Bed Bath & Beyond Inc. (NASDAQ:BBBY) Q3 2016 Earnings Conference Call - Final Transcript

Dec 21, 2016 • 05:00 pm ET

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Bed Bath & Beyond Inc. (NASDAQ:BBBY) Q3 2016 Earnings Conference Call - Final Transcript

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Presentation
Executive
Sue Lattmann

the quarter, the decline in comp sales was attributable to a decrease in the number of transactions in our stores, partially offset by an increase in the average transaction amount. Comp sales from our customer-facing digital channels grew in excess of 20% in the third quarter, while comp sales from our stores declined in the low single-digit percentage range.

As a reminder, One Kings Lane and PMall are both currently excluded from our comp sales calculations. PMall will be included after the one-year anniversary of its acquisition. One Kings Lane will be included in comps when the re-plat forming of its systems and integration of its support services, both of which are currently in process, have been in place for a period long enough to allow for a meaningful comparison of One Kings Lane's sales over the prior period.

Gross margin for the third quarter was approximately 37% as compared to approximately 37.8% in the prior-year period. This decrease as a percentage of net sales was primarily due to, in order of magnitude, first, an increase in net direct-to-customer shipping expense as a result of more promotional shipping offer activity, including a change in the Bed Bath & Beyond free shipping thresholds from $49 last year to $29 this year. And for a few days, we offered free shipping on all purchases.

And, second, an increase in coupon expense, resulting from increases in redemption and the average coupon amount. The inclusion of One Kings Lane reduced total company gross margin as a percentage of net sales by approximately 13 basis points in the third quarter.

SG&A for the third quarter was approximately 29.8% of net sales as compared to 27.9% of net sales in the prior-year period. This increase in SG&A as a percentage of net sales was primarily due to, in order of magnitude, an increase in payroll and payroll-related expenses and an increase in technology expense, including related depreciation. The inclusion of One Kings Lane increased total company SG&A expense as a percentage of net sales by approximately 15 basis points in the third quarter.

Our income tax rate for the quarter was approximately 34.5% compared to approximately 35.3% in the prior-year period. The third quarter provisions included favorable net after-tax benefits of approximately $6 million this year as compared to $6.9 million last year due to distinct tax events occurring during this quarter. Considering all of this activity, net earnings per diluted share were $0.85 for the quarter.

Moving on to the balance sheet, we ended the third quarter with approximately $559 million in cash and cash equivalents and investment securities. Retail inventories were approximately $3.2 billion at cost, an increase of approximately 1.4% compared to the end of the prior-year period, due in part to the growth in inventory in our distribution facilities for shipments to customers, as well as the inventory balances from PMall and One Kings Lane.

Our Lewisville, Texas facility, which opened for inbound freight last quarter, began direct shipments to customers during