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 or Harmon 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. 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:
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To do more for and with its customers wherever, whenever and
however they wish to interact with the Company;
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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
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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.
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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:
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For the three and six months ended August 27, 2016, the Company’s net sales were $2.988 billion
and $5.726 billion, respectively, a decrease of approximately 0.2% and 0.1% as compared with the three and six months ended August
29, 2015.
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Comparable sales for the three months and six months ended August 27, 2016 decreased by approximately
1.2% and 0.9%, respectively, as compared to an increase of approximately 0.7% and 1.4%, respectively, for the three and six months
ended August 29, 2015. For the three and six months ended August 27, 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.
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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 is excluded
from the comparable sales calculation for the three and six months ended August 27, 2016, and will be included commencing in the
third quarter of fiscal 2016. One Kings Lane is excluded from the comparable sales calculation for the three and six months ended
August 27, 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. 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.
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Gross profit for the three months ended August 27, 2016 was $1.117 billion, or 37.4% of net sales,
compared with $1.141 billion, or 38.1% of net sales, for the three months ended August 29, 2015. Gross profit for the six months
ended August 27, 2016 was $2.140 billion, or 37.4% of net sales, compared with $2.185 billion, or 38.1% of net sales, for the six
months ended August 29, 2015.
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Selling, general and administrative expenses (“SG&A”) for the three months ended
August 27, 2016 were $835.9 million, or 28.0% of net sales, compared with $790.8 million, or 26.4% of net sales, for the three
months ended August 29, 2015. Selling, general and administrative expenses (“SG&A”) for the six months ended August
27, 2016 were $1.646 billion, or 28.8% of net sales, compared with $1.562 billion, or 27.2% of net sales, for the six months ended
August 29, 2015.
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Interest expense for the three and six months ended August 27, 2016 was $18.2 million and $34.5
million, respectively, compared with $25.1 million and $45.0 million, respectively, for the three and six months ended August 29,
2015.
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The effective tax rate for the three and six months ended August 27, 2016 was 36.3% and 36.9%,
respectively, compared with 38.0% and 37.7%, respectively, for the three and six months ended August 29, 2015. The tax rates included
discrete tax items resulting in net benefits of approximately $2.9 million and net costs of approximately $0.8 million, respectively,
for the three months ended August 27, 2016 and August 29, 2015, and net benefits of approximately $3.4 million and $0.7 million,
respectively, for the six months ended August 27, 2016 and August 29, 2015.
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For the three and six months ended August 27, 2016, net earnings per diluted share were $1.11 ($167.3
million) and $1.91 ($290.0 million), respectively, as compared with net earnings per diluted share of $1.21 ($201.7 million) and
$2.13 ($360.1 million), respectively, for the three and six months ended August 29, 2015. The decreases in net earnings per diluted
share for the three and six months ended August 27, 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.
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Capital expenditures for the six months ended August 27, 2016
and August 29, 2015 were $184.8 million and $160.8 million, respectively. In the first six 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, 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 six months ended August 27, 2016, the Company opened
a total of ten new stores and closed one store. 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 second quarter of fiscal 2016, the Company’s newest distribution
facility in Lewisville, Texas opened for inbound freight, and the Company expects to begin shipping to customers from this facility
in the third quarter of fiscal 2016. During fiscal 2016, including the stores opened through August 27, 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 two quarters of fiscal 2016, totaling $0.250 per share for the first six months ended
August 27, 2016. Subsequent to the end of the second quarter of fiscal 2016, on September 21, 2016, the Company’s Board of
Directors declared a quarterly dividend of $0.125 per share to be paid on January 17, 2017 to shareholders of record at the close
of business on December 16, 2016. 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 six months ended August 27, 2016, the Company
repurchased approximately 2.7 million and 6.5 million shares, respectively, of its common stock at a total cost of approximately
$121.3 million and $299.5 million, respectively. During the three and six months ended August 29, 2015, the Company repurchased
approximately 2.9 million and 8.2 million shares, respectively, of its common stock at a total cost of approximately $193.9 million
and $579.3 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 August 27, 2016 were $2.988
billion, a decrease of $7.2 million or approximately 0.2% compared with net sales of $2.995 billion for the corresponding quarter
last year, due to a decrease of approximately 1.2% in comparable sales, partially offset by an increase of approximately 1.0% in
non-comparable sales including new stores and One Kings Lane.
