Form 8-K BED BATH & BEYOND INC For: Sep 26
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) September 26, 2018
BED BATH & BEYOND INC.
(Exact name of registrant as specified in its charter)
New York | 0-20214 | 11-2250488 |
(State or other jurisdiction of incorporation) | (Commission File Number) | (I.R.S. Employer Identification No.) |
650 Liberty Avenue, Union, New Jersey 07083 | ||
(Address of principal executive offices) (Zip Code) | ||
(908) 688-0888 | ||
(Registrant's telephone number, including area code) | ||
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4 (c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Item 2.02 | Results of Operations and Financial Condition |
On September 26, 2018, Bed Bath & Beyond Inc. (the “Company”) issued a press release announcing the Company’s financial results for its fiscal second quarter ended September 1, 2018. A copy of this press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
Item 7.01 | Regulation FD Disclosure |
On September 26, 2018, the Company published an Investor Presentation for its fiscal second quarter ended September 1, 2018 as noted in the press release described in Item 2.02 above. The Investor Presentation is attached hereto as Exhibit 99.2 and is incorporated herein by reference. Additionally, the Company has posted the Investor Presentation on the investor relations section of its website at www.bedbathandbeyond.com.
The Company’s September 26, 2018 press release further announced that its Board of Directors has declared a quarterly dividend of $0.16 per share, to be paid on January 15, 2019 to shareholders of record as of the close of business on December 14, 2018.
The information in this Current Report on Form 8-K (including the exhibits attached hereto) is being furnished under Items 2.02 and 7.01 and shall not be deemed “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liability of such section or incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall be expressly set forth by specific reference in such a filing.
Item 9.01 | Financial Statements and Exhibits |
(d) Exhibits:
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
BED BATH & BEYOND INC. | |||
(Registrant) | |||
Date: September 26, 2018 | By: | /s/ Robyn M. D'Elia | |
Robyn M. D'Elia | |||
Chief Financial Officer and Treasurer | |||
(Principal Financial and Accounting Officer) | |||
FOR IMMEDIATE RELEASE
BED BATH & BEYOND INC. REPORTS RESULTS
FOR FISCAL 2018 SECOND QUARTER
• | Net Earnings Per Diluted Share of $.36, In-Line with Company Model |
• | Net Sales Flat to Prior Year; Comparable Sales Declined Approximately 0.6% |
• | Cash and Investments Balance Increased Approximately $532 Million |
• | Board of Directors Declares Quarterly Dividend of $.16 Per Share |
UNION, New Jersey, September 26, 2018 --- Bed Bath & Beyond Inc. (Nasdaq: BBBY) today reported financial results for the second quarter of fiscal 2018 ended September 1, 2018.
Fiscal 2018 Second Quarter Results
For the fiscal 2018 second quarter, the Company reported net earnings of $.36 per diluted share ($48.6 million), compared with $.67 per diluted share ($94.2 million) for the fiscal 2017 second quarter. Net sales for the fiscal 2018 second quarter were approximately $2.9 billion, flat to the prior year quarter. Comparable sales in the fiscal 2018 second quarter decreased by approximately 0.6%, and included strong sales growth from the Company’s customer-facing digital channels, and sales from stores that declined in the mid-single-digit percentage range.
Capital Allocation
The Company’s Board of Directors today declared a quarterly dividend of $.16 per share payable on January 15, 2019 to shareholders of record at the close of business on December 14, 2018.
During the fiscal 2018 second quarter, the Company repurchased approximately $41 million of its common stock, representing approximately 2.1 million shares, under its existing $2.5 billion share repurchase program. As of September 1, 2018, the program had a remaining balance of approximately $1.4 billion.
The Company ended the fiscal 2018 second quarter with approximately $1.1 billion in cash and investment balances, an increase of approximately $532 million, compared with approximately $563 million at the end of the fiscal 2017 second quarter.
Fiscal 2018
During the conference call with analysts and investors, the Company plans to review its quarterly results and its financial planning assumptions for fiscal 2018.
