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Bed Bath & Beyond Inc. Reports Fiscal 2020 Fourth Quarter & Full Year Results

The home furnishings retailer delivers third consecutive quarter of comparable sales and profit growth and strengthens three-year plan.

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UNION, N.J. -- Bed Bath & Beyond Inc. (Nasdaq: BBBY) today reported financial results for the fourth quarter of fiscal 2020 ended February 27, 2021.

Mark Tritton, Bed Bath & Beyond's president and CEO said, "Fiscal 2020 was a year of fast-paced transformation in which we reformed the past, overcame extraordinary circumstances of the present, and established a firm foundation for the future. Despite the challenges created by the COVID-19 pandemic, we relentlessly focused on taking purposeful and bold steps to transform our entire organization and remained true to our plans to rebuild our authority in Home and restore this iconic Company. Importantly, we prioritized the health and wellbeing of our associate teams, customers and communities and I am so proud of how our people have come together to deliver for one another and the millions of people who count on us.

"We are excited to start fresh in 2021 with our sharpened size and scale, a healthier portfolio of core banners and a stronger financial position to execute the first phase of our 3-year transformation journey. As our transformation continues to take hold, we will show up differently for our customers with enhanced omnichannel experiences and modern stores, new communications and differentiated Owned Brands that will elevate the shopping experience and make it even easier to shop with the new Bed Bath & Beyond."

Q4 Highlights

-- 3rd Consecutive Quarter of Comparable Sales Growth
-- +4% Comp Sales growth on Total Enterprise, including digital comp growth of +86%
-- +6% Comp Sales growth on Bed Bath & Beyond banner, including digital comp growth of +99%
-- +12% Comp Sales growth in Bed Bath & Beyond's Top 5 destination categories combined

Consistent Execution of Transformation Strategy Drives Earnings Growth

-- 31.5% Gross Margin; Adjusted Gross Margin increases 20bps to 32.8%
-- 13% increase in Adjusted EBITDA2 to $168 million; 160bps expansion in Adjusted EBITDA Margin2 to 6.4%
-- $9 million of GAAP Net Income; Adjusted Net Income of $47 million
-- $0.08 of Reported Net Earnings per Diluted Share; excluding special items, Adjusted Net Earnings per Diluted Share2 of $0.40

Fiscal 2020 Highlights

Demonstrated business agility and financial strength during year of unprecedented challenges; Built robust foundation to successfully execute 3-year growth plan
3 consecutive quarters of comparable sales growth and adjusted gross margin improvement
-- $3+ billion in digital sales
-- +10.6 million new digital customers (+95% vs fiscal 2019), of which 5 million are new to brand
-- 37% of digital revenue fulfilled by stores; including 14% Buy Online Pickup In Store (BOPIS)
-- $1 billion approximate reduction in gross debt3
-- $375 million in capital return to shareholders through accelerated share repurchases of approximately 16 million shares, representing approximately 13% of shares outstanding, at an estimated average share price of $23 per share
-- $2.1 billion in liquidity
-- 144 Bed Bath & Beyond stores closed as part of network optimization program, ahead of schedule
-- 5th non-core banner divested (Cost Plus World Market); portfolio transformation complete

Fiscal 2021 Outlook

Year of Fast-Paced Transformation Expected to Enhance Strategic Position for Sustained Success
-- Reaffirming fiscal 2021 outlook for Net Sales and Adjusted EBITDA of between $8.0 - $8.2 billion and between $500 - $525 million, respectively
-- Expecting to launch at least 8 customer-inspired Owned Brands, including first quarter launches of Nestwell, Haven and Simply Essential
-- Projecting faster improvement in gross debt-to-EBITDA ratio to <3x in fiscal 2021
-- Investing in growth and transformation with CAPEX spend of approximately $400 million
-- Strengthening capital return to shareholders by increasing 3-year share repurchase authorization program to $1 billion from $825 million; increasing fiscal 2021 share repurchases to $325 million from $300 million

Fiscal 2020 Fourth Quarter Highlights (December-January-February)

Comparable sales increased for the third consecutive quarter, with Total Enterprise comparable sales growth of 4%, led by strong digital growth of approximately 86%. Comparable store sales decreased 20%.

The Bed Bath & Beyond banner had comparable sales growth of 6%, benefitting from strong digital growth of approximately 99%, and was driven by key destination categories including Bedding, Bath, Kitchen Food Prep, Indoor Décor and Home Organization. These top 5 categories had strong comp sales growth of 12% (combined) and represented almost two-thirds of total Bed Bath & Beyond banner sales in the fourth quarter.

The buybuy BABY banner returned to delivering comparable sales growth in the quarter, led by strong digital growth of over 50%, which represented almost two-thirds of BABY banner sales.

Net sales of $2.6 billion decreased 16% compared to the prior year period, driven by impacts from previously planned non-core banner divestitures and permanent store closures. Excluding these impacts of approximately 12%, Core banner1 net sales decreased approximately 3%, primarily due to store closing activity consistent with the Company's network optimization program. Total store net sales decreased 27%, and total digital net sales increased 86%.

Gross margin of 31.5% decreased 110 basis points compared to the prior year period. Excluding special items, adjusted gross margin2 increased 20 basis points to 32.8%, primarily driven by optimization of promotion and markdowns, favorable product mix and leverage of distribution and fulfillment costs, partially offset by higher digital channel mix, including significant industrywide freight cost increases.

SG&A expense of $763 million decreased $264 million compared to the prior year period. Adjusted SG&A2 expense decreased $190 million compared to the prior year period, driven primarily by reductions from the non-core banner divestitures and lower occupancy expense on a smaller base of stores.

Net earnings per diluted share of $0.08 includes approximately $38 million from special items. Excluding special items, adjusted net earnings per diluted share2 was $0.40. Special items include the net loss on sale of businesses, non-cash impairment charges related to certain store-level assets, charges recorded in connection with the restructuring and transformation initiatives, which includes markdowns and inventory reserves related to the planned assortment transition to Owned Brands and the income tax impact of these items.

Adjusted EBITDA2 increased 13% to $168 million, primarily due to higher comparable sales coupled with adjusted gross margin expansion and SG&A expense reduction.

Cash flow from operations of $76 million and $14 million used in cash flow from investing, inclusive of $66 million of capital expenditures. Positive free cash flow2 of $62 million.

Cash, cash equivalents and restricted cash balance of approximately $1.4 billion increased $384 million compared to the prior year period.

Total Liquidity of approximately $2.1 billion, including the Company's asset based revolving credit facility.

Fiscal 2021 Outlook

During the Company's fiscal fourth quarter conference call with analysts and investors, it will discuss its outlook for fiscal 2021 and its long-term financial goals to strengthen and accelerate growth and unlock and drive sustainable total shareholder return. With the non-core banner divestitures now complete, the Company is reaffirming its previously communicated fiscal 2021 Net Sales and Adjusted EBITDA outlook of between $8.0 - $8.2 billion and between $500 - $525 million, respectively. The Company also announced an increase in its 3-year share repurchase program to $1 billion from $825 million.

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