Net sales for the six months ended August 27, 2016 were $5.726
billion, a decrease of $7.6 million or approximately 0.1% compared with net sales of $5.734 billion for the corresponding six months
last year, due to a decrease of approximately 0.9% in comparable sales, partially offset by an increase of approximately 0.8% in
non-comparable sales including new stores and One Kings Lane.
The decrease in comparable sales for the three and six months
ended August 27, 2016 was approximately 1.2% and 0.9%, respectively, as compared to an increase of approximately 0.7% and 1.4%
for the three and six months ended August 29, 2015. The decrease in comparable sales for the three and six months ended August
27, 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 six months ended August 27, 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 six months ended August 27, 2016, comparable
sales represented $2.874 billion and $5.524 billion of net sales, respectively. For the three and six months ended August 29, 2015,
comparable sales represented $2.898 billion and $5.547 billion of net sales, respectively.
Sales of domestics merchandise and home furnishings for the Company
accounted for approximately 38.9% and 61.1% of net sales, respectively, for the three months ended August 27, 2016 and approximately
39.4% and 60.6% of net sales for the three months ended August 29, 2015. Sales of domestics merchandise and home furnishings for
the Company accounted for approximately 37.7% and 62.3% of net sales, respectively, for the six months ended August 27, 2016 and
approximately 38.1% and 61.9% of net sales for the six months ended August 29, 2015.
Gross Profit
Gross profit for the three months ended August 27, 2016 was $1.117
billion, or 37.4% of net sales, compared with $1.141 billion, or 38.1% of net sales, for the three months ended August 29, 2015.
The decrease in the gross profit margin as a percentage of net sales for the three months ended August 27, 2016 was primarily attributed
to, in order of magnitude, a decrease in merchandise margin and an increase in coupon expense, resulting from an increase in redemptions
partially offset by a slight decrease in the average coupon amount. Also contributing to the decrease in gross profit margin as
a percentage of net sales, to a lesser extent, was an increase in net direct to customer shipping expense, which reflects a reduced
free-shipping threshold at bedbathandbeyond.com, for the majority of the second quarter. The inclusion of One Kings Lane reduced
gross profit margin as a percentage of net sales by approximately 12 basis points.
Gross profit for the six months ended August 27, 2016 was $2.140
billion, or 37.4% of net sales, compared with $2.185 billion, or 38.1% of net sales, for the six months ended August 29, 2015.
The decrease in the gross profit margin as a percentage of net sales for the six months ended August 27, 2016 was primarily attributed
to, in order of magnitude, a decrease in merchandise margin and an increase in coupon expense, resulting from an increase in redemptions
and an increase in the average coupon amount. Also contributing to the decrease in gross profit margin as a percentage of net sales,
to a lesser extent, was an increase in net direct to customer shipping expense. 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 August 27, 2016 was $835.9
million, or 28.0% of net sales, compared with $790.8 million, or 26.4% of net sales, for the three months ended August 29, 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 16 basis points.
SG&A for the six months ended August 27, 2016 was $1.646
billion, or 28.8% of net sales, compared with $1.562 billion, or 27.2% of net sales, for the six months ended August 29, 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 did not have a material effect on SG&A, as a percentage of net sales.
Operating Profit
Operating profit for the three months ended August 27, 2016 was
$281.0 million, or 9.4% of net sales, compared with $350.2 million, or 11.7% of net sales, during the comparable period last year.
For the six months ended August 27, 2016, operating profit was $494.0 million, or 8.6% of net sales, compared with $623.5 million,
or 10.9% 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 changes in gross profit margin and 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, as well as the inclusion of One Kings Lane. In addition, the year-over-year
comparison of operating margin will be impacted by the non-recurring benefit related to the state audit settlement which occurred
in fiscal 2015.