The Company’s planning assumptions reflect actual results through the fiscal second quarter, the current trends the Company has been experiencing, and other factors to be discussed on the conference call. Based on its planning assumptions, the Company has slightly reduced its net sales model, with comparable sales to be relatively flat to last year, and net earnings per diluted share for the full year to be at the low end of its previously modeled range, at about $2.00.
In connection with its three-year financial goals that comprise its vision for 2020, the Company remains on track to achieve moderating declines in operating profit and net earnings per diluted share in fiscal 2018 and fiscal 2019, and to achieve growth in net earnings per diluted share by fiscal 2020.
Fiscal 2018 Second Quarter Conference Call and Investor Presentation
Bed Bath & Beyond Inc.’s fiscal 2018 second quarter conference call may be accessed by dialing 1-888-771-4371, or if international, 1-847-585-4405, using conference ID number 47547438. The replay of the call can be accessed by dialing 1-888-843-7419, using conference ID number 47547438. The call and replay can also be accessed via audio webcast on the investor relations section of our website at www.bedbathandbeyond.com.
The Company has also made available an Investor Presentation on the investor relations section of its website that provides information related to its strategic initiatives, fiscal second quarter financial results, and modeling assumptions for fiscal 2018.
About the Company
Bed Bath & Beyond Inc. and subsidiaries (the “Company”) is an omnichannel retailer selling a wide assortment of domestics merchandise and home furnishings which operates under the names Bed Bath & Beyond, Christmas Tree Shops, Christmas Tree Shops andThat! or andThat!, Harmon, Harmon Face Values or Face Values, buybuy BABY and World Market, Cost Plus World Market or Cost Plus. Customers can purchase products either in-store, online, with a mobile device or through a customer contact center. The Company generally has the ability to have customer purchases picked up in-store or shipped direct to the customer from the Company’s distribution facilities, stores or vendors. In addition, the Company operates Of a Kind, an e-commerce website that features specially commissioned, limited edition items from emerging fashion and home designers; One Kings Lane, an authority in home décor and design, offering a unique collection of select home goods, designer and vintage items; PersonalizationMall.com, an industry-leading online retailer of personalized products; Chef Central, an online retailer of kitchenware, cookware and homeware items catering to cooking and baking enthusiasts; and Decorist, an online interior design platform that provides personalized home design services. The Company also operates Linen Holdings, a provider of a variety of textile products, amenities and other goods to institutional customers in the hospitality, cruise line, healthcare and other industries. Additionally, the Company is a partner in a joint venture which operates retail stores in Mexico under the name Bed Bath & Beyond.
The Company operates websites at bedbathandbeyond.com, bedbathandbeyond.ca, worldmarket.com, buybuybaby.com, buybuybaby.ca, christmastreeshops.com, andthat.com, harmondiscount.com, facevalues.com, ofakind.com, onekingslane.com, personalizationmall.com, chefcentral.com, decorist.com, harborlinen.com, and t-ygroup.com. As of September 1, 2018, the Company had a total of 1,560 stores, including 1,018 Bed Bath & Beyond stores in all 50 states, the District of Columbia, Puerto Rico and Canada, 281 stores under the names of World Market, Cost Plus World Market or Cost Plus, 121 buybuy BABY stores, 83 stores under the names Christmas Tree Shops, Christmas Tree Shops andThat! or andThat!, and 57 stores under the names Harmon, Harmon Face Values or Face Values. During the fiscal second quarter, the Company opened one Bed Bath & Beyond store and two World Market stores. The joint venture, to which the Company is a partner, operates ten stores in Mexico under the name Bed Bath & Beyond.
