ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
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 (“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 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 (“PMall”), an industry-leading online retailer of personalized products; Chef Central,
a 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 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 offers an extensive selection of high quality domestics merchandise and home furnishings across all channels, concepts
and countries in which it operates and strives to provide a noticeably better shopping experience through best-in-class services
and solutions.
The
Company’s mission is to be trusted by its customers as the expert for the home and heart-felt life events. These include
certain life events that evoke strong emotional connections such as getting married, moving to a new home, having a baby, going
to college and decorating a room, which the Company supports through its wedding and baby registries, mover and student life programs,
and its design consultation services. The Company’s ability to achieve its mission is driven by three broad objectives:
first, to present a meaningfully differentiated and complete product assortment for the home, of the right quality product, at
the right value; second, to provide services and solutions that enhance the usage and enjoyment of its offerings; and third, to
deliver a convenient, engaging, and inspiring shopping experience that is intelligently personalized over time. The Company is
undertaking a number of strategic initiatives to support each of these objectives, as well as to drive change across the organization
in order to improve operational efficiencies and to create future growth. Through this focused approach, the Company believes
it will further strengthen its competitive position to be the customer’s first choice for the home and heart-felt life events.
The
integration of retail store and customer facing digital channels allows the Company to provide its customers with a seamless shopping
experience. In-store purchases are primarily fulfilled from that store’s inventory, or may also be shipped to a customer
from one of the Company’s distribution facilities, from a vendor, or from another store. Online purchases, including web
and mobile, can be shipped to a customer from the Company’s distribution facilities, directly from vendors, or from a store.
The Company’s customers can also choose to pick up online orders in a store, as well as return online purchases to a store.
Customers can also make online purchases through one of the Company’s customer contact centers and in-store through The
Beyond Store, the Company’s proprietary, web-based platform. These capabilities allow the Company to better serve customers
across various channels.
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; 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
results of operations for the three and nine months ended November 25, 2017 include Decorist since the date of acquisition, March
6, 2017.
The following represents
an overview of the Company’s financial performance for the periods indicated:
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Net
sales for the three months ended November 25, 2017 were $2.955 billion, relatively flat
as compared with the three months ended November 26, 2016. Net sales for the nine months
ended November 25, 2017 were $8.633 billion, a decrease of approximately 0.6% as compared
with the nine months ended November 26, 2016.
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Comparable
sales for the three months ended November 25, 2017 decreased by approximately 0.3%, as
compared to a decrease of approximately 1.4% for the three months ended November 26,
2016. For the three months ended November 25, 2017, comparable sales consummated through
customer facing digital channels continued to have strong growth over the corresponding
period in the prior year, while comparable sales consummated in-store declined in the
low-single-digit percentage range.
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Comparable
sales for the nine months ended November 25, 2017 decreased by approximately 1.7%, as compared to a decrease of approximately
1.1% for the nine months ended November 26, 2016. For the nine months ended November 25, 2017, comparable sales consummated through
customer facing digital channels continued to have strong growth over the corresponding period in the prior year, while comparable
sales consummated in-store declined in the mid-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 customer 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 digital channel sales. Customer
orders taken in-store by an associate through The Beyond Store, the Company’s proprietary, web-based platform are recorded
as in-store 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 digital channels 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. One Kings Lane is excluded from the comparable sales calculation for the three and nine months
ended November 25, 2017 and will continue to be excluded until 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, Chef Central and Decorist are also excluded from the comparable sales calculation
for the three and nine months ended November 25, 2017 and Chef Central and Decorist will continue to be excluded until after the
anniversary of the respective acquisition. PMall will be included in the comparable sales calculation in the fourth quarter of
fiscal 2017 as the anniversary of the acquisition passed in November 2017. 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 November 25, 2017 was $1.041 billion, or 35.2% of net
sales, compared with $1.093 billion, or 37.0% of net sales, for the three months ended
November 26, 2016. Gross profit for the nine months ended November 25, 2017 was $3.110
billion, or 36.0% of net sales, compared with $3.233 billion, or 37.2% of net sales,
for the nine months ended November 26, 2016.
