UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

 

For the quarterly period ended November 26, 2016

 

Commission File Number 0-20214

 

BED BATH & BEYOND INC.

(Exact name of registrant as specified in its charter)

 

New York		11-2250488
(State of incorporation)		(IRS Employer Identification No.)
650 Liberty Avenue, Union, New Jersey    07083
(Address of principal executive offices)    (Zip Code)

 

Registrant’s telephone number, including area code: 908/688-0888

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes  ☒      No  ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes  ☒      No  ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ☒		Accelerated filer  ☐
Non-accelerated filer  ☐ (Do not check if a smaller reporting company)		Smaller reporting company  ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes  ☐      No  ☒

 

Number of shares outstanding of the issuer’s Common Stock:

 

Class		Outstanding at November 26, 2016
Common Stock - $0.01 par value		150,315,207

 

 

BED BATH & BEYOND INC. AND SUBSIDIARIES

 

INDEX

 

PART I - FINANCIAL INFORMATION
	Item 1.		Financial Statements (unaudited)
	Consolidated Balance Sheets November 26, 2016 and February 27, 2016
	Consolidated Statements of Earnings Three and Nine Months Ended November 26, 2016 and November 28, 2015
	Consolidated Statements of Comprehensive Income Three and Nine Months Ended November 26, 2016 and November 28, 2015
	Consolidated Statements of Cash Flows Nine Months Ended November 26, 2016 and November 28, 2015
	Notes to Consolidated Financial Statements
	Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3.		Quantitative and Qualitative Disclosures about Market Risk
	Item 4.		Controls and Procedures
PART II - OTHER INFORMATION
	Item 1.		Legal Proceedings
	Item 1A.		Risk Factors
	Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds
	Item 6.		Exhibits
	Signatures
	Exhibit Index
	Certifications

 

 

BED BATH & BEYOND INC. AND SUBSIDIARIES

Consolidated Balance Sheets

 (in thousands, except per share data)

 (unaudited)

                       

 

See accompanying Notes to Consolidated Financial Statements.

 

 

 BED BATH & BEYOND INC. AND SUBSIDIARIES

 Consolidated Statements of Earnings

 (in thousands, except per share data)

 (unaudited)

 

 

See accompanying Notes to Consolidated Financial Statements.

 

 

 BED BATH & BEYOND INC. AND SUBSIDIARIES

 Consolidated Statements of Comprehensive Income

 (in thousands, unaudited)

 

 

See accompanying Notes to Consolidated Financial Statements. 

 

 

 

 

 

 

 

 

 

BED BATH & BEYOND INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands, unaudited)

                         

 

 

See accompanying Notes to Consolidated Financial Statements.

 

 

BED BATH & BEYOND INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

Overview

 

Bed Bath & Beyond Inc. and subsidiaries (the “Company”) is a retailer which operates under the names Bed Bath & Beyond (“BBB”), Christmas Tree Shops, Christmas Tree Shops andThat! or andThat! (collectively, “CTS”), Harmon, Harmon Face Values or Face Values (collectively, “Harmon”), buybuy BABY (“Baby”) and World Market, Cost Plus World Market or Cost Plus (collectively, “Cost Plus World Market”). Customers can purchase products from the Company either in-store, online, with a mobile device or through a 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, which was acquired in the second quarter of fiscal 2015. The Company purchased One Kings Lane, an authority in home décor and design, offering a unique collection of select home goods, designer and vintage items, during the second quarter of fiscal 2016, and PersonalizationMall.com (“PMall”), an industry-leading online retailer of personalized products, during the third quarter of fiscal 2016 (See Note 12 “Acquisitions” in the unaudited notes to the consolidated financial statements). 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 eight 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 strategy is centered on its customer-centric culture and commitment to customer service, supported by significant investments to strengthen the Company’s foundation for future growth:

 

•

To do more for and with its customers wherever, whenever and however they wish to interact with the Company;

•

To provide its customers a seamless and more personalized shopping experience whether they interact with the Company in a store, through one of its contact centers, on a desktop, tablet, smartphone or through social media; and

•

To be viewed as the expert for the home, including the accompanying life stages that make a house a home, and to become the destination for customers’ needs and wants as they express their life interests and travel through their life stages; all through the expanding and differentiated products, services and solutions the Company offers.

