't carry the back stock in certain categories.

So we're able to show more, carry less, now have the associates have tools like tablets to approach our customers, interact with them and conduct Beyond Store sales with them and they can see and touch more product.

So, again, the idea is to be able to shrink the core assortment in terms of back stock, show more, carry less, interact with the customer more often and take advantage of the additional foot traffic we'll be seeing from the deep value that we'll be presenting and the treasure-hunt product.

Okay.

That's helpful, Steve.

Just on -- a couple of mix questions.

Can you give us a sense of maybe what the e-commerce was as a percentage of sales in the quarter and then where do consumables sit at this point.

You've been doing that for a while, but what percentage of sales could you give us that consumables are for the company?

I don't believe, Peter, that we've shared what the e-com mix was for the particular quarter.

We did indicate, though, that we continue to see strong growth in customer-facing digital channels.

And the second part of your question was on consumables?

Yes.

Just curious what share of sales that has gotten to at this point because it sounds like it continues to grow.

Again, that's not something that we've shared in the past, but we continue to obviously sell consumables and we're pleased.

And again (inaudible), but I think in the big picture, we are talking about that as we bring in food and beverage, as we increase health and beauty, as we change what we're able to do in downsizing the assortments in health and beauty and bring it into more stores, that there is -- that we see the opportunity within the commodity product to drive foot traffic.

Last quarter, Peter -- this is Janet.

This is a reminder, last quarter, we had given that statistic of roughly 15% on an annualized basis is what our customer-facing digital channels represented.

That was not any particular quarter, but we were kind of just saying, that's kind of where it's tracking on an annualized basis.

And the next question comes from Greg Melich from Retail.

It's Greg from MoffettNathanson.

I guess I had 2 questions, but I think it's really one trying to get around -- arms around digital.

I think last quarter, you mentioned digital had been growing 20% for something like 3 straight years.

Is that still the case?

Or has it gotten to a scale now where that's actually -- now, while still strong growth, starting to slow a little bit?

Then I had a follow-up related.

I think that we said that -- what did we say?

We said that we had strong growth, continued strong growth in customer-facing digital channels, so we did answer it.

Yes.

Yes.

So we've been strong and actually both the digital experience in the quarter and the in-store experience was our strongest quarter of the year.

So it was better than the 20% still, just...

That's good math.

Okay, great.

And then, the real -- I mean, you talked a lot about shipping costs and what that does to gross margin.

Could you remind us how you're actually fulfilling online direct orders and, I think, the Las Vegas facility -- remind me, is that a pure online?

Or how are you actually fulfilling those orders or is that shipping costs just a simple -- more free shipping or is there something else going on there from a cost side that could be impacting the margin?

We fulfilled the direct-to-customer shipments out of -- 1 of 3 ways: one is out of one of our distribution centers; the second, we have a large and growing vendor direct-to-customer program online; and then lastly, all our stores have the ability to ship to our customers.

We have certain stores that we call regional fulfillment stores that have more capabilities than others -- or staffing, but we are able to ship from any of our stores to our customers.

Is there a second question?

Just want to make sure I answered it.

Well, okay.

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

So just wanted to go back onto the new store format.

I guess just what are your thoughts on -- is there potentially any risk from perhaps losing focus or cohesion with adding some of these -- I guess more value based products into the stores?

Are you testing anything else that could in?

I'm just curious your thoughts on that?

No.

We don't have a concern about losing focus.

We're actually providing or resourcing this with significant resources to make sure that we accomplish our objectives and, again, I think the focus is on the deep value, the commodity product, deep value we can see across all our categories, but significantly, we see it in health and beauty care in what we do today.

We see it with the opportunities with food and beverage, but again, across all the categories that when we look at the treasure-hunt experience that it's -- we could say the seasonal department and the furnishings and decor is significant opportunities for us.

So again, these are things that are working within the Bed Bath & Beyond parent company.

So these aren't things that we don't have great experience with.

So not I'm not sure if I answered the question, Curtis.

If not, point me in another other direction.

No, no.

No, that's a fair answer.

I appreciate it.

And our next question comes from Seth Basham with Wedbush Securities.

My first question is on CapEx.

You talked about plateauing CapEx.

But as you think about next year and your investments in the store remodels, would we still expect CapEx to be plateauing?

We're working through our fiscal '18 modeling assumptions now, but what we've seen is that we've been around the $350 million, $400 million mark for the past few years.

And that's what we see for the foreseeable future.

We'll be able, obviously -- any impacts in terms of new store formats and whatnot would be baked into the modeling assumptions for next year.

There's puts and takes every year.

This year, we opened up a new call center.

We opened up a new distribution in Las Vegas which we probably won't have next year, but then we'll have remodels come in.

So they tend to balance out.

But we'll give more of an update in April.

Got you.

That's helpful.

And then secondly, just thinking about the guidance implied for the fourth quarter.

Obviously, it's a little bit lower than you were expecting before on the bottom line.

From -- that change in the margin outlook, is that due to the competitive environment or is there any acceleration of your spending on various initiatives as well baked in?

Well, on the margins and on the baked-in, we don't -- we didn't give specific guidance for the fourth quarter, but we are cognizant of the trends that have been in existence and we tried to build that into what we're forecasting for the future, and the same thing with the initiatives.

I mean, the initiatives are underway.

We know their costs.

So all that's factored in when we're estimating what we're going to earn for the year.

