June 18, 2003
Conference Call Notes and Observations
Bed Bath and Beyond, Inc.
3 Months ended May 31, 2003
please see Disclaimer at bottom of report
This report was last amended on August 6, 2003.
Founded in 1971, Bed Bath & Beyond Inc. is a nationwide chain of superstores selling predominantly better quality domestics merchandise and home furnishings. The Company’s over 500 stores principally range in size from 30,000 to 50,000 square feet, with some stores exceeding 80,000 square feet. Bed Bath & Beyond combines superior service and a huge selection of items at everyday low prices within a constantly evolving shopping environment that has proven to be both fun and exciting for customers. Bed Bath & Beyond’s stock is traded on the NASDAQ National Market under the symbol BBBY and is included in the Standard and Poor’s 500 Index and the NASDAQ 100 Index
Notes From Conference Call
Leonard Feinstein – Co-Chairman
1. Fiscal 2003 off to a strong start. Net earnings were up 24.2% , Net Revenues were up 15.1%. Particularly pleased to report that despite economic adversity, they were still able to meet company guidance.
2. Eight new stores were added during the quarter to total 498 stores. They have added another 5 stores since the end of the quarter. There are currently 503 Stores.
3. Claims analysts are projecting F2003 revenues of $4.3B and earnings of $360M.
4. Claims expansion will continue with internally generated funds.
5. Stores will be smaller on average going forward.
6. Projects 80 – 90 new store openings for F2003.
Steven H. Temares – Chief Executive Officer
1. Net earnings were $57,508M or $0.19 per share.
2. 44 consecutive quarters of uninterrupted earnings growth.
3. According to Mr. Temares, Net sales of $893,868M were in line with prior guidance.
4. First quarter comps of same store sales were up 4.4%.
5. Forward guidance continues with same store comps in range of 3% to 5%.
6. Gross Profit was $367M or 41.1% of Net Sales. Improvement was from Sales mix and combination of other reasons.
7. S,G&A expenses were $ 277M or 31.0 % compared to 31.6% a year ago.
8. Operating profit margin increased by 70 basis points as a result of higher gross profits and lower S,G and A expenses.
9. Market share remains relatively small of the $85B home goods market, which affords growth opportunities. Long term target is at least 950 stores in the USA. Claims that industry growth demographics remain strong.
10. Remains comfortable for growth targets for the year. Feels future guidance is conservative.
Ronald Curwin – Chief Financial Officer
1. Plans to open 80 to 90 stores this fiscal year. This projection reflects weather related construction delays. This was stated in previous guidance. 16 stores expected to open in second fiscal quarter. The remaining stores are expected to be opened in the 3rd fiscal quarter.
2. Expansion to be continued with internally generated funds.
3. Net sales of new stores in first full year of operations, are continue to be projected to be $150 to $ 175 per square foot. New stores are exceeding this range.
4. Continue to expect mid teens sales growth for 2003, including 3 to 5 % of comp sales growth.
5. Combination of Gross margin and SG&A operating efficiencies is expected to result in improvement of companies net operating margin.
6. Interest income expected to remain unchanged because of environment. This is despite higher anticipated cash balances during the year.
7. Income taxes will continue to be provided at 38.5% of pretax earnings.
8. Capital Expenditures are estimated to be $165M, mostly for new stores and IT enhancements. Depreciation and Amortization continues to be estimated at $75M to $85M .
9. Revised earnings target for 2003 is $1.21 per share. Expects 2Q03 earnings of $0.30 per share and 2H03 of $0.72 per share. This would represent a doubling of eps since F2000.
10. Balance sheet remains “strong and flexible”. Cash and Cash Equivalents approximated $683.8M. Total of Cash, equivalents and invested securities combine for a total of $875.2M. This is 66 % higher than a year ago levels.
11. Merchandise inventories are “on plan” at $927M.
12. Capital expenditures were $8.8M , primarily for 8 new stores and information technology. This compares to year ago levels of $11.6M for 13 new stores
13. Depreciation and Amortization was $19.8M , up slightly from a year ago.
14. Shareholders Equity was $1.53B, a year ago it was $1.15B
Question and Answers
There was no Question and Answer session.
Some “ back of the envelope” financial observations
1. Revenues were $893,868m. Mr. Temares claimed these “were in line with prior guidance.” Value Line was projection $920m. Consensus estimates were expecting $914.3m.
