Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
BBBY > SEC Filings for BBBY > Form 10-Q on 9-Oct-2013All Recent SEC Filings

Show all filings for BED BATH & BEYOND INC | Request a Trial to NEW EDGAR Online Pro

Form 10-Q for BED BATH & BEYOND INC


9-Oct-2013

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Bed Bath & Beyond Inc. and subsidiaries (the "Company") operates a chain of 1,484 retail stores, as of August 31, 2013, under the names Bed Bath & Beyond ("BBB"), a combination of the names Christmas Tree Shops or andThat! (collectively, "CTS"), Harmon or Harmon Face Values (collectively, "Harmon"), buybuy BABY and World Market, Cost Plus World Market or Cost Plus (collectively, "World Market"). The Company includes Linen Holdings, a provider of a variety of textile products, amenities and other goods to institutional customers in the hospitality, cruise line, food service, healthcare and other industries. (See Note 11 "Acquisitions" in the notes to the unaudited consolidated financial statements for information regarding the acquisitions of World Market and Linen Holdings). Additionally, the Company is a partner in a joint venture which operates three retail stores in Mexico under the name Bed Bath & Beyond.

The Company accounts for its operations as two operating segments: North American Retail and Institutional Sales. The Institutional Sales operating segment, which is comprised of Linen Holdings, does not meet the quantitative thresholds under U.S. generally accepted accounting principles and therefore is not a reportable segment.

The Company sells a wide assortment of domestics merchandise and home furnishings. Domestics merchandise includes categories such as bed linens and related items, bath items and kitchen textiles. Home furnishings include categories such as kitchen and tabletop items, fine tabletop, basic housewares, general home furnishings, consumables and certain juvenile products. The Company's objective is to be a customer's first choice for products and services in the categories offered, in the markets in which the Company operates.

The Company's strategy is to achieve this objective through excellent customer service, an extensive breadth, depth and differentiated assortment and introduction of new merchandising offerings, supported by the continuous development and improvement of its infrastructure.

Operating in the highly competitive retail industry, the Company, along with other retail companies, is influenced by a number of factors including, but not limited to, general economic conditions including the housing market, relatively high unemployment and historically high commodity prices; the overall macroeconomic environment and related changes in the retailing environment; consumer preferences and spending habits; unusual weather patterns and natural disasters; competition from existing and potential competitors; evolving technology; and the ability to find suitable locations at acceptable occupancy costs and other terms to support the Company's expansion program. The Company cannot predict whether, when or the manner in which these factors could affect the Company's operating results.

For fiscal 2013, the results of operations include Linen Holdings and World Market from the beginning of the fiscal year. For fiscal 2012, the results of operations include Linen Holdings since the date of acquisition on June 1, 2012 and World Market since the date of acquisition on June 29, 2012.

The following represents an overview of the Company's financial performance for the periods indicated:

? For the three and six months ended August 31, 2013, the Company's net sales were $2.824 billion and $5.436 billion, respectively, an increase of approximately 8.9% and 13.0%, respectively, as compared with the three and six months ended August 25, 2012.

? Comparable store sales for the fiscal second quarter of 2013 increased by approximately 3.7% as compared with an increase of approximately 3.5% for the corresponding period last year. For the six months ended August 31, 2013, comparable store sales increased by approximately 3.5% as compared with an increase of approximately 3.3% for the six months ended August 25, 2012.

A store is considered a comparable store when it has been open for twelve full months following its grand opening period (typically four to six weeks). Stores relocated or expanded are excluded from comparable store sales if the change in square footage would cause meaningful disparity in sales over the prior period. In the case of a store to be closed, such store's sales are not considered comparable once the store closing process has commenced. Linen Holdings is excluded from the comparable store sales calculations and will continue to be excluded on an ongoing basis as long as it does not meet the above definition of comparable store sales. World Market is excluded from the comparable store sales calculations through the end of the fiscal first half of 2013, and will be included beginning with the fiscal third quarter of 2013.

-14-

? Gross profit for the three months ended August 31, 2013 was $1.113 billion, or 39.4% of net sales, compared with $1.033 billion, or 39.8% of net sales, for the three months ended August 25, 2012. Gross profit for the six months ended August 31, 2013 was $2.146 billion, or 39.5% of net sales, compared with $1.920 billion, or 39.9% of net sales, for the six months ended August 25, 2012.

