Bed Bath & Beyond Inc. (BBBY) Q1 2014 Earnings Report, Transcript and Summary

Welcome to Bed Bath & Beyond's first quarter fiscal 2014 results conference call. [Operator instructions.] At this time, it’s my pleasure to turn the conference over to Ms. Sue Lattmann, Chief Financial Officer and Treasurer of Bed Bath & Beyond. Please go ahead.

Thank you, and good afternoon. Welcome to Bed Bath & Beyond's first quarter of fiscal 2014 conference call. A short time ago, we issued a press release announcing Bed Bath & Beyond's results for the three-month period ended May 31, 2014. During this call, we will comment on some of the first quarter highlights and update our second quarter and full fiscal year 2014 models. Before proceeding, I will read the following statement, and I quote: "Bed Bath & Beyond's fiscal first quarter press release and comments made during this call may contain forward-looking statements within the meaning of Section 21E of the Securities and Exchange Act of 1934 as amended. Many of these forward-looking statements can be identified by the use of words such as may, will, expect, anticipate, approximate, estimate, assume, continue, model, project, plan, and similar words and phrases. The company's actual results and future financial condition may differ materially from those expressed in any such forward-looking statements as a result of many factors. Please refer to Bed Bath & Beyond's SEC filings, including its Form 10-K, for the year ended March 1, 2014. The company does not undertake any obligation to update its forward-looking statements." Joining me on today's call are Warren Eisenberg, Co-Chairman of Bed Bath & Beyond; and Steven Temares, Chief Executive Officer and member of the Board of Directors. I'm now very pleased to introduce Warren Eisenberg. Warren?

Thanks, Sue, and good afternoon. Our press release, issued within the past hour, shows that our company earned $0.93 per diluted share in the fiscal first quarter, which is within our modeled range that was provided in our last conference call. While the overall retail environment has been challenging, we believe we are making the necessary investments for our company’s long-term success. During this first quarter, we opened two new Bed Bath & Beyond stores, one buybuy BABY store, one Cost Plus World Market store, and one andThat! store. Also, we continued to optimize our operations in a number of trade areas through renovating stores across our concepts and repositioning our stores in various markets, which also included the closing of one Bed Bath store. On May 31, 2014, consolidated store space net of openings and closings for all our concepts was approximately 42.7 million square feet, an increase of approximately 1.2% over the end of last year’s first quarter. Since the beginning of the fiscal second quarter of 2014, we’ve opened one Bed Bath & Beyond store, one buybuy BABY store, and two Cost Plus World Market stores. Including these stores, we currently operate 1,504 stores, consisting of 1,016 Bed Bath & Beyond stores in all 50 states, the District of Columbia, Puerto Rico, and Canada; 268 stores under the names World Market, Cost Plus World Market, or Cost Plus; 92 buybuy BABY stores; 78 stores under the names Christmas Tree Shops, Christmas Tree Shops andThat!, or andThat!; and 50 stores under the names Harmon or Harmon Face Values. During 2014, we anticipate opening approximately 22 new stores company-wide with the potential of up to six additional stores before the end of the fiscal year. Additionally, we will continue our program of renovating or repositioning stores within markets when…

Thank you, Warren. Good afternoon everyone, and thank you for participating in this conference call. As Warren said, we continue to believe that the decisions and investments we are making today are positioning our company to thrive in an evolving retail landscape and to enhance shareholder value over time. We are pleased with the progress on our initiatives to date, and we are excited about the progress yet to come. As we have noted, this is a period of significant investment for our company, and although there are required capital investments and incremental expenses related to these initiatives, which will increase technology costs and depreciation as well as other expenses as a percentage of net sales in the short term, we are confident we are making the appropriate investments to provide a seamless customer experience across the in-store, online, and mobile shopping channels. We continue to move forward with our initiatives by continuing to add new functionality and assortment to our selling websites, mobile sites and apps; furthering development work necessary for a new and more robust point of sale system; continuing our deployment of systems and equipment to allow our stores to take advantage of new technologies and processes; continuing to strengthen our IT, analytics, marketing, and e-commerce groups; and opening an additional distribution facility for both direct to customer and store fulfillment. Through the investments we have made, and will continue to make, our customers can purchase products either in store, online, or through a mobile device. Also, we have the developing ability to have customer purchases picked up in store or shipped direct to the customer from our distribution facilities, stores, or vendors. In addition, we continue to increase, differentiate, and leverage our assortment across all channels, concepts, and countries in which we operate. For example, we…

Thank you, Steve. As you heard from Warren and Steve, we are $0.93 per diluted share in our fiscal first quarter. Based upon our fiscal first quarter results, and despite the challenging retail environment, we continue to be cautiously optimistic about the balance of the current fiscal year. Turning to the remainder of fiscal 2014, our current model for the fiscal second quarter and full year include the following. One, for the fiscal second quarter, we are modeling comparable sales to increase in the range of 1% to 3%. For the full year, we are modeling comparable sales to increase by approximately 3%. Two, consolidated net sales are modeled to increase by approximately 2% to 4% for the second quarter and approximately 4% for the full year. Three, depreciation for fiscal 2014 is expected to be approximately $240 million. Four, assuming these sales levels, we are modeling deleverage for both gross profit and SG&A for the fiscal second quarter and full year. Contributing to the modeled gross profit deleverage are an assumed continuation in the shift of the mix of merchandise sold to lower-margin categories, an increase in coupon expense, and an increase in net direct to customer shipping expense. The model’s SG&A deleverage includes increases in technology expense and depreciation related to our ongoing investments. Five, our model reflects that our annual interest line will include approximately $9.2 million in interest expense, substantially resulting from the inclusion of sale leaseback obligations related to certain distribution centers. Six, the second quarter and full-year tax provisions are estimated to be in the mid to high 30s percentage range with expected variability as distinct tax events occur. Seven, we expect to generate positive operating cash flow. Eight, our model reflects continued repurchases of shares under our $2.5 billion repurchase plan, with an…

Thank you ladies and gentlemen. This concludes today’s conference. Thank you for participating. You may now disconnect. [No Q&A Session for this event].