Bed Bath & Beyond looks to future

Between new formats, e-commerce efforts and supply chain initiatives, interesting times are ahead for Bed Bath & Beyond – even if second quarter sales were weak and profits declined.
Bed Bath & Beyond said sales increased 1.7% to nearly $3 billion, while same-store sales advanced a paltry 0.7% during the second quarter ended Aug. 29. The weaker-than-expected top line growth caused net income to decline to $201.7 million from $224 million, however aggressive stock buyback activity enabled the company to grow earnings per share to $1.21 – within the mid-range of its guidance – compared to $1.17 in the second quarter the prior year.

Bed Bath & Beyond spent $194 million to buy back roughly 2.9 million shares during the quarter and signaled to investors that the share repurchase activity will continue for years to come. In conjunction with the release of second quarter results, the board authorized a new $2.5 billion share program to begin in early 2016 after the $305 million of existing authorization is spent.
That level of spending gives the company the ability to boost earnings per share growth while buying time for some of its other key initiatives to pay dividends. Along those lines, some of the noteworthy developments the company highlighted during a conference call to discuss second quarter results included:

The growth of e-commerce. The 0.7% second quarter comp increase was comprised of 25% growth in e-commerce sales and a 1% decline in store sales. However, in an omnichannel world discerning between the two can be challenging. As CEO Steve Temares explained: “When an item purchased online is returned to a store, it results in a reduction in store sales, or when an item is being shopped for in the store and concurrently purchased on a mobile device, it is treated as a mobile sale, or when an item is reserved online and picked up in a store, is recorded as a store sale.”

The “Beyond” store. Equity in the Bed Bath & Beyond brand means to company can sell just about anything online, and it is headed in that direction. The company has expanded its assortment to include categories such as furniture, mattresses, jewelry, watches and luggage.

“We believe these expanded product offerings are part of a natural progression of the merchandise we already sell online or in our stores and extend our ability to satisfy our customers' interests as they travel through their life stages,” Temares said.

Store expansion. Bed Bath & Beyond has entered a phase where it is focused on improving existing operations through remodeling, remerchandising and digital integration efforts. It is less focused on new stores, opening just six new stores during the second quarter, giving it 12 new locations this year. The full-year plan is for 30 openings and 10 closings for a net increase of 20 units, which has little impact on total selling space for a company with 1,520 units across all format types. Greater growth could come from Mexico where the company’s joint venture now operates six store and recently opened its first location outside of Mexico City.

New formats. New selling space is being added cautiously, while the company probes potential new growth vehicles. Examples include a new small format (5,000-sq.-ft.) Cost Plus World Market in Manhattan on 6th Avenue between 18th and 19th Streets near an existing Bed Bath & Beyond store. Up next in 2016 is a massive, by the company’s standards, 100,000-sq.-ft. store in the Sunset Park neighborhood of Brooklyn, where the company plans to combine four formats (Bed Bath & Beyond, Cost Plus World Market, Harmon Face Values) under one roof.

Customer service. Opening in October near Salt Lake City is a new customer service contact center with phone, email and live chat capabilities.

Supply chain. With e-commerce growing 25% and new categories being added, Bed Bath & Beyond is beefing up its distribution capabilities. The company already ships from most of its stores, but earlier this year it added new distribution center in Las Vegas giving it 10 such facilities. Plans call for another facility to open next year in the Southwest and the company is on the lookout for other sites throughout the country.

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