? Selling, general and administrative expenses ("SG&A") for the three months ended August 31, 2013 were $723.7 million, or 25.6% of net sales, compared with $667.5 million, or 25.7% of net sales, for the three months ended August 25, 2012. SG&A for the six months ended August 31, 2013 were $1.434 billion, or 26.4% of net sales, compared with $1.241 billion, or 25.8% of net sales, for the six months ended August 25, 2012.

? The effective tax rate for the three months ended August 31, 2013 was 35.8% compared with 38.6% for the three months ended August 25, 2012. The effective tax rate for the six months ended August 31, 2013 was 36.5% compared with 36.4% for the six months ended August 25, 2012. The tax rate included discrete items of an approximate $9.7 million net benefit and $0.7 million net benefit, respectively, for the three months ended August 31, 2013 and August 25, 2012 and an approximate $12.3 million net benefit and $15.3 million net benefit, respectively, for the six months ended August 31, 2013 and August 25, 2012.

? For the three months ended August 31, 2013, net earnings per diluted share were $1.16 ($249.3 million), an increase of approximately 18.4%, as compared with net earnings per diluted share of $0.98 ($224.3 million) for the three months ended August 25, 2012. For the six months ended August 31, 2013, net earnings per diluted share were $2.09 ($451.8 million), an increase of approximately 11.8%, as compared with net earnings per diluted share of $1.87 ($431.2 million) for the six months ended August 25, 2012. The increases in net earnings per diluted share for the three and six months ended August 31, 2013 are the result of the items described above, as well as the impact of the Company's repurchases of its common stock.

During the six months ended August 31, 2013, the Company continued the integration of the two fiscal 2012 acquisitions as well as advancing initiatives including: enhancing the omni-channel experience for its customers by replacing both back end and customer facing systems; increasing the investment in people and systems to upgrade the Company's data and analytics capabilities; the building, equipping and staffing of a new information technology data center to enhance the Company's disaster recovery capabilities and support its overall information technology systems; and retrofitting energy saving equipment in the Company's stores.

Capital expenditures for the six months ended August 31, 2013 and August 25, 2012 were $130.3 million and $158.1 million, respectively. The Company remains committed to making the required investments in its infrastructure to help position the Company for continued growth and success. The Company continues to review and prioritize its capital needs while continuing to make investments, principally for new stores, existing store improvements, information technology enhancements, including omni-channel capabilities, and other projects whose impact is considered important to its future.

During the three and six months ended August 31, 2013, the Company repurchased approximately 3.5 million and 8.5 million shares, respectively, of its common stock at a total cost of approximately $256.8 million and $581.3 million, respectively. During the three and six months ended August 25, 2012, the Company repurchased approximately 3.1 million and 7.8 million shares, respectively, of its common stock at a total cost of approximately $199.3 million and $505.6 million, respectively. Since the end of the fiscal second quarter of 2011, the Company has returned approximately 93% of its cash flows from operations to its shareholders through share repurchase programs.

The Company plans to continue to expand its operations and invest in its infrastructure to reach its long term objectives. For all of fiscal 2013, the Company expects that the total number of new store openings across all concepts will be in the mid-thirties. During the fiscal second quarter of 2013, the Company opened a total of six new stores.

Results of Operations

Net Sales

Since fiscal 2012 was a fifty-three week year, fiscal 2013 started a week later than fiscal 2012. The comparable store sales calendar compares the same calendar weeks. The table below summarizes by fiscal quarter the time period for the financial reporting calendar and the comparable store sales calendar.

-15-

                                         Financial Reporting Calendar
                      Fiscal 2013 (fifty-two weeks)         Fiscal 2012 (fifty-three weeks)

First Quarter     March 3, 2013 - June 1, 2013            February 26, 2012 - May 26, 2012

Second Quarter    June 2, 2013 - August 31, 2013          May 27, 2012 - August 25, 2012

Third Quarter     September 1, 2013 - November 30, 2013   August 26, 2012 - November 24, 2012

Fourth Quarter    December 1, 2013 - March 1, 2014        November 25, 2012 - March 2, 2013



                                     Comparable Store Sales Calendar
                      Fiscal 2013 (fifty-two weeks)       Fiscal 2012 (fifty-two weeks)

First Quarter     March 3, 2013 - June 1, 2013            March 4, 2012 - June 2, 2012

Second Quarter    June 2, 2013 - August 31, 2013          June 3, 2012 - September 1,
                                                          2012

Third Quarter     September 1, 2013 - November 30, 2013   September 2, 2012 - December
                                                          1, 2012

Fourth Quarter    December 1, 2013 - March 1, 2014        December 2, 2012 - March 2,
                                                          2013

Net sales for the three months ended August 31, 2013 were $2.824 billion, an increase of $230.7 million or approximately 8.9% over net sales of $2.593 billion for the corresponding quarter last year. For the three months ended August 31, 2013, approximately 43% of the increase in net sales was attributable to the inclusion of World Market, approximately 39% of the increase was attributable to an increase in sales of comparable stores based upon the financial reporting calendar (not the comparable store sales calendar) and the remaining 18% of the increase was primarily attributable to an increase in the Company's new store sales.