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Selling,
general and administrative expenses (“SG&A”) for the three months ended
November 25, 2017 were $932.7 million, or 31.6% of net sales, compared with $881.5 million,
or 29.8% of net sales, for the three months ended November 26, 2016. Selling, general
and administrative expenses for the nine months ended November 25, 2017 were $2.686 billion,
or 31.1% of net sales, compared with $2.528 billion, or 29.1% of net sales, for the nine
months ended November 26, 2016.
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Interest
expense, net for the three and nine months ended November 25, 2017 was $13.6 million
and $49.4 million, respectively, compared with $18.3 million and $52.8 million for the
three and nine months ended November 26, 2016.
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The
effective tax rate for the three months ended November 25, 2017 was 35.3%, as compared
with 34.5% for the three months ended November 26, 2016. The tax rates included other
discrete tax items resulting in net benefits of approximately $3.3 million and $6.0 million
for the three months ended November 25, 2017 and November 26, 2016, respectively.
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The
effective tax rate for the nine months ended November 25, 2017 was 38.4%, as compared with 36.2% for the nine months ended November
26, 2016. For the nine months ended November 25, 2017, the effective tax rate included the effect of the adoption of ASU 2016-09,
Compensation
– Stock Compensation (Topic 718): Improvements to Share-Based Payment Accounting,
(“ASU 2016-09,
Stock Compensation
”),
which increased income tax expense by approximately $9.4 million. Also, the tax rates included other discrete tax items resulting
in net benefits of approximately $8.5 million and $9.4 million, respectively, for the nine months ended November 25, 2017 and
November 26, 2016.
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For
the three months ended November 25, 2017, net earnings per diluted share were $0.44 ($61.3
million), as compared with net earnings per diluted share of $0.85 ($126.4 million) for
the three months ended November 26, 2016. The decrease in net earnings per diluted share
for the three months ended November 25, 2017 is the result of the decrease 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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For
the nine months ended November 25, 2017, net earnings per diluted share were $1.64 ($230.8 million), as compared with net earnings
per diluted share of $2.76 ($416.4 million) for the nine months ended November 26, 2016. The decrease in net earnings per diluted
share for the nine months ended November 25, 2017 is the result of the decrease in net earnings due to the items described above,
partially offset by the impact of the Company’s repurchases of its common stock. For the nine months ended November 25,
2017, net earnings per diluted share included the unfavorable impacts of the cash restructuring charges associated with the acceleration
of the realignment of its store management structure of approximately $0.08, and the adoption of ASU 2016-09,
Stock Compensation
of approximately $0.07.
Capital
expenditures for the nine months ended November 25, 2017 and November 26, 2016 were $264.0 million and $276.4 million, respectively.
In the first nine months of fiscal 2017, more than 40% of the capital expenditures were for technology projects, including investments
in the Company’s digital capabilities, and the development and deployment of new systems and equipment in its stores. The
remaining capital expenditures were primarily related to investments in stores, the Company’s new Las Vegas distribution
facility, which began shipping to customers during the third quarter of fiscal 2017, and its new customer contact center in Florida.
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.
The
Company continues to make the investments and add the resources necessary to position itself for long-term success. Key areas
of investment include: continuing to improve the presentation and content as well as the functionality, general search and navigation
across its customer facing digital channels; 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 omnichannel retail platform.
During
the nine months ended November 25, 2017, the Company opened 20 new stores and closed eight 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.
Over the past several years, the Company’s pace of its store openings has slowed, and the Company has increased the
number of store closings. If the Company cannot reach acceptable terms with its landlords as leases come up for renewal, the
Company would expect the pace of store closings to increase as a result of its assumptions regarding bricks and mortar store
traffic in future years as well as the continuation of the Company’s market optimization strategy. As of November 25,
2017, the Company has opened 20 new stores, with the potential of two or so more openings before the end of fiscal 2017.
Also, the Company plans to close approximately 15 stores, all of which would result in a net reduction of five BBB stores in
fiscal 2017. Additionally, the Company expects to continue to invest in technology related projects, including the deployment
of new systems and equipment in its stores, enhancements to the Company’s customer facing digital channels, ongoing
investment in its data warehouse and data analytics and the continued development and deployment of a new point of sale
system.