 

The Company’s objective is to be its customers’ first choice for products and services in the categories offered, in the markets, channels and countries in which the Company operates, as those customers express their life interests and travel through their various life stages. The Company strives to accomplish this objective through excellent customer service, including new products, services and solutions, and by offering an extensive breadth and depth of differentiated merchandise at the right value. The Company is also enhancing its ability to achieve this objective through its ongoing commitment to a world class information technology system, comprehensive analytics and targeted marketing and communications.

 

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, unemployment levels and commodity prices; the overall macroeconomic environment and related changes in the retailing environment; consumer preferences, spending habits and adoption of new technologies; unusual weather patterns and natural disasters; competition from existing and potential competitors across all channels of distribution; potential supply chain disruption; the ability to find suitable locations at acceptable occupancy costs and other terms to support the Company’s plans for new stores; and the ability to assess and implement technologies in support of the Company’s development of its omnichannel capabilities. The Company cannot predict whether, when or the manner in which these factors could affect the Company’s operating results.

 

 

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

 

•

For the three months ended November 26, 2016, the Company’s net sales were $2.955 billion, an increase of approximately 0.1% as compared with the three months ended November 28, 2015. For the nine months ended November 26, 2016, the Company’s net sales were $8.682 billion, relatively flat as compared to the nine months ended November 28, 2015.

 

•

Comparable sales for the three months ended November 26, 2016 decreased by approximately 1.4%, as compared to a decrease of approximately 0.4% for the three months ended November 28, 2015. Comparable sales for the nine months ended November 26, 2016 decreased 1.1%, as compared to an increase of approximately 0.8% for the nine months ended November 28, 2015. For the three and nine months ended November 26, 2016, comparable sales consummated through customer facing online websites and mobile applications increased in excess of 20% over the corresponding periods in the prior year, while comparable sales consummated in-store declined in the low single-digit percentage range.

 

Comparable sales include sales consummated through all retail channels which have been operating for twelve full months following the opening period (typically four to six weeks). The Company is an omnichannel retailer with capabilities that allow a customer to use more than one channel when making a purchase, including in-store, online, with a mobile device or through a contact center, and have it fulfilled, in most cases, either through in-store customer pickup or by direct shipment to the customer from one of the Company’s distribution facilities, stores or vendors.

 

Sales consummated on a mobile device while physically in a store location are recorded as customer facing online websites and mobile applications sales. Customer orders reserved online and picked up in a store are recorded as in-store sales. In-store sales are reduced by sales originally consummated from customer facing online websites and mobile applications and subsequently returned in-store.

 

Stores relocated or expanded are excluded from comparable 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. Of a Kind was excluded from the comparable store sales calculations through the end of the fiscal first half of 2016, and is included beginning with the fiscal third quarter of 2016. One Kings Lane is excluded from the comparable sales calculation for the three and nine months ended November 26, 2016, and will continue to be excluded until a point following the anniversary of the acquisition, after the currently in process re-platforming of One King Lane’s systems and integration of its support services have been in place for a period of time such that there would be a meaningful comparison in One Kings Lane’s sales over the prior period. PMall is also excluded from the comparable sales calculation for the three and nine months ended November 26, 2016, and will continue to be excluded until after the anniversary of the acquisition. Linen Holdings is excluded from the comparable sales calculations and will continue to be excluded on an ongoing basis as it represents non-retail activity.

 

•

Gross profit for the three months ended November 26, 2016 was $1.093 billion, or 37.0% of net sales, compared with $1.115 billion, or 37.8% of net sales, for the three months ended November 28, 2015. Gross profit for the nine months ended November 26, 2016 was $3.233 billion, or 37.2% of net sales, compared with $3.300 billion, or 38.0% of net sales, for the nine months ended November 28, 2015.

 

•

Selling, general and administrative expenses (“SG&A”) for the three months ended November 26, 2016 were $881.5 million, or 29.8% of net sales, compared with $822.5 million, or 27.9% of net sales, for the three months ended November 28, 2015. SG&A for the nine months ended November 26, 2016 were $2.528 billion, or 29.1% of net sales, compared with $2.384 billion, or 27.4% of net sales, for the nine months ended November 28, 2015.

 

•

Interest expense, net for the three and nine months ended November 26, 2016 was $18.3 million and $52.8 million, respectively, compared with $18.1 million and $63.0 million, respectively, for the three and nine months ended November 28, 2015.