For the three months ended August 31, 2013, comparable store sales for 1,173 stores represented $2.503 billion of net sales and for the three months ended August 25, 2012, comparable store sales for 1,136 stores represented $2.375 billion of net sales. The number of stores includes only those which constituted a comparable store for the entire respective fiscal period. The increase in comparable store sales, which excludes World Market and Linen Holdings, for the three months ended August 31, 2013 was approximately 3.7%, as compared with an increase of approximately 3.5% for the comparable period last year. The increase in comparable store sales for the fiscal second quarter of 2013 was due to increases in both the number of transactions and the average transaction amount.

Sales of domestics merchandise and home furnishings for the Company accounted for approximately 40% and 60% of net sales, respectively, for the three months ended August 31, 2013 and approximately 42% and 58% of net sales, respectively, for the three months ended August 25, 2012.

For the six months ended August 31, 2013, net sales were $5.436 billion, an increase of $624.5 million or approximately 13.0% over net sales of $4.811 billion for the corresponding six months last year. For the six months ended August 31, 2013, approximately 59% of the increase in net sales was attributable to the inclusion of World Market and Linen Holdings, approximately 29% of the increase was attributable to an increase in sales of comparable stores based upon the financial reporting calendar (not the comparable store sales calendar) and the remaining 12% of the increase was primarily attributable to an increase in the Company's new store sales.

For the six months ended August 31, 2013, comparable store sales for 1,167 stores represented $4.792 billion of net sales and for the six months ended August 25, 2012, comparable store sales for 1,127 stores represented $4.523 billion of net sales. The number of stores includes only those which constituted a comparable store for the entire respective fiscal period. The increase in comparable store sales, which excludes World Market and Linen Holdings, for the six months ended August 31, 2013 was approximately 3.5%, as compared with an increase of approximately 3.3% for the comparable period last year. The increase in comparable store sales for the six months ended August 31, 2013 was due to increases in both the number of transactions and the average transaction amount.

-16-

Sales of domestics merchandise and home furnishings for the Company accounted for approximately 38% and 62% of net sales, respectively, for the six months ended August 31, 2013 and approximately 41% and 59% of net sales, respectively, for the six months ended August 25, 2012.

Gross Profit

Gross profit for the three months ended August 31, 2013 was $1.113 billion, or 39.4% of net sales, compared with $1.033 billion, or 39.8% of net sales, for the three months ended August 25, 2012. Gross profit for the six months ended August 31, 2013 was $2.146 billion, or 39.5% of net sales, compared with $1.920 billion, or 39.9% of net sales, for the six months ended August 25, 2012. These decreases in the gross profit margin as a percentage of net sales for the three and six months ended August 31, 2013 were primarily attributed to an increase in coupons, due to increases in both the redemptions and the average coupon amount, and a shift in the mix of merchandise sold to lower margin categories.

Selling, General and Administrative Expenses

SG&A for the three months ended August 31, 2013 was $723.7 million, or 25.6% of net sales, compared with $667.5 million, or 25.7% of net sales, for the three months ended August 25, 2012. The decrease in SG&A as a percentage of net sales for the three months ended August 31, 2013 was primarily due to relative decreases in professional fees incurred as a result of the prior year acquisitions, and store expenses, partially offset by an increase in advertising expenses. As a percentage of net sales, SG&A was higher due to the inclusion of the financial results of the acquisition for the period prior to its one year anniversary in the fiscal second quarter of 2013.

SG&A for the six months ended August 31, 2013 was $1.434 billion, or 26.4% of net sales, compared with $1.241 billion, or 25.8% of net sales, for the six months ended August 25, 2012. The increase in SG&A as a percentage of net sales for the six months ended August 31, 2013 was primarily due to relative increases in payroll and payroll-related items (including salaries and workers' compensation insurance) and advertising expenses. As a percentage of net sales, these expense items were higher due to the inclusion of the financial results of the acquisitions for the period prior to each of their one year anniversary in the first half of fiscal 2013.

