Highlights From BBBY's Q3 Conference Call: Continued Expansion, Raises FY Guidance, But Shares Fall

Last night, Bed Bath & Beyond (NASDAQ: BBBY) reported Q3 EPS of $0.95, $0.07 better than the analyst estimate of $0.88. Revenue for the quarter came in at $2.34 billion versus the consensus estimate of $2.35 billion. Shares are down 6% today to $57.75.

Highlights From BBBY's Q3 Conference Call:

• Bed Bath & Beyond, Inc. sees Q4 2011 EPS of $1.28-$1.33, versus the consensus of $1.30.
  
• Sees FY EPS up about 26-28%, vs. prior guidance of up 22-25%.
  
• (Warren Eisenberg) Company's net earnings per diluted share increased approximately 28% in the fiscal third quarter to $0.95.
  
• During the third quarter, we opened seven Bed Bath & Beyond stores, seven buybuy BABY stores, one Christmas Tree Shop store, and one Harmon Face Values store. Additionally, we continued to relocate and renovate Bed Bath & Beyond stores.
  
• Consolidated store space at November 26, 2011, was approximately 36 million square feet, an increase of approximately 4% over last year's third quarter. Since the beginning of the fiscal fourth quarter of 2011, we have opened an additional buybuy BABY store and closed one Harmon store.
  
• Including this activity, we currently operate 1,171 stores, consisting of 993 Bed Bath & Beyond stores in all 50 states, the District of Columbia, Puerto Rico, and Canada; 71 Christmas Tree Shop stores; 62 buybuy BABY stores; and 45 stores under the names Harmon or Harmon Face Values.
  
• In addition, we are a partner in a joint venture which operates two stores in the Mexico City market under the name Home & More. During fiscal 2011, including the 36 stores we've opened to date, we anticipate that the total number of new store openings will be 39 stores across all our concepts.
  
• We continue to believe that throughout the United States and Canada, there is an opportunity to operate in excess of 1,300 Bed Bath & Beyond stores as well as grow our Christmas Tree Shops and buybuy BABY concepts from coast to coast.
  
• Additionally, we will continue to open Face Value stores and place health and beauty care offerings in stores across all our concepts.
  
• (Steven H. Temares) While consumer confidence and spending is impacted by the continuing economic challenges, our fundamental business strategy remains unchanged, to offer a broad assortment of merchandise at everyday low prices with superior customer service.
  
• We are confident that our company is well positioned to grow profitably, compete for and increase our market share, and over the long term continue to grow shareholder value.
  
• For the fiscal nine months, net earnings per diluted share were $2.60 compared with $1.95 earned last year, an increase of approximately 33%.
  
• Net sales for the fiscal third quarter were approximately $2.3 billion, approximately 6.8% higher than in the prior year. For the fiscal nine months, net sales were approximately $6.8 billion, about 8.2% higher than last year.
  
• Third quarter comp store sales increased by approximately 4.1% compared with an increase of 7% last year. For the fiscal nine months, comp store sales increased by approximately 5.5% compared with an increase of 7.6% last year.
  
• The increases in comp store sales for the fiscal third quarter and nine months of 2011 were attributed to increases in both the number of transactions and the average transaction amount.
  
• Gross profit for the fiscal third quarter was approximately 40.9% of net sales, the same as the comparable period a year ago. The gross profit margin included a reduction in markdowns as a percentage of net sales offset by an increase in inventory acquisition costs and a shift in the mix of merchandise sold to lower margin categories.
  
• Gross profit for the fiscal nine months was approximately 40.9% of net sales compared to approximately 40.7% of net sales in the fiscal nine months of 2010. The increase in the gross profit margin for the fiscal nine months was primarily due to a reduction in markdowns and coupons as a percentage of net sales, partially offset by an increase in inventory acquisition costs and a shift in the mix of merchandise sold to lower margin categories.
  
• Selling, general, and administrative expenses to the fiscal third quarter were approximately 25.7% of net sales as compared to approximately 27% of net sales in last year's fiscal third quarter, a decrease of approximately 130 basis points.
  
• In addition, advertising as a percentage of net sales for both the fiscal third quarter and nine months benefited from a reduction in the mailing of advertising pieces.
  
• Reflecting the movement in gross profit margin and SG&A expenses, the operating profit margin for the fiscal third quarter was higher than in the same period a year ago by approximately 130 basis points. For the fiscal nine months, the operating profit margin increased by approximately 180 basis points.
  
• Our provision for income taxes continues to fluctuate as taxable events occur and exposures are reevaluated. For the fiscal third quarter, our provision for income taxes was approximately 35.9% compared to approximately 38.6% for the comparable quarter last year, a decrease of approximately 270 basis points.
  
• Our capital expenditures during the fiscal nine months of 2011 were approximately $159.2 million, principally for new stores, existing store improvements, information technology enhancements, and other projects important to our future. While we continue to review and prioritize our capital needs, we remain committed to making the required investments in our company to help position us for our long-term success.
  
• (Eugene A. Castagna) The following are our major planning assumptions for the remainder of fiscal 2011.
  
• One, including the 36 stores opened so far this year, we anticipate that the total number of new store openings will be 39 stores across all of our concepts. As always, we remain flexible to take advantage of real estate
  opportunities that may arise.
  
• Two, we expect to continue our program of expanding, renovating, and/or relocating a number of our stores in fiscal 2011.
  
• Three, we are modeling a 2% to 4% increase in comparable store sales for the fourth quarter and approximately 5% for all of fiscal 2011.
  
• Four, based on these comparable store sales assumptions, we are modeling consolidated net sales to increase by 4% to 6% in the fourth quarter and between 7% and 8% for the full year.
  
• Five, assuming these sales levels, in addition to planning the continuation of the shift in the mix of merchandise sold to lower margin categories, we are modeling our operating profit margin to leverage for the fiscal fourth quarter and full year.
  
• Six, the fourth quarter and full-year tax provisions are estimated in the mid to high 30s percentage range, with expected variability as distinct tax events occur.
  
• Seven, capital expenditures for fiscal 2011 are planned at approximately $275 million, which of course depends on the composition and ultimate timing of projects.
  
• Eight, depreciation for fiscal 2011 is estimated to be approximately $180 million.
  
• Nine, we expect to generate positive operating cash flow in fiscal 2011 and continue to fund operations entirely from internally generated sources.
  
• Ten, we expect to continue our share repurchase program, which may be influenced by several factors including business and market conditions.
  
• Based on these and other planning assumptions, we are now modeling net earnings per diluted share to be approximately $1.28 to $1.33 for the fiscal fourth quarter of 2011, and approximately $3.86 to $3.92 for all of fiscal 2011.(FY11 EPS consensus is $3.83)

(No Q&A Available)

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