 

•

The effective tax rate for the three and nine months ended November 26, 2016 was 34.5% and 36.2%, respectively, compared with 35.3% and 37.0%, respectively, for the three and nine months ended November 28, 2015. The tax rates included discrete tax items resulting in net benefits of approximately $6.0 million and $6.9 million, respectively, for the three months ended November 26, 2016 and November 28, 2015, and net benefits of approximately $9.4 million and $7.6 million, respectively, for the nine months ended November 26, 2016 and November 28, 2015.

 

 

•

For the three and nine months ended November 26, 2016, net earnings per diluted share were $0.85 ($126.4 million) and $2.76 ($416.4 million), respectively, as compared with net earnings per diluted share of $1.09 ($177.8 million) and $3.22 ($537.9 million), respectively, for the three and nine months ended November 28, 2015. The decreases in net earnings per diluted share for the three and nine months ended November 26, 2016 are the result of the decreases in net earnings due to the items described above, partially offset by the impact of the Company’s repurchases of its common stock.

 

Capital expenditures for the nine months ended November 26, 2016 and November 28, 2015 were $276.4 million and $244.3 million, respectively. In the first nine months of fiscal 2016, capital expenditures included expenditures for enhancements to the Company’s digital, web and mobile capabilities, ongoing investments in data analytics, expenditures for the continued development and deployment of new systems and equipment in stores including a new POS system, the re-platforming of the One Kings Lane’s systems and integration of its support services, spending related to the new distribution facility in Lewisville, Texas, investments in new stores, store relocations and store refurbishments and other projects. The Company continues to review and prioritize its capital needs and remains committed to making the required investments in its infrastructure to help position the Company for continued growth and success.

 

Several of the Company’s key initiatives include: continuing to add new functionality and assortment to its selling websites, mobile sites and applications; improving customer data integration and customer relations management capabilities; continuing to enhance service offerings to its customers; continuing to strengthen and deepen its information technology, analytics, marketing and e-commerce groups; and creating more flexible fulfillment options that will improve the Company’s delivery capabilities and lower the Company’s shipping costs. These and other investments are expected to, among other things, provide a seamless and compelling customer experience across the Company’s physical and digital shopping environments.

 

During the nine months ended November 26, 2016, the Company opened a total of 20 new stores and closed nine stores. The Company plans to continue to actively manage its real estate portfolio in order to permit store sizes, layouts, locations and offerings to evolve over time to optimize market profitability and will renovate or reposition stores within markets when appropriate. During the third quarter of fiscal 2016, the Company’s newest distribution facility in Lewisville, Texas began shipping to customers. During fiscal 2016, including the stores opened through November 26, 2016, the Company expects company-wide to open approximately 30 new stores, most of which are planned for new markets, and close approximately 15 stores. Additionally, during fiscal 2016, the Company expects to continue to invest in technology related projects and new stores, store relocations and store refurbishments.

 

The Company’s Board of Directors declared quarterly dividends of $0.125 per share in each of the first three quarters of fiscal 2016, totaling $0.375 per share for the nine months ended November 26, 2016. Subsequent to the end of the third quarter of fiscal 2016, on December 21, 2016, the Company’s Board of Directors declared a quarterly dividend of $0.125 per share to be paid on April 18, 2017 to shareholders of record at the close of business on March 17, 2017. The Company expects to pay quarterly cash dividends on its common stock in the future, subject to the determination by the Board of Directors, based on an evaluation of the Company’s, financial condition and requirements, business conditions and other factors.

 

During the three and nine months ended November 26, 2016, the Company repurchased approximately 1.8 million and 8.3 million shares, respectively, of its common stock at a total cost of approximately $76.0 million and $375.5 million, respectively. During the three and nine months ended November 28, 2015, the Company repurchased approximately 3.3 million and 11.5 million shares, respectively, of its common stock at a total cost of approximately $194.2 million and $773.5 million, respectively. The Company’s share repurchase program may be influenced by several factors, including business and market conditions. The Company reviews its alternatives with respect to its capital structure on an ongoing basis.

 

Results of Operations

 

Net Sales

 

Net sales for the three months ended November 26, 2016 were $2.955 billion, an increase of $3.5 million or approximately 0.1% compared with net sales of $2.952 billion for the corresponding quarter last year, due to an increase of approximately 1.5% in non-comparable sales including One Kings Lane and new stores, partially offset by a decrease of approximately 1.4% in comparable sales.