Forward-Looking Statements
This press release 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, goal, 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, spending habits and adoption of new technologies; 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 across all channels; pricing pressures; liquidity; the ability to achieve anticipated cost savings, and to not exceed anticipated costs, associated with organizational changes and investments; the ability to attract and retain qualified employees in all areas of the organization; the cost of labor,
merchandise and other costs and expenses; potential supply chain disruption due to trade restrictions, political instability, labor disturbances, product recalls, financial or operational instability of suppliers or carriers, and other items; the ability to find suitable locations at acceptable occupancy costs and other terms to support the Company’s plans for new stores; the ability to establish and profitably maintain the appropriate mix of digital and physical presence in the markets it serves; the ability to assess and implement technologies in support of the Company’s development of its omnichannel capabilities; uncertainty in financial markets; volatility in the price of the Company’s common stock and its effect, and the effect of other factors, on the Company’s capital allocation strategy; disruptions to the Company’s information technology systems including but not limited to security breaches of systems protecting consumer and employee information or other types of cybercrimes or cybersecurity attacks; reputational risk arising from challenges to the Company’s or a third party product or service supplier’s compliance with various laws, regulations or standards, including those related to labor, health, safety, privacy or the environment; reputational risk arising from third-party merchandise or service vendor performance in direct home delivery or assembly of product for customers; changes to statutory, regulatory and legal requirements, including without limitation proposed changes affecting international trade; changes to, or new, tax laws or interpretation of existing tax laws; new, or developments in existing, litigation, claims or assessments; changes to, or new, accounting standards; foreign currency exchange rate fluctuations; and the integration of acquired businesses. The Company does not undertake any obligation to update its forward-looking statements.
INVESTOR CONTACT:
Janet M. Barth (908) 613-5820
BED BATH & BEYOND INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
(in thousands, except per share data)
(unaudited)
Three Months Ended | Six Months Ended | ||||||||||||||
September 1, 2018 | August 26, 2017 | September 1, 2018 | August 26, 2017 | ||||||||||||
Net sales | $ | 2,935,018 | $ | 2,936,357 | $ | 5,688,685 | $ | 5,678,498 | |||||||
Cost of sales | 1,946,457 | 1,867,798 | 3,735,276 | 3,609,824 | |||||||||||
Gross profit | 988,561 | 1,068,559 | 1,953,409 | 2,068,674 | |||||||||||
Selling, general and administrative expenses | 909,703 | 899,712 | 1,793,322 | 1,752,816 | |||||||||||
Operating profit | 78,858 | 168,847 | 160,087 | 315,858 | |||||||||||
Interest expense, net | 14,611 | 19,166 | 31,343 | 35,746 | |||||||||||
Earnings before provision for income taxes | 64,247 | 149,681 | 128,744 | 280,112 | |||||||||||
Provision for income taxes | 15,608 | 55,451 | 36,529 | 110,599 | |||||||||||
Net earnings | $ | 48,639 | $ | 94,230 | $ | 92,215 | $ | 169,513 | |||||||
Net earnings per share - Basic | $ | 0.36 | $ | 0.67 | $ | 0.68 | $ | 1.21 | |||||||
Net earnings per share - Diluted | $ | 0.36 | $ | 0.67 | $ | 0.68 | $ | 1.20 | |||||||
Weighted average shares outstanding - Basic | 135,410 | 139,868 | 135,698 | 140,599 | |||||||||||
Weighted average shares outstanding - Diluted | 135,675 | 140,211 | 136,138 | 141,176 | |||||||||||
Dividends declared per share | $ | 0.16 | $ | 0.15 | $ | 0.32 | $ | 0.30 | |||||||
BED BATH & BEYOND INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share data)
(unaudited)
September 1, 2018 | August 26, 2017 | ||||||
Assets | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 869,297 | $ | 464,062 | |||
Short term investment securities | 205,916 | — | |||||
Merchandise inventories | 2,813,588 | 2,878,638 | |||||