Operating Profit

Operating profit for the three months ended August 31, 2013 was $389.8 million, or 13.8% of net sales, compared with $365.1 million, or 14.1% of net sales, during the comparable period last year. For the six months ended August 31, 2013, operating profit was $712.9 million, or 13.1% of net sales, compared with $678.5 million, or 14.1% of net sales, during the comparable period last year. The change in operating profit as a percentage of net sales was the result of the changes in gross profit margin and SG&A as a percentage of net sales described above.

Interest (Expense) Income, net

Interest expense for the three and six months ended August 31, 2013 was $1.7 million and $1.9 million, respectively, compared with interest income of $0.3 million and interest expense of $0.8 million for the three and six months ended August 25, 2012. Interest expense for the three and six months ended August 31, 2013 includes approximately $2.2 million and $4.4 million, respectively, of net interest expense resulting substantially from the inclusion of sale/leaseback obligations relating to the Company's distribution facilities.

Income Taxes

The effective tax rate for the three months ended August 31, 2013 was 35.8% compared with 38.6% for the three months ended August 25, 2012. The tax rate for the three months ended August 31, 2013 and August 25, 2012 included net benefits of approximately $9.7 million, primarily due to the recognition of favorable discrete state tax items and $0.7 million, respectively.

The effective tax rate for the six months ended August 31, 2013 was 36.5% compared with 36.4% for the six months ended August 25, 2012. The tax rate for the six months ended August 31, 2013 and August 25, 2012 included net benefits of approximately $12.3 million and $15.3 million, respectively, primarily due to the recognition of favorable discrete state tax items.

The Company expects continued volatility in the effective tax rate from quarter to quarter because the Company is required each quarter to determine whether new information changes the assessment of both the probability that a tax position will effectively be sustained and the appropriateness of the amount of recognized benefit.

-17-

Net Earnings

As a result of the factors described above, net earnings for the three and six months ended August 31, 2013 were $249.3 million and $451.8 million, respectively, compared with $224.3 million and $431.2 million for the corresponding periods in fiscal 2012.

Expansion Program

The Company is engaged in an ongoing expansion program involving the opening of new stores in both new and existing markets, the expansion or relocation of existing stores and the continuous review of strategic acquisitions.

As a result of this program, the Company operated 1,009 BBB stores, 266 World Market stores, 86 buybuy BABY stores, 74 CTS stores and 49 Harmon stores at the end of the fiscal second quarter of 2013, compared with 1,000 BBB stores, 258 World Market stores, 71 buybuy BABY stores, 73 CTS stores and 47 Harmon stores at the end of the corresponding quarter last year. At August 31, 2013, Company-wide total store square footage, including the 266 World Market stores and net of openings and closings for all concepts, was approximately 42.3 million square feet. Additionally, the Company is a partner in a joint venture which operates three retail stores in Mexico under the name Bed Bath & Beyond.

The Company plans to continue to expand its operations and invest in its infrastructure to reach its long term objectives. During the fiscal second quarter of 2013, the Company opened a total of six new stores. For all of fiscal 2013, the Company expects that the total number of new store openings across all concepts will be in the mid-thirties. The continued growth of the Company is dependent, in part, upon the Company's ability to execute its expansion program successfully.

Liquidity and Capital Resources

The Company has been able to finance its operations, including its expansion program, entirely through internally generated funds. For fiscal 2013, the Company believes that it can continue to finance its operations, including its expansion program, share repurchase program and planned capital expenditures entirely through existing and internally generated funds. The Company periodically reviews its alternatives with respect to optimizing its capital structure. Capital expenditures for fiscal 2013, principally for new stores, existing store improvements, information technology enhancements, including omni-channel capabilities, and other projects are planned to be approximately $350 million, subject to the timing and composition of the projects. Some of the initiatives included in capital expenditures for fiscal 2013 are: enhancing the omni-channel experience for its customers through replacing both back end and customer facing systems, upgrading the Company's mobile sites and applications, enhancing network communications in the stores and developing future point of sale improvements; building, equipping and staffing a new information technology data center to enhance disaster recovery capabilities and to support the Company's ongoing technology initiatives; and retrofitting energy saving equipment in the Company's stores.

Fiscal 2013 compared to Fiscal 2012

Net cash provided by operating activities for the six months ended August 31, 2013 was $495.6 million, compared with $472.1 million in the corresponding period in fiscal 2012. Year over year, the Company experienced an increase in net earnings, as adjusted for non-cash expenses (primarily depreciation), which was partially offset by an increase in cash used by the net components of working capital (primarily other current assets and accrued expenses and other current liabilities, partially offset by merchandise inventories).