 

 

Net sales for the nine months ended November 26, 2016 were $8.682 billion, a decrease of $4.2 million or relatively flat compared with net sales of $8.686 billion for the corresponding nine months last year, due to a decrease in comparable sales, offset by an increase in non-comparable sales including One Kings Lane and new stores.

 

The decrease in comparable sales for the three and nine months ended November 26, 2016 was approximately 1.4% and 1.1%, respectively, as compared to a decrease of approximately 0.4% and an increase of approximately 0.8% for the three and nine months ended November 28, 2015, respectively. The decrease in comparable sales for the three and nine months ended November 26, 2016 was due to a decrease in the number of transactions, partially offset by an increase in the average transaction amount.

 

The Company’s comparable sales metric considers sales consummated through all retail channels – in-store, online, with a mobile device or through a contact center. Customers today may take advantage of the Company’s omnichannel environment by using more than one channel when making a purchase. The Company believes an integrated experience must exist among these channels to provide a seamless customer experience. A few examples are: a customer may be assisted by an in-store associate to create a wedding or baby registry, while the guests may ultimately purchase a gift from the Company’s websites; or, a customer may research a particular item, and read other customer reviews on the Company’s websites before visiting a store to consummate the actual purchase; or a customer may reserve an item online for in-store pick up; or while in a store, a customer may make the purchase on a mobile device for in home delivery from either a distribution facility, a store or directly from a vendor. In addition, the Company accepts returns in-store without regard to the channel in which the purchase was consummated, therefore resulting in reducing store sales by sales originally consummated through customer facing online websites and mobile applications. As the Company’s retail operations are integrated and it cannot reasonably track the channel in which the ultimate sale is initiated, the Company can however provide directional information on where the sale was consummated.

 

For the three and nine months ended November 26, 2016, comparable sales consummated through customer facing online websites and mobile applications increased in excess of 20% over the corresponding periods in the prior year, while comparable sales consummated in-store declined in the low single-digit percentage range.

 

For the three and nine months ended November 26, 2016, comparable sales represented $2.843 billion and $8.367 billion of net sales, respectively. For the three and nine months ended November 28, 2015, comparable sales represented $2.875 billion and $8.422 billion of net sales, respectively.

 

Sales of domestics merchandise and home furnishings for the Company accounted for approximately 36.4% and 63.6% of net sales, respectively, for the three months ended November 26, 2016 and approximately 36.5% and 63.5% of net sales for the three months ended November 28, 2015. Sales of domestics merchandise and home furnishings for the Company accounted for approximately 37.3% and 62.7% of net sales, respectively, for the nine months ended November 26, 2016 and approximately 37.5% and 62.5% of net sales for the nine months ended November 28, 2015.

 

Gross Profit

 

Gross profit for the three months ended November 26, 2016 was $1.093 billion, or 37.0% of net sales, compared with $1.115 billion, or 37.8% of net sales, for the three months ended November 28, 2015. The decrease in the gross profit margin as a percentage of net sales for the three months ended November 26, 2016 was primarily attributed to, in order of magnitude, an increase in net direct to customer shipping expense, which reflects a reduced free-shipping threshold at bedbathandbeyond.com for the third quarter and an increase in coupon expense, resulting from increases in redemptions and the average coupon amount. The inclusion of One Kings Lane reduced gross profit margin as a percentage of net sales by approximately 13 basis points.

 

Gross profit for the nine months ended November 26, 2016 was $3.233 billion, or 37.2% of net sales, compared with $3.300 billion, or 38.0% of net sales, for the nine months ended November 28, 2015. The decrease in the gross profit margin as a percentage of net sales for the nine months ended November 26, 2016 was primarily attributed to, in order of magnitude, an increase in coupon expense, resulting from increases in redemptions and the average coupon amount, an increase in net direct to customer shipping expense and a decrease in merchandise margin. The inclusion of One Kings Lane did not have a material effect on gross profit margin as a percentage of net sales.

 

 

Selling, General and Administrative Expenses

 

SG&A for the three months ended November 26, 2016 was $881.5 million, or 29.8% of net sales, compared with $822.5 million, or 27.9% of net sales, for the three months ended November 28, 2015. The increase in SG&A, as a percentage of net sales was primarily attributable to, in order of magnitude, an increase in payroll and payroll related items (including salaries) and an increase in technology expenses and related depreciation. The inclusion of One Kings Lane increased SG&A, as a percentage of net sales, by approximately 15 basis points.