Prepaid expenses and other current assets | 387,343 | 187,664 | |||||
Total current assets | 4,276,144 | 3,530,364 | |||||
Long term investment securities | 19,742 | 99,157 | |||||
Property and equipment, net | 1,881,957 | 1,834,470 | |||||
Goodwill | 716,283 | 707,127 | |||||
Other assets | 425,737 | 611,541 | |||||
$ | 7,319,863 | $ | 6,782,659 | ||||
Liabilities and Shareholders' Equity | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 1,366,161 | $ | 1,168,092 | |||
Accrued expenses and other current liabilities | 748,629 | 486,719 | |||||
Merchandise credit and gift card liabilities | 329,227 | 318,407 | |||||
Current income taxes payable | — | 15,802 | |||||
Total current liabilities | 2,444,017 | 1,989,020 | |||||
Deferred rent and other liabilities | 427,118 | 514,902 | |||||
Income taxes payable | 54,010 | 65,203 | |||||
Long term debt | 1,492,310 | 1,491,836 | |||||
Total liabilities | 4,417,455 | 4,060,961 | |||||
Shareholders' equity: | |||||||
Preferred stock - $0.01 par value; authorized - 1,000 shares; no shares issued or outstanding | — | — | |||||
Common stock - $0.01 par value; authorized - 900,000 shares; issued 342,708 and 341,582, respectively; outstanding 138,051 and 143,242 shares, respectively | 3,427 | 3,416 | |||||
Additional paid-in capital | 2,096,282 | 2,022,826 | |||||
Retained earnings | 11,386,561 | 11,130,348 | |||||
Treasury stock, at cost; 204,657 and 198,340 shares, respectively | (10,530,712 | ) | (10,399,254 | ) | |||
Accumulated other comprehensive loss | (53,150 | ) | (35,638 | ) | |||
Total shareholders' equity | 2,902,408 | 2,721,698 | |||||
$ | 7,319,863 | $ | 6,782,659 | ||||
BED BATH & BEYOND INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands, unaudited)
Six Months Ended | |||||||
September 1, 2018 | August 26, 2017 | ||||||
Cash Flows from Operating Activities: | |||||||
Net earnings | $ | 92,215 | $ | 169,513 | |||
Adjustments to reconcile net earnings to net cash provided by operating activities: | |||||||
Depreciation and amortization | 161,668 | 148,497 | |||||
Stock-based compensation | 37,043 | 36,904 | |||||
Deferred income taxes | (4,074 | ) | (10,707 | ) | |||
Other | (1,029 | ) | 182 | ||||
(Increase) decrease in assets, net of effect of acquisitions: | |||||||
Merchandise inventories | (85,805 | ) | 31,852 | ||||
Trading investment securities | (4,174 | ) | (9,221 | ) | |||
Other current assets | 175,479 | 10,590 | |||||
Other assets | 1,475 | (4,052 | ) | ||||
Increase (decrease) in liabilities, net of effect of acquisitions: | |||||||
Accounts payable | 218,945 | 22,004 | |||||
Accrued expenses and other current liabilities | 51,734 | 2,723 | |||||
Merchandise credit and gift card liabilities | 5,774 | 8,604 | |||||
Income taxes payable | (7,268 | ) | (46,766 | ) | |||
Deferred rent and other liabilities | (2,967 | ) | 4,578 | ||||
Net cash provided by operating activities | 639,016 | 364,701 | |||||
Cash Flows from Investing Activities: | |||||||
Purchase of held-to-maturity investment securities | (121,625 | ) | — | ||||
Redemption of held-to-maturity investment securities | 298,125 | — | |||||
Capital expenditures | (181,541 | ) | (176,955 | ) | |||
Payment for acquisition, net of cash acquired | — | (5,207 | ) | ||||
Net cash used in investing activities | (5,041 | ) | (182,162 | ) | |||
Cash Flows from Financing Activities: | |||||||
Proceeds from exercise of stock options | — | 10,161 | |||||
Payment of dividends | (43,401 | ) | (39,241 | ) | |||
Repurchase of common stock, including fees | (62,740 | ) | (183,715 | ) | |||
Net cash used in financing activities | (106,141 | ) | (212,795 | ) | |||
Effect of exchange rate changes on cash and cash equivalents | (4,677 | ) | 5,989 | ||||
Net increase (decrease) in cash and cash equivalents | 523,157 | (24,267 | ) | ||||
Cash and cash equivalents: | |||||||
Beginning of period | 346,140 | 488,329 | |||||
End of period | $ | 869,297 | $ | 464,062 | |||
Fiscal 2018 Second Quarter Earnings Call September 26, 2018