During
fiscal 2016, the Company’s Board of Directors authorized a quarterly dividend program. During the nine months ended November
25, 2017 and November 26, 2016, quarterly dividends totaling $0.45 and $0.375 per share were declared by the Company’s Board
of Directors, of which $0.30 and $0.25 per share was paid, respectively. Subsequent to the end of the third quarter of fiscal
2017, on December 20, 2017, the Company’s Board of Directors declared a quarterly dividend of $0.15 per share to be paid
on April 17, 2018 to shareholders of record as of the close of business on March 16, 2018. 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 earnings, financial condition and requirements, business conditions and other factors.
During
the three and nine months ended November 25, 2017, the Company repurchased approximately 0.9 million and 6.0 million shares, respectively,
of its common stock at a total cost of approximately $23.6 million and $207.3 million, respectively. 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. 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 25, 2017 were $2.955 billion, relatively flat as compared with net sales for the corresponding
quarter last year, primarily due to a decrease of approximately 0.3% in comparable sales, offset by an increase in the Company’s
non-comparable sales including One Kings Lane, PMall and new stores.
Net
sales for the nine months ended November 25, 2017 were $8.633 billion, a decrease of $48.8 million or approximately 0.6% compared
with net sales of $8.682 billion for the corresponding nine months last year, due to a decrease of approximately 1.7% in comparable
sales, partially offset by an increase of approximately 1.1% in non-comparable sales including One Kings Lane, PMall and new stores.
The
decrease in comparable sales for the three and nine months ended November 25, 2017 was approximately 0.3% and 1.7%, respectively,
as compared to a decrease of approximately 1.4% and 1.1% for the three and nine months ended November 26, 2016. The decrease in
comparable sales for the three and nine months ended November 25, 2017 was due to a decrease in the number of transactions in
stores, 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 customer 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 in an integrated and 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 digital channels. 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 months ended November 25, 2017, comparable sales consummated through customer facing digital channels continued to have
strong growth over the corresponding period in the prior year, while comparable sales consummated in-store declined in the low-single-digit
percentage range. For the nine months ended November 25, 2017, comparable sales consummated through customer facing digital channels
continued to have strong growth over the corresponding period in the prior year, while comparable sales consummated in-store declined
in the mid-single-digit percentage range.
For
the three and nine months ended November 25, 2017, comparable sales represented $2.825 billion and $8.257 billion of net sales,
respectively. For the three and nine months ended November 26, 2016, comparable sales represented $2.843 billion and $8.367 billion
of net sales, respectively.
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. Sales of domestics merchandise and home furnishings for the Company accounted for approximately 35.7% and 64.3%
of net sales, respectively, for the three months ended November 25, 2017 and approximately 36.4% and 63.6% of net sales for the
three months ended November 26, 2016. Sales of domestics merchandise and home furnishings for the Company accounted for approximately
37.0% and 63.0%
of net sales, respectively, for the nine months ended November 25, 2017 and approximately
37.3% and 62.7% of net sales for the nine months ended November 26, 2016.
Gross
Profit
Gross
profit for the three months ended November 25, 2017 was $1.041 billion, or 35.2% of net sales, compared with $1.093 billion, or
37.0% of net sales, for the three months ended November 26, 2016. The decrease in the gross profit margin as a percentage of net
sales for the three months ended November 25, 2017 was primarily attributed to, in order of magnitude: a decrease in merchandise
margin; an increase in coupon expense, resulting from increases in redemptions and the average coupon amount; and an increase
in net direct to customer shipping expense.
Gross
profit for the nine months ended November 25, 2017 was $3.110 billion, or 36.0% of net sales, compared with $3.233 billion, or
37.2% of net sales, for the nine months ended November 26, 2016. The decrease in the gross profit margin as a percentage of net
sales for the nine months ended November 25, 2017 was primarily attributed to, in order of magnitude: a decrease in merchandise
margin; an increase in net direct to customer shipping expense; and an increase in coupon expense, resulting from increases in
redemptions and the average coupon amount.