 

SG&A for the nine months ended November 26, 2016 was $2.528 billion, or 29.1% of net sales, compared with $2.384 billion, or 27.4% of net sales, for the nine months ended November 28, 2015. The increase in SG&A, as a percentage of net sales was primarily attributable to, in order of magnitude, an increase in payroll and payroll related items (including salaries) and an increase in technology expenses and related depreciation. The inclusion of One Kings Lane increased SG&A, as a percentage of net sales, by approximately 10 basis points.

 

Operating Profit

 

Operating profit for the three months ended November 26, 2016 was $211.3 million, or 7.1% of net sales, compared with $292.9 million, or 9.9% of net sales, during the comparable period last year. For the nine months ended November 26, 2016, operating profit was $705.3 million, or 8.1% of net sales, compared with $916.3 million, or 10.5% of net sales, during the comparable period last year. The changes in operating profit as a percentage of net sales were the result of the reductions in gross profit margin and the increases in SG&A as a percentage of net sales as described above.

 

The Company believes operating margin compression is likely to continue in fiscal 2016 as a result of several items, including increases in, as a percentage of net sales, coupon expense, net direct to customer shipping expense, investments in compensation and benefits, and technology-related expenses, including depreciation related to the Company’s ongoing investments. The operating margin compression in fiscal 2016 includes an estimated slight deleverage from One Kings Lane and an estimated slight leverage from PMall. In addition, the year-over-year comparison of operating margin will be impacted by the non-recurring benefit of approximately $0.06 per diluted share, which included a favorable state audit settlement in fiscal 2015.

 

Interest Expense, net

 

Interest expense, net for the three months ended November 26, 2016 was $18.3 million compared to $18.1 million for the three months ended November 28, 2015. For the three months ended November 26, 2016 and November 28, 2015, interest expense, net primarily related to interest on the senior unsecured notes issued in July 2014.

 

Interest expense, net for the nine months ended November 26, 2016 was $52.8 million compared to $63.0 million for the nine months ended November 28, 2015. For the nine months ended November 26, 2016 and November 28, 2015, interest expense, net primarily related to interest on the senior unsecured notes issued in July 2014.

 

Income Taxes

 

The effective tax rate for the three months ended November 26, 2016 was 34.5% compared with 35.3% for the three months ended November 28, 2015. The tax rate for the three months ended November 26, 2016 and November 28, 2015 included net benefits of approximately $6.0 million and $6.9 million, respectively, due to discrete tax events occurring during these quarters.

 

The effective tax rate for the nine months ended November 26, 2016 was 36.2% compared with 37.0% for the nine months ended November 28, 2015. The tax rates for the nine months ended November 26, 2016 and November 28, 2015 included net benefits of approximately $9.4 million and $7.6 million, respectively, due to discrete tax events occurring during the first nine months of fiscal 2016 and 2015.

 

Potential volatility in the effective tax rate from quarter to quarter may occur as 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.

 

 

Net Earnings

 

As a result of the factors described above, net earnings for the three and nine months ended November 26, 2016 were $126.4 million and $416.4 million, respectively, compared with $177.8 million and $537.9 million, respectively, for the corresponding periods in fiscal 2015.

 

Growth

 

The Company strives to do more for and with its customers by: offering an extensive breadth and depth of differentiated assortment of merchandise at the right value; presenting merchandise in a distinctive manner designed to maximize customer convenience and reinforce customer perception of a wide selection; and providing excellent customer service, including new products, services and solutions. The Company is pursuing its growth objectives by investing in its omnichannel capabilities, optimizing its store operations and market coverage, including international expansion; leveraging its combined expertise and product knowledge to provide products and services to hospitality, travel and other institutional customers; and continuously reviewing opportunities for strategic acquisitions.

 

The Company continues to expand, differentiate and leverage its merchandise assortment across all channels, concepts and countries in which it operates, to better engage with its customers wherever, whenever and however they express their life interests and travel through their life stages. Through its growing analytic capabilities and omnichannel marketing approaches, the Company strives to more efficiently and effectively understand and satisfy its customers’ needs.