Retail inventory at cost per square foot was $60.36 as of August 31, 2013, compared to $58.20 as of August 25, 2012.

Net cash used in investing activities for the six months ended August 31, 2013 was $135.8 million, compared with $232.7 million in the corresponding period of fiscal 2012. For the six months ended August 31, 2013, net cash used in investing activities was due to $130.3 million of capital expenditures and $5.5 million of purchases of investment securities, net of redemptions. For the six months ended August 25, 2012, net cash used in investing activities was due to payments of $643.3 million related to the World Market and Linen Holdings acquisitions, $158.1 million of capital expenditures and $40.0 million for the acquisition of trademarks, partially offset by redemptions of $608.6 million of investment securities, net of purchases.

-18-

Net cash used in financing activities for the six months ended August 31, 2013 was $541.4 million, compared with $498.1 million in the corresponding period of fiscal 2012. The increase in net cash used was primarily due to an increase in common stock repurchases of $75.7 million, partially offset by a $25.5 million payment in the prior year for a credit facility assumed in acquisition and a $7.1 million increase in cash proceeds from the exercise of stock options.

Auction Rate Securities

As of August 31, 2013, the Company held approximately $47.5 million of net investments in auction rate securities. Beginning in 2008, the auction process for the Company's auction rate securities failed and continues to fail. These failed auctions result in a lack of liquidity in the securities but do not affect the underlying collateral of the securities. All of these investments carry triple-A credit ratings from one or more of the major credit rating agencies. As of August 31, 2013, these securities had a temporary valuation adjustment of approximately $3.5 million to reflect their current lack of liquidity. Since this valuation adjustment is deemed to be temporary, it was recorded in accumulated other comprehensive loss, net of a related tax benefit, and did not affect the Company's net earnings for the six months ended August 31, 2013. The Company will continue to monitor the market for these securities and will expense any permanent changes to the value of the remaining securities, if any, as they occur.

The Company does not anticipate that any continuing lack of liquidity in its auction rate securities will affect its ability to finance its operations, including its expansion program, share repurchase program, and planned capital expenditures. The Company continues to monitor efforts by the financial markets to find alternative means for restoring the liquidity of these investments. These investments will remain primarily classified as non-current assets until the Company has better visibility as to when their liquidity will be restored. The classification and valuation of these securities will continue to be reviewed quarterly.

Seasonality

The Company's sales exhibit seasonality with sales levels generally higher in the calendar months of August, November and December, and generally lower in February.

Critical Accounting Policies

See "Critical Accounting Policies" under Item 7 of the Company's Annual Report on Form 10-K for the fiscal year ended March 2, 2013 ("2012 Form 10-K"), filed with the Securities and Exchange Commission ("SEC") and incorporated by reference herein. There were no changes to the Company's critical accounting policies during the first six months of fiscal 2013.

Forward-Looking Statements

This Form 10-Q may contain forward-looking statements. Many of these forward-looking statements can be identified by 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. Such factors include, without limitation: general economic conditions including the housing market, a challenging overall macroeconomic environment and related changes in the retailing environment, consumer preferences and spending habits; demographics and other macroeconomic factors that may impact the level of spending for the types of merchandise sold by the Company; civil disturbances and terrorist acts; unusual weather patterns and natural disasters; competition from existing and potential competitors; competition from other channels of distribution; pricing pressures; the ability to attract and retain qualified employees in all areas of the organization; the cost of labor, merchandise and other costs and expenses; the ability to find suitable locations at acceptable occupancy costs and other terms to support the Company's expansion program; uncertainty in financial markets; disruptions to the Company's information technology systems including but not limited to security breaches of the Company's systems protecting consumer and employee information; reputational risk arising from the acts of third parties; changes to statutory, regulatory and legal requirements; new, or developments in existing, litigation, claims or assessments; changes to, or new, tax laws or interpretation of existing tax laws; changes to, or new, accounting standards including, without limitation, changes to lease accounting standards; and the integration of acquired businesses. The Company does not undertake any . . .

  Add BBBY to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for BBBY - All Recent SEC Filings
Sign Up for a Free Trial to the NEW EDGAR Online Pro
Detailed SEC, Financial, Ownership and Offering Data on over 12,000 U.S. Public Companies.
Actionable and easy-to-use with searching, alerting, downloading and more.
Request a Trial      Sign Up Now


Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.