Forward Looking Statements This presentation 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, goal, 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, spending habits and adoption of new technologies; 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 across all channels; pricing pressures; liquidity; the ability to achieve anticipated cost savings, and to not exceed anticipated costs, associated with organizational changes and investments; the ability to attract and retain qualified employees in all areas of the organization; the cost of labor, merchandise and other costs and expenses; potential supply chain disruption due to trade restrictions, political instability, labor disturbances, product recalls, financial or operational instability of suppliers or carriers, and other items; the ability to find suitable locations at acceptable occupancy costs and other terms to support the Company’s plans for new stores; the ability to establish and profitably maintain the appropriate mix of digital and physical presence in the markets it serves; the ability to assess and implement technologies in support of the Company’s development of its omnichannel capabilities; uncertainty in financial markets; volatility in the price of the Company’s common stock and its effect, and the effect of other factors, on the Company’s capital allocation strategy; disruptions to the Company’s information technology systems including but not limited to security breaches of systems protecting consumer and employee information or other types of cybercrimes or cybersecurity attacks; reputational risk arising from challenges to the Company’s or a third party product or service supplier’s compliance with various laws, regulations or standards, including those related to labor, health, safety, privacy or the environment; reputational risk arising from third-party merchandise or service vendor performance in direct home delivery or assembly of product for customers; changes to statutory, regulatory and legal requirements, including without limitation proposed changes affecting international trade; changes to, or new, tax laws or interpretation of existing tax laws; new, or developments in existing, litigation, claims or assessments; changes to, or new, accounting standards; foreign currency exchange rate fluctuations; and the integration of acquired businesses. The Company does not undertake any obligation to update its forward-looking statements. 2
Our Mission To be trusted by our customers as the expert for the home and heart-felt life events by continuing to build and deliver a strong foundation of differentiated products, services, and solutions while driving operational excellence. Serving Customers Across Heart-Felt Life Events 3
Q2 2018 Summary • Sales of approximately $2.9 billion, flat versus Q2 2017, slightly below our model • Continued strong growth in customer-facing digital channels • Diluted EPS of $0.36 per share, in-line with our model • Continued growth of cash and investments, even after funding our operations, capital expenditures, dividends and share repurchases • Declared quarterly dividend of $.16/share, payable on January 15, 2019 to shareholders of record at the close of business on December 14, 2018 4
Strategic Initiatives Positioning Our Company for Long Term Success Key Areas of Focus Initiatives Update Decorative Furnishings Assortment/ Engagement/ . Sales grew ~18% YTD FY18 (BBB/bbB – US/Canada) Offering Marketing . Focus on creating efficiencies and driving profitability in the category Next Generation Store Format (BBB) . On track to complete 40 Next Generation Stores by Spring 2019 Services/ Operational . 9 completed; 9 more planned by late Fall, iterating Experiences Excellence quickly for continuous improvement . Favorable trends in both sales and transactions Marketing Personalization . Launched >50 tests to date . Moving more quickly to scale the “winners” Inventory Optimization . ~$100 million, or ~6% decline in inventory, where optimization strategies put in place (YTD Q2FY18) 5
6 Strengthen Position As a Leader in College Position Strengthen Curated Assortment: Expert Picks/ Innovative Product College Registry Hold & Pack Campus Checklist Interactive Checklist Pass College Savings Program Key Focus Area: Focus Area: Key and expansive product Build service in-store, offerings on-line, and on campus
Value Optimization Delivering value to our customers and our Company through strategy and execution Key Focus Areas: • Drive revenue and profitability • Deploy new tools to execute omnichannel pricing and promotion strategies o Dynamic pricing o Markdown strategies o Online and In-store pricing strategies and messaging • Accelerate speed of cost and price changes for buyers and store associates • Enhance customer experience o Price Match Promise 7