 

The Company operates websites including bedbathandbeyond.com, bedbathandbeyond.ca, worldmarket.com, buybuybaby.com, buybuybaby.ca, christmastreeshops.com, harmondiscount.com, ofakind.com, onekingslane.com, personalizationmall.com, harborlinen.com and t-ygroup.com. In addition to these websites, as of November 26, 2016, the Company operated 1,541 stores plus its other interactive platforms and distribution facilities. The Company’s 1,541 stores operate in all 50 states, the District of Columbia, Puerto Rico and Canada, including: 1,021 BBB stores, 278 Cost Plus World Market stores, 111 Baby stores, 79 CTS stores and 52 Harmon stores. During the nine months ended November 26, 2016, the Company opened a total of 20 new stores and closed nine stores. At the end of the third quarter of 2016, Company-wide total store square footage, net of openings and closings, for all of its concepts, was approximately 43.5 million square feet. In addition, the Company has distribution facilities totaling 6.9 million square feet. During the third quarter of fiscal 2016, the Company’s newest distribution facility in Lewisville, Texas began shipping to customers. The Company will continue to assess sites throughout the country in order to gain greater distribution efficiencies. Additionally, the Company is a partner in a joint venture which operated a total of eight stores as of November 26, 2016 in Mexico under the name Bed Bath & Beyond.

 

The Company plans to continue to invest in its infrastructure and its operations, including its digital, web and mobile capabilities, to reach its long-term objectives, including providing a better omnichannel experience for its customers. During fiscal 2016, including the stores opened through November 26, 2016, the Company expects company-wide to open approximately 30 new stores, most of which are planned for new markets, and close approximately 15 stores. Additionally, in connection with leveraging its merchandise offerings and optimizing its operations, the Company continues to expand, across selected stores, the number of specialty departments such as health and beauty care, baby, specialty food, and beverage. Also, the Company is committed to the continued growth of its merchandise categories and channels and is growing the number of items it is able to have shipped directly to customers from a vendor. The continued growth of the Company is dependent, in part, upon the Company’s ability to execute these and other key initiatives successfully.

 

Liquidity and Capital Resources

 

The Company has been able to finance its operations, including its growth and acquisitions, substantially through internally generated funds. For fiscal 2016, the Company believes that it can continue to finance its operations, including its growth, cash dividends, planned capital expenditures, debt service obligations and share repurchases, through existing and internally generated funds. In addition, if necessary, the Company could borrow under its revolving credit facility or the available balances under its lines of credit. Capital expenditures for fiscal 2016 are planned to be approximately $400 million to $425 million, with a significant portion for technology related projects, which includes enhancements to the Company’s digital, web and mobile capabilities and the continued deployment of new systems and equipment to the stores and other projects. The remainder of the spend relates to the new distribution facility, new stores, store relocations and store refurbishments, and other projects. These planned capital expenditures are subject to the timing and composition of the projects. In addition, the Company reviews its alternatives with respect to its capital structure on an ongoing basis.

 

 

Fiscal 2016 compared to Fiscal 2015

 

Net cash provided by operating activities for the nine months ended November 26, 2016 was $742.7 million, compared with $489.9 million in the corresponding period in fiscal 2015. Year over year, the Company experienced a decrease in cash used in the net components of working capital (primarily merchandise inventories, accounts payable and accrued expenses and other current liabilities), partially offset by a decrease in net earnings.

 

Retail inventory, which includes inventory in the Company’s distribution facilities for direct to customer shipments, was approximately $3.2 billion, an increase of approximately 1.4% compared to retail inventory as of November 28, 2015. The percentage increase was due in part to the growth in the inventory in the Company’s distribution facilities for direct to customer shipments as well as the inventory balances from PMall and One Kings Lane.

 

Net cash used in investing activities for the nine months ended November 26, 2016 was $394.0 million, compared with $105.3 million in the corresponding period of fiscal 2015. For the nine months ended November 26, 2016, net cash used in investing activities was primarily due to $276.4 million of capital expenditures and $200.5 million of payments related to acquisitions, net of acquired cash, partially offset by $86.2 million of redemptions of investment securities. For the nine months ended November 28, 2015, net cash used in investing activities was primarily due to $244.3 million of capital expenditures, partially offset by $138.9 million of redemptions of investment securities, net of purchases.

 

Net cash used in financing activities for the nine months ended November 26, 2016 was $391.2 million, compared with $762.9 million in the corresponding period of fiscal 2015. The decrease in net cash used in financing activities was primarily due to a decrease in common stock repurchases of $398.0 million partially offset by $37.4 million for the payment of dividends.

 

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 February 27, 2016 (“2015 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 nine months of fiscal 2016.