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

Steve, I was wondering if you could give us an update on the kind of home vignette and the small furniture that you had launched last October, I believe.

Whether you sent out another catalog, and if so, how's that going?

And then for Sue, can you give us any direction on SG&A dollar growth for 2018?

Should we at least expect it to be up in dollars, but just not as much as 2017?

Can you clarify what-- up or down what?

Is that CapEx higher or lower or...

Sorry.

SG&A dollar growth for 2018.

As I said, we're working through the estimates for fiscal '18.

I'd be able to provide that more for you at the end of this year as we provide our assumptions really for the full year.

I don't have those figures for you to be able to share that for '18.

Okay, fair enough, but the characterization, was it -- it remains an investment phase?

Yes, it remains an investment phase.

And then with regards to your first -- yes, the question about decorative furnishings, so I'm not sure if I caught it all, but the catalogs -- we're continuing down the path of the catalogs.

The last one more than half the merchandise in the catalog is not things that we carry in the stores and we show them in the inspirational room settings.

And now we're growing the numbers of our customers that are seeing the catalogs, so we're expanding that.

In terms of the stores, the objective is to make sure that each store as we open going forward, whether it be a renovation or a move of a store, or whether it be a new store in those few cases, that -- to a market, I mean, that we express that we're in this business.

And so we've done a number of things that are test-and-learn in terms of showing rooms, product.

I'm not sure, Adrienne, where you are, but if you have the opportunity to go to East Hanover on Route 10, in New Jersey, there's another -- the latest iteration opened last week -- or 2 weeks ago now of that.

And it's already obsolete.

But we're learning a lot from it.

You'll just see something that's decidedly different, but the objective is that we have got to a get to at least neutral, where people walk into our stores and they say we're not in the business?

That's not good.

Better to walk into the stores and say, "Oh, they're in the furniture business or they might be in the furniture business." But we can't have them walk into our stores thinking we're not in the furniture business.

That will be expressed in our stores going forward.

And our last question comes from Cristina Fernandez from the Telsey Advisory Group.

Adrienne, the only thing I would say is, also, that I think at one point, Kate McShane was trying to get through when we had technical issues.

I'm not sure if she's still listening or if she's available, we did not get to speak to her.

(Operator Instructions)

She might not be there, I'm just saying, that I just re-noted that because I think Adrienne was also bumped but since she came back.

But okay, Cristina, let's go.

Yes, I wanted to ask about your delivery and shipping capabilities.

Can you update us where are you on being able to reach the customer in 2-days across the country and in addition to price match, are you considering also a faster delivery promise and also what are your thoughts on same-day delivery?

So, yes, I think 2-days are in excess of 90% capability.

But there will be additional facilities that we're looking at and we're looking to optimize our pools and consolidation centers and owned buildings to make sure that we are able to do better.

With regard to same-day delivery, I think we're in 6 or 7 markets, rolling out another 7 markets in January.

So that's something that we feel, again, competitively that we need to be doing.

And the middle question was?

It was on price match and were we planning a faster delivery promise.

Yes, so again, we're looking at that because we do have a lot of merchandise that we know that it's in stock and where it is and we're able to get it to the customer quicker, so the question becomes how do we denote that, say, in the digital experience so customer knows that it could be delivered quicker and that we can get credit for it.

And then as a follow-up, any thoughts on speeding up the openings of some of your smaller concepts like Harmon,

AndThat or accelerating their addition into the existing Bed Bath & Beyond stores?

There's -- everything -- that's the first thing again is that we're taking the best of these -- everything under our umbrella and we're trying to present it to the customer in a sensible way.

So whether that means a freestanding store, a store within a store or taking some departments and aspects of them in a store.

So all those things are happening.

What we are seeing is that we're seeing on one end -- the foot traffic is challenged as the world moves to digital.

That's one thing that we do see.

But at the same time, we do see opportunities with these concepts that are not in markets today and that is the importance of having a bricks and mortar omni channel experience for the customer, whether it's buy online, pickup in-store; whether it's digital appointment scheduling; whether it's return to us -- things that are bought online in-store, but it's a benefit we get in the marketing because people see the nameplate and they go right online or whether they shop you in a store and then go back and buy online.

So there is that opportunity for these concepts that don't have presence in these markets, and we are seeing the occupancy cost opportunities come about as those retailers go away and there's pressure in the landlord community to fill space.

So all those things will dictate the rate that we go.

And as one of the questions asked earlier, how do we measure these things, and how do we know it's the right thing and how do we not get caught 5 years from now or 7 years from now?

Those goes to the assumptions about, will foot traffic continue to decline and at what rate?

Our expense structure, what will happen to the wages in these markets?

What will we be doing in the stores that will be automated as opposed to what can't be today, or what isn't today?

What are we doing with the checkout experience?

All these things will dictate the rate in which we open stores going forward, but again, we don't have religion about stores or [digital sense].

We have religion around satisfying our customer and exceeding their expectations and so we do believe that having a bricks and mortar presence gives us an additional opportunity to do that, done correctly.

And this concludes the question-and-answer session.

I'll turn the call back over to Janet Barth for final remarks.

Great.

Thank you, Adrienne, and thank you all for joining us today.

We look forward to speaking with you again on April 11 when we report our fiscal 2017 fourth quarter and full year results.

Have a good night.

Thank you, ladies and gentlemen.

This concludes today's conference.

Thank you for participating.

You may now disconnect.