Selling,
General and Administrative Expenses
SG&A
for the three months ended November 25, 2017 was $932.7 million, or 31.6% of net sales, compared with $881.5 million, or 29.8%
of net sales, for the three months ended November 26, 2016. The increase in SG&A, as a percentage of net sales was primarily
attributable to, in order of magnitude: an increase in advertising expenses, due in part to the growth in digital advertising;
an increase in technology expenses and related depreciation and an increase in payroll and payroll related items (including medical
insurance).
SG&A
for the nine months ended November 25, 2017 was $2.686 billion, or 31.1% of net sales, compared with $2.528 billion, or 29.1%
of net sales, for the nine months ended November 26, 2016. The increase in SG&A, as a percentage of net sales was primarily
attributable to, in order of magnitude: an increase in advertising expenses, due in part to the growth in digital advertising;
an increase in payroll and payroll related items (including salaries); an increase in technology expenses and related depreciation;
and the store management restructuring charges.
Operating
Profit
Operating
profit for the three months ended November 25, 2017 was $108.4 million, or 3.7% of net sales, compared with $211.3 million, or
7.1% of net sales, during the comparable period last year. For the nine months ended November 25, 2017, operating profit was $424.2
million, or 4.9% of net sales, compared with $705.3 million, or 8.1% 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 2017 as a result of several items, including, as
a percentage of net sales, a decrease in merchandise margin and increases in, net direct to customer shipping expense; coupon
expense; payroll and payroll-related expense; advertising expense; cash restructuring charges associated with the acceleration
of the realignment of its store management structure; and technology expenses, including depreciation related to the Company’s
ongoing investments. In addition, operating margin compression is likely to continue due to increases in the overall expense structure
for the accelerated spending associated with the Company’s organizational changes and transformational initiatives, as well
as the unfavorable impacts of Hurricanes Harvey, Irma and Maria.
Interest Expense, net
Interest
expense, net for the three months ended November 25, 2017 was $13.6 million compared to $18.3 million for the three months ended
November 26, 2016.
For
the three months ended November 25, 2017 and November 26, 2016, interest expense, net primarily related to interest on the senior
unsecured notes issued in July 2014. The decrease in interest expense, net was primarily the result of a $4.7 million favorable
change in the value of the Company’s nonqualified deferred compensation plan (“NQDC”) investments. This favorable
change was fully offset by a corresponding unfavorable change in the NQDC liability recorded in SG&A. These changes resulted
in no net impact to the consolidated statement of earnings.
Interest
expense, net for the nine months ended November 25, 2017 was $49.4 million compared to $52.8 million for the nine months ended
November 26, 2016. For the nine months ended November 25, 2017 and November 26, 2016 interest expense, net primarily related to
interest on the senior unsecured notes issued in July 2014. The decrease in interest expense, net was primarily the result of
a $2.6 million favorable change in the value of the Company’s NQDC investments. This favorable change was fully offset by
a corresponding unfavorable change in the NQDC liability recorded in SG&A. These changes resulted in no net impact to the
consolidated statement of earnings.
Income Taxes
The
effective tax rate for the three months ended November 25, 2017 was 35.3% compared with 34.5% for the three months ended November
26, 2016. The tax rate for the three months ended November 25, 2017 and November 26, 2016 included net benefits of approximately
$3.3 million and $6.0 million, respectively, due to discrete tax events occurring during these quarters.
The
effective tax rate for the nine months ended November 25, 2017 was 38.4% compared with 36.2% for the nine months ended November
26, 2016. For the nine months ended November 25, 2017, the effective tax rate included the effect of the adoption of ASU 2016-09,
Stock Compensation,
which increased income tax expense by approximately $9.4 million. The effect of this adoption in fiscal
2017 is expected to vary by quarter, and as anticipated, was heavily weighted toward the first quarter. The adoption of the standard
does not affect the Company’s cash outflows for income taxes. Also, the tax rate for the nine months ended November 25,
2017 and November 26, 2016 included net benefits of approximately $8.5 million and $9.4 million, respectively, due to discrete
tax events occurring during the first nine months of fiscal 2017 and 2016.