 

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, 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; competition from other channels of distribution; pricing pressures; liquidity; 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 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 assess and implement technologies in support of the Company’s development of its omnichannel capabilities; the ability to establish and profitably maintain the appropriate mix of digital and physical presence in the markets it serves; uncertainty in financial markets; disruptions to the Company’s information technology systems including but not limited to security breaches of systems protecting consumer and employee information; reputational risk arising from challenges to the Company’s or a third party 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; 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; foreign currency exchange rate fluctuations; and the integration of acquired businesses. The Company does not undertake any obligation to update its forward-looking statements.

 

 

Available Information

 

The Company makes available as soon as reasonably practicable after filing with the SEC, free of charge, through its website, www.bedbathandbeyond.com, the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, electronically filed or furnished pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

The Company’s exposure to market risk for changes in interest rates relates primarily to the Company’s investment securities. The Company’s market risks at November 26, 2016 are similar to those disclosed in Item 7A of the Company’s 2015 Form 10-K.

 

As of November 26, 2016, the Company’s investments include cash and cash equivalents of approximately $473.0 million and long term investments in auction rate securities of approximately $19.5 million at weighted average interest rates of 0.16% and 0.15%, respectively. The book value of these investments is representative of their fair values.

 

The Company’s senior unsecured notes have fixed interest rates and are not subject to interest rate risk. As of November 26, 2016, the fair value of the senior unsecured notes was $1.448 billion, which is based on quoted prices in active markets for identical instruments compared to the carrying value of approximately $1.500 billion.

 

Item 4. Controls and Procedures

 

(a)

Disclosure Controls and Procedures

 

The Company’s management, with the participation of its Principal Executive Officer and Principal Financial Officer, have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 240.13a-15(e) and 15d-15(e)) as of November 26, 2016 (the end of the period covered by this quarterly report on Form 10-Q). Based on that evaluation, the Principal Executive Officer and the Principal Financial Officer have concluded that the Company’s current disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our Principal Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosure.

 

(b)

Changes in Internal Control over Financial Reporting

 

There were no changes in the Company’s internal controls over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

 

 

 

 

 

 

PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings

 

The Company is party to various legal proceedings arising in the ordinary course of business, which the Company does not believe to be material to the Company’s business or financial condition.

 

Item 1A. Risk Factors

 

In addition to the other information set forth in this Form 10-Q, carefully consider the factors discussed under “Risk Factors” in the Company’s 2015 Form 10-K as filed with the Securities and Exchange Commission. These risks could materially adversely affect the Company’s business, financial condition and results of operations. These risks are not the only risks the Company faces. The Company’s operations could also be affected by additional factors that are not presently known to the Company or by factors that the Company currently considers immaterial to its business.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

The Company’s purchases of its common stock during the third quarter of fiscal 2016 were as follows:

 

														Approximate Dollar
										Total Number of				Value of Shares
										Shares Purchased as				that May Yet Be
										Part of Publicly				Purchased Under
		Total Number of				Average Price				Announced Plans				the Plans or
Period		Shares Purchased (1)				Paid per Share (2)				or Programs (1)				Programs (1) (2)
August 28, 2016 - September 24, 2016			512,100			$	44.81				512,100			$	1,961,099,689
September 25, 2016 - October 22, 2016			562,700			$	42.88				562,700			$	1,936,968,597
October 23, 2016 - November 26, 2016			697,700			$	41.50				697,700			$	1,908,011,466
Total			1,772,500			$	42.90				1,772,500			$	1,908,011,466

 

(1) Between December 2004 and September 2015, the Company's Board of Directors authorized, through several share repurchase programs, the repurchase of $11.950 billion of its shares of common stock. The Company has authorization to make repurchases from time to time in the open market or through other parameters approved by the Board of Directors pursuant to existing rules and regulations. Shares purchased indicated in this table also include shares withheld to cover employee related taxes on vested restricted shares and performance stock unit awards.

(2) Excludes brokerage commissions paid by the Company. 

 

Item 6. Exhibits

 

The exhibits to this Report are listed in the Exhibit Index included elsewhere herein.

 

 

 

 

 

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:  January 4, 2017	By:	/s/ Susan E. Lattmann
		Susan E. Lattmann
		Chief Financial Officer and Treasurer
		(Principal Financial and Accounting Officer)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXHIBIT INDEX

 

Exhibit No.		Exhibit
31.1		Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32		Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

 

 

 

  

 

 

 

 

 

 

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