Bed Bath & Beyond Inc. (NASDAQ:BBBY) Q1 2017 Earnings Conference Call - Final Transcript

Jun 22, 2017 • 05:00 pm ET

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Bed Bath & Beyond Inc. (NASDAQ:BBBY) Q1 2017 Earnings Conference Call - Final Transcript

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Presentation
Executive
Sue Lattmann

store are referred to as reduction in store sales.

With that said, comp sales from our customer-facing digital channels continued to have strong growth, in excess of 20%, while comp sales from our stores declined in the mid-single-digit percentage range. Gross margin for the quarter was approximately 36.5% as compared to approximately 37.4% of net sales in the first quarter of last year.

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 in part of the Bed Bath & Beyond free shipping threshold being at $29 for the full quarter this year while it was at $49 for about half of the first quarter last year; and second, an increase in coupon expense resulting from an increase in redemptions, partially offset by a decrease in the average coupon amount. The inclusion of One Kings Lane reduced total company gross margin as a percentage of net sales by approximately 4 basis points, while the inclusion of PMall improved total company gross margin by 16 basis points.

SG&A in the quarter was approximately 31.1% of net sales as compared to approximately 29.6% 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, increases in advertising expenses, payroll and payroll-related expenses and technology-related expenses, including related depreciation. The inclusion of One Kings Lane and PMall increased total company SG&A expense as a percentage of net sales by approximately 28 and 5 basis points, respectively, in the first quarter.

As you probably know, the first quarter typically accounts for the smallest portion of our annual sales and earnings. As a result, any fixed costs as a percentage of net sales are relatively more pronounced in the first quarter than they would be in any of the other quarters.

Net interest expense was approximately $16.6 million compared to $16.3 million in the prior year period and related primarily to interest on our debt. Our income tax rate for the quarter was approximately 42.3% compared to approximately 37.7% in the prior year period. The first quarter of 2017 includes the adoption of the new share-based payment accounting standard, which increased the tax rate by 5.9%, increased income tax by $7.6 million and decreased net earnings per diluted share by approximately $0.05.

As a reminder, as we said in our April call, the impact of the new accounting standard in 2017 was expected to be heavily weighted to the first quarter. Also included in the first quarter of 2017 were net after tax benefits of approximately $2 million due to distinct tax events occurring during the quarter. Approximately $500,000 of net after-tax benefits were included in the prior year.

Considering all of this activity, net earnings per diluted share were $0.53 for the quarter, including the unfavorable impact of approximately $0.05 from the adoption of the new accounting standard that I just mentioned.