2. Net earnings were $57,508m or $0.19 per share. Consensus estimates were at $0.18 per share.
3. Current Ratio (Current Assets / Current Liabilities) is 2.43. The ratio was 2.34 at March 1, 2003. At June 1, 2002 it was 2.09
4. Flow Ratio is 1.47. The Flow Ratio is desired to be less than 1.25. Here is the formula : Current Assets = $1,733,810, Cash = $ 683,745, Current Liabilities = $ 715,043 and Short Term Debt = $ 0.
Flow Ratio = (CA – Cash) / (CL – STD) = 2.22. The ratio was 1.59 on March 1, 2003, 1.56 on March 2, 2002 and 1.47 on June 1, 2002.
5. Book Value is $ 5.06 per share . Book Value was 4.82 on March 1, 2003.
6. An increase of same store sales in this environment seems impressive. According to a report we read today, Pier 1 just registered same store sales decline for the Feb to May period.
7. Gross Margin is 41.1% . The percentage was 41.43% FYE March 1, 2003. As of June 1, 2002 it was 41.0%. We need to monitor the inventory over time. We had been expecting rising gross margins. We have previously seen projections of 41.7% for F2003.
8. SG&A is 31% . The percentage was 28.33 during FYE March 1, 2003. As of June 1, 2002 it was 31.6%. We have previously seen projections of 28.0% for F2003.
9. Interest income accounted for eps of $0.01. Keep in mind that is 5.3% of the reported eps of $0.19.
10. Weighted Average Shares Outstanding are 303,038. They were 301,147 on March 1, 2003, 298,667 on March 2, 2002 and 300,674 on June 1, 2002. Shares outstanding are higher than we were projecting. We were projecting year end shares outstanding of 302.2M.
11. If we use Projected Total Revenues for F2003 ( not our projection, but near consensus) of $4.3B. The ratio of Inventory/Annual Revenues was 21.56%, for F2002 it was 24.98 % and for F2001 it was 25.75 %.
12. Net Cash Provided by Operating Activities in the Statement Of Cash Flows are $107,669. Tax benefit from exercise of stock options was $13,129.
13. Proceeds from exercise of stock options was $11,975 through May 31, 2003. It was $24,216 on March 1, 2003, 25,753 on March 2, 2002 and 3,664 on June 1, 2002.
14. Inventory Turnover Ratio is Cost Of Sales / Average Inventory. Inventory Turnover Ratio is 2.27 at May 31, 2003, 2.34 at March 1, 2003, 2.16 at June 1, 2002 and 2.28 at March 1, 2002.
Analysis of the 10-Q and observations
1. earnings per share becomes $0.17 when adjusting for stock based compensation. Total cost per 10-Q is $6,987 for 1Q03 as compared to $6,907 in 1Q02.
2. Square footage at 1Q03 was 17,423,000, compared to 15,081,000 at 1Q02.
3. Exercise of stock options resulted in cash inflows of $11,975 at 1Q03, compared to $3,664 at 1Q02.
If you are a client of ours, and if you have questions regarding Bed, Bath and Beyond, Inc., please call our office. If you are not a client of Redfield, Blonsky & Co. LLC Investment Management Division and are reading this report, we urge you to do your own research. We will not be responsible for any person making an investment decision based on this report. This report is a “by-product” of our research. We are not responsible for the accuracy of this report. We are not responsible for errors that may occur in this report. Please do not rely on us to monitor or update this or any other report we may issue. In theory, we could come across some type of data or idea, which causes us to eliminate our short sale position of Bed, Bath and Beyond, Inc. from our portfolios. This report may have undergone revisions starting on June 16, 2003. We will not notify readers of future revisions. We are not responsible to keep readers of this report updated for changes or material errors or for any reason whatsoever. This report is dated June 18, 2003; it is possible that by June 19, 2003 we could have covered our entire Bed, Bath and Beyond, Inc. short sale position without giving notice to any reader of this report. We manage portfolios for clients, and those clients are our greatest concern as it relates to investing. Certain clients of Redfield, Blonsky & Co LLC may not have Bed, Bath and Beyond, Inc. in their portfolios. There could be various reasons for this. Again, if you would like to discuss Bed, Bath and Beyond, Inc., please contact Ronald R. Redfield, CPA, PFS (partner in charge of investment management division).
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