Potential
volatility in the effective tax rate from year to year may occur as the Company is required each year 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.
On
December 22, 2017, H.R.1 - An Act to provide for reconciliation pursuant to titles II and V of the
concurrent resolution on the budget for fiscal year 2018, also known as the Tax Cuts and Jobs Act, (the “Act”)
was enacted. The Company is currently reviewing the components of the Act and evaluating its impact, which could be material
on the Company’s fiscal year 2017 consolidated financial statements and related disclosures, including a
one-time, non-cash expense related to a decrease in the value of the Company’s net deferred tax assets.
Net
Earnings
As
a result of the factors described above, net earnings for the three and nine months ended November 25, 2017 were $61.3 million
and $230.8 million, respectively, compared with $126.4 million and $416.4 million, respectively, for the corresponding period
in fiscal 2016.
Growth
In
the 24-year period from the beginning of fiscal 1992 to the end of the third quarter of fiscal 2017, the chain has grown from
34 stores to 1,558 stores plus the Company’s interactive platforms, including websites and applications, and distribution
facilities. Total store square footage, net of openings and closings, grew from approximately 0.9 million square feet at the beginning
of fiscal 1992 to approximately 43.8 million square feet at the end of the third quarter of fiscal 2017.
In
addition, as of November 25, 2017, the Company has distribution facilities totaling approximately 7.2 million square feet, supporting
the growth of its customer facing digital channels as well as its stores and its institutional sales segment. During the
third quarter of fiscal 2017, the Company’s newest distribution facility in Las Vegas, Nevada began shipping to customers.
The new facility will replace a smaller distribution facility in that area, which will close in late 2017, and provide additional
capacity to support the growth of the Company’s customer facing digital channels.
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. As of
November 25, 2017, the Company has opened 20 new stores, with the potential of two or so more openings before the end of
fiscal 2017. Also, the Company plans to close approximately 15 stores, all of which would result in a net reduction of five
BBB stores in fiscal 2017. 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.
The
Company has built its management structure with a view towards its growth and believes that, as a result, it has the necessary
management depth.
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 2017, 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.
The Company believes it will end fiscal 2017 with approximately the same or slightly higher cash and investment balances than
fiscal 2016. In addition, if necessary, the Company could borrow under its $250 million revolving credit facility or the available
balances under its lines of credit. Capital expenditures for fiscal 2017 are planned to be approximately $350 million to $400
million, subject to the timing and composition of projects, with approximately half for information technology projects in support
of the Company’s growing omnichannel capabilities. In addition, the Company reviews its alternatives with respect to its
capital structure on an ongoing basis.
Fiscal
2017 compared to Fiscal 2016
Net
cash provided by operating activities for the nine months ended November 25, 2017 was $491.8 million, compared with $744.2 million
in the corresponding period in fiscal 2016. Year over year, the Company experienced a decrease in net earnings, and an increase in cash used by the net components of working capital (primarily accounts payable, partially
offset by merchandise inventories and other current assets).
Retail
inventory was approximately $3.1 billion as of November 25, 2017, a decrease of approximately 2.2% compared to retail inventory
as of November 26, 2016.
Net
cash used in investing activities for the nine months ended November 25, 2017 was $270.1 million, compared with $394.0 million
in the corresponding period of fiscal 2016. For the nine months ended November 25, 2017, net cash used in investing activities
was primarily due to $264.0 million of capital expenditures. 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.
Net
cash used in financing activities for the nine months ended November 25, 2017 was $257.6 million, compared with $392.6 million
in the corresponding period of fiscal 2016. The decrease in net cash used in financing activities was primarily due to a decrease
in common stock repurchases of $168.3 million, partially offset by an increase in the amount paid for dividends of $22.7 million.
Seasonality
The Company’s
business is subject to seasonal influences. Generally, its sales volumes are higher in the calendar months of August, November
and December, and 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 25, 2017 (“2016 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 2017.
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 across all channels; pricing pressures; liquidity; the ability
to achieve anticipated cost savings, and to not exceed anticipated costs, associated with organizational changes; 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; 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, 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.
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.