Supply Chain Optimization Targeting speed and freight-savings opportunities Key Focus Areas: • Store Supply Chain: o Optimize the location and number of consolidation and cross-dock facilities operated o Reduce transportation costs • Ecommerce Fulfillment: o Optimize direct-to-customer delivery speed o New distribution facility planned to open Fall 2019 (Monroe, OH) 8
Key Focus Areas: Early Results: • 20% off entire purchase every time • BEYOND+ members are among our you shop (standard coupon most valuable customers exclusions apply) o Shopping 2.5-times more than • Free standard shipping – with no our average customer minimum purchase o Generating 4-times higher • Access to special offers and revenue than our average promotions throughout the year customer • Easy to sign up and use o BEYOND+ membership • $29 annual fee expected to be around 1 million by December 31, 2018 9
Technology System Enhancements Driving Foundational Improvements Key Focus Areas: • FY18 Major System Deployments: o Enterprise Order Management System Upgrade o New Point-of-Sale System . Rollout complete for BBB/bbB/Harmon . Rollout to remaining concepts in FY19 o New Human Capital Management System o Customer-Facing Website Upgrade - BBB/bbB o New Price Execution Platform o New Marketing Personalization Systems 10
Q2 2018 Financials 11
Q2 2018 P&L Summary (amounts in millions, except comp %, and per share data) Three Months Ended Sept. 1, 2018 % of Sales Aug. 26, 2017 % of Sales Change Comp Sales % (a) (0.6) (2.6) Net Sales $2,935 100.0 $2,936 100.0 Gross Profit 989 33.7 1,069 36.4 (2.7)(b) SG&A Expenses 910 31.0 900 30.6(c) 0.4 Operating Profit 79 2.7 169 5.8 (3.1) Net Earnings 49 1.7 94 3.2 (1.5) EPS - Diluted $0.36 $0.67 WAS - Diluted 136 140 (a) Comp sales are determined using the same calendar weeks as fiscal 2018; therefore the Q2 comp sales % compares the periods of June 3, 2018 - September 1, 2018 to June 4, 2017 - September 2, 2017 (b) Due to an increase in coupon expense; a decrease in merchandise margin, and an increase in net direct-to-customer shipping expense (c) Due to increases in technology-related expenses, including related depreciation, management consulting expenses related to our merchandising improvement, marketing personalization, and other initiatives, advertising expense related to a continued shift to digital advertising, and a non-recurring charge related to a real estate decision to rightsize certain leased office space in NYC, partially offset by a decrease in payroll and payroll-related expenses, primarily due to the store management restructuring changes implemented in thep rior year second quarter 12
Q2 2018 Balance Sheet & Capital Allocation Highlights Cash Position • Continued growth of cash and investments o Cash and investments of $1.1 billion at end of quarter, increase of approximately $532 million from Q2 2017 Inventory • Retail inventory reduction of approximately 1.7% at end of Q2 2018 vs. end of Q2 2017 • Remain on track to reduce YOY inventory by approximately $150 million, or 5% at the end of FY18 Capital Expenditures • Capital expenditures of approximately $182 million YTD through Q2 2018 o Approximately 70% related to IT investments Capital Allocation • Paid cash dividend of $.16 per diluted share, approximately $22 million • Executed share repurchases of $41 million, or 2.1 million shares • Declared $.16 dividend per share 13
Fiscal 2018 Modeling Assumptions Consolidated Net Sales • To be down slightly Comparable Net Sales • To be relatively flat • Strong growth in customer-facing digital channels Gross Margin • Deleverage due to continued investment in customer value proposition, including impact from the Beyond+ and College Savings Pass programs, and ongoing shift to digital channels SG&A • Deleverage due to continuing investments in Company transformation Operating Margin • Deleverage less than FY17 Depreciation • Approximately $320 to $330 million Ta x R a t e • Range of 25% to 26% Capital Expenditures • Approximately $375 to $425 million Diluted EPS • Low end of previously modeled range, at about $2.00 14