Interest Expense, net
Interest expense, net for the
three months ended August 27, 2016 was $18.2 million compared to $25.1 million for the three months ended August 29, 2015. For
the three months ended August 27, 2016 and August 29, 2015, interest expense, net primarily related to interest on the senior unsecured
notes issued in July 2014. In addition, approximately $5 million of the decrease in interest expense, net related to a favorable
change in the value of the nonqualified deferred compensation plan investments. This increase in the value of the investments was
offset by a corresponding unfavorable change in SG&A and resulted in no net impact to the consolidated statement of earnings.
Also included in the decrease in interest expense, net was a realized loss of $2 million incurred related to the tender of certain
auction rate securities in the second quarter of fiscal 2015.
Interest expense, net for the
six months ended August 27, 2016 was $34.5 million compared to $45.0 million for the six months ended August 29, 2015. For the
six months ended August 27, 2016 and August 29, 2015, interest expense, net primarily related to interest on the senior unsecured
notes issued in July 2014. In addition, approximately $8 million of the decrease in interest expense, net related to a favorable
change in the value of the nonqualified deferred compensation plan investments. This increase in the value of the investments was
offset by a corresponding unfavorable change in SG&A and resulted in no net impact to the consolidated statement of earnings.
Also included in the decrease in interest expense, net was a realized loss of $2 million incurred related to the tender of certain
auction rate securities in the second quarter of fiscal 2015.
Income Taxes
The effective tax rate for the three months ended August 27,
2016 was 36.3% compared with 38.0% for the three months ended August 29, 2015. The tax rate for the three months ended August 27,
2016 included net benefits of approximately $2.9 million and the tax rate for the three months ended August 29, 2015 included net
costs of approximately $0.8 million, due to discrete tax events occurring during these quarters.
The effective tax rate for the six months ended August 27, 2016
was 36.9% compared with 37.7% for the six months ended August 29, 2015. The tax rates for the six months ended August 27, 2016
and August 29, 2015 included net benefits of approximately $3.4 million and $0.7 million, respectively, due to discrete tax events
occurring during the first six 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 six months ended August 27, 2016 were $167.3 million and $290.0 million, respectively, compared with $201.7 million
and $360.1 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,
harborlinen.com and t-ygroup.com. In addition to these websites, as of August 27, 2016, the Company operated 1,539 stores plus
its other interactive platforms and distribution facilities. The Company’s 1,539 stores operate in all 50 states, the District
of Columbia, Puerto Rico and Canada, including: 1,024 BBB stores, 278 Cost Plus World Market stores, 107 Baby stores, 79 CTS stores
and 51 Harmon stores. During the six months ended August 27, 2016, the Company opened a total of ten new stores and closed one
store. At the end of the second 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 second quarter of fiscal 2016, the Company’s newest distribution facility in Lewisville,
Texas opened for inbound freight, and the Company expects to begin shipping to customers from this facility in the third quarter
of fiscal 2016. 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 August 27, 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 August 27, 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, 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. 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 would be for 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 six months
ended August 27, 2016 was $468.2 million, compared with $409.3 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 and
accounts payable, partially offset by income taxes payable), partially offset by a decrease in net earnings as adjusted for non-cash
expenses (primarily deferred income taxes).
Retail inventory, which includes inventory in the Company’s
distribution facilities for direct to customer shipments, was approximately $2.9 billion, an increase of approximately 1.0% compared
to retail inventory as of August 29, 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.
Net cash used in investing activities for the six months ended
August 27, 2016 was $113.6 million, compared with $50.8 million in the corresponding period of fiscal 2015. For the six months
ended August 27, 2016, net cash used in investing activities was primarily due to $184.8 million of capital expenditures, partially
offset by $86.2 million of redemptions of investment securities. For the six months ended August 29, 2015, net cash used in investing
activities was primarily due to $160.8 million of capital expenditures, partially offset by $110.0 million of redemptions of investment
securities, net of purchases.
Net cash used in financing activities for the six months ended
August 27, 2016 was $296.6 million, compared with $561.1 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 $279.8 million.
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 six 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.