Q3 2019 Earnings Call
Thank you for holding your conference call will be beginning shortly thank you for your patience.
Once again, thank you for holding your conference call well be beginning shortly thank you for your patience.
Welcome to bed Bath and beyond third quarter fiscal 2019 earnings call.
All participants will be no listen only mode until the Q and a portion of the call Today's conference call is being recorded.
A rebroadcast the conference calls well be avail, beginning on Wednesday January 2028 PM Eastern time through eight PM Eastern time on Friday January 10th 2020 to access to rebroadcast you may dial 18888437 for Onenine pass code.
Idea for nine to four nine to zero seven.
This time I like to turn the conference call over Janet Barth, Vice President Investor Relations. Please go ahead.
Thank you Adrian and good afternoon, everyone. Before we begin I wanted to remind you that our fiscal 2019 third quarter earnings release on slide presentation can be found any investor relations section of our website at www dot bed Bath and beyond Dot com and as exhibits to the form 8-K, we file just ahead of this call.
Joining me on our call today are marked written bed Bath and beyond President and Chief Executive Officer, and Robin Dullea, Our Chief Financial Officer and Treasurer.
Let me remind you that this conference call and the slides we refer to may contain forward looking statements, including statements about our references to our outlook regarding the company's performance our internal models and our long term objective all such statements are subject to risks and uncertainties that could cause actual results to differ materially from what we say during the call today.
Please refer to our most recent periodic SEC filings for more detail on these risks and uncertainties, including the risk factor section in our annual report on Form 10-K , the company undertakes no obligation to update or revise any forward looking statements.
Additionally, the information we will discuss today contains certain financial measures that exclude amount or are subject to adjustment that have the effective excluding amounts that are included in the most directly comparable measure prepared in accordance with generally accepted accounting principle for a reconciliation to the most comparable measures presented in accordance with GAAP. Please refer to the table at the end of our earnings.
Release available on our website and included as exhibit to our form 8-K filed today.
Ill now turn the call over to Mark.
Thank you Jenna and good afternoon, everyone Im glad to be today during my very first earnings call as bit Boston beyond President and CEO .
For many years I've watched and Demod. This company is a competitor as well as a customer reflecting on my own families back to college experiences.
Excited to the opportunity to reconstruct renovate and restore this iconic retailer.
From a top essentially bed bath and be able to help millions of people make it easy to feel apart.
Family believe our company remains uniquely placed to play an essential role in our customers' lives to do so we need to make the business we call them as special as have customers make days.
Since arriving in New Jersey, just 66 days ago I have been fully immersed in the business to assess our operations at portfolio, our capabilities and our culture.
My initial enthusiasm for coming to be above and beyond has been affirmed we have a highly recognizable and beloved brands with passionate associates and customers.
As a business we have substantial scale with over a thousand stores across the us and in Canada strong brand awareness amongst our customers and a business model to support by our strong balance sheet and significant cash flow generation.
From day, one I've received such a warm welcome from associates across our company and an open invitation from the team to create and lead change.
During my store visits of witness the passion of our associates as they serve our customers and their implicit desire to win.
Also saying that customs engaging with the brand and I've listened in responded directly to many customer concerns.
Turning to our recent quarterly performance, we reported sales of $2.8 billion at 8.3% comp sales decline and adjusted loss of 38 cents in as adjusted diluted earnings per share.
The business was challenged by pre and post the Thanksgiving holiday period, despite favorable results on the shifted basis during the five day holiday shopping period from Thanksgiving decide Monday.
Let me be clear these results on satisfactory and underscore the imperative for change in strengthen assets of priorities and purpose, we must respond to the challenges we face as a business, including pressured sales and profitability and reconstruct a model durable model for long term profitable growth.
Our path to achieving our objectives will not be linear as evidenced by a third quarter results, but we will move quickly to course, correct and drive the business forward.
Now, let me discuss our preliminary approach to lead our company into the future.
I'll provide a further detailed plan in the coming month, but today I want to share some high level insight into where we are heading.
First is the deep understanding of our customer and a market opportunity.
Let's start with some data here.
Based on results of a recent brand health track, a study and NPD consume a tracking data bed Bath and beyond is number one and brand awareness for the house ways in home goods category and is a strong leader in consideration the bidding and Bob.
Overall, 79% of our customers have a favorable impression about brand and 75% of customers want to buy format top categories, such as home textiles and elsewhere.
This data demonstrates the bed Bath and beyond is still up a loved will name brand with tremendous opportunity to grow share within a $51 billion us market for the harm related categories, we offer.
We can and will be more competitive and our categories to win back share to build stronger authority and performance.
The data also speaks to our challenges, including a lack of clarity wrap purpose and value and a softer connection with genzyme millennial customers in our product categories.
In addition, we know industries that 80% of traffic is influenced by digital touch point reinforcing that a digital business is a gateway to our customer and that we need to drastically improve our digital platform.
We're also general market pressures, such as increased investment home categories for mass retailers, new competition from direct consumer brands increased customer expectations across store digital and delivery experiences.
And the reality, though the next generation of customers are not to digitally savvy, but shop digital first.
As such will be leaning into the digital space to make it easier more convenient for our customers to shop with us including quickly evolving our strong performing reserve online pickup in store offering to a full buy online pickup and store or BOPUS model during the first half of fiscal 2020.
We have a pre mandate to reestablish our authority as the preferred omnichannel arm destination.
In doing so we need to clarify the meaning of value to our customers.
Our future will be framed by customer market insights to define our market opportunity and inform the development of a winning customer value proposition one that we can bring to life for our customers across all our retail channels customer segments demographics and occasions.
As such we recently entered into a partnership with the MPD group to assess their extensive retail market data and customize reporting and other data driven services, which will enable us to more clearly review pricing share and white space opportunities.
Later this year to build upon this partnership we will also work with MPD rollout of into collaboration program to further refine our assortments and strategies.
I.
Cutting our go forward strategy will be granted in the following five pillars.
First our product, we will refine and amplify an exciting omnichannel assortment, the rebuilds authority and preference for bed Bath and beyond and create energy through differentiation and curation.
Second our price, we'll invest in the end clarify compelling value through more choice of opening price points relevant on brands and crude price communications to sharpen our value for quality proposition and to both acquire and Winback customers.
Third is that promise, we will clarify and deepen our relationship with our customers by connecting engaging and motivating them to strengthen loyalty and lifetime value.
Fourth is our place.
We will accelerate and optimize connecting with inspiring and energizing our customer are becoming a truly omni always retail to serve their preferred shopping needs and lastly, critically important is that people will create and sustain that talent engine and culture that attracts retains and develops high performing team.
To consistently deliver operational excellence and business results.
With these five pillars is our guide we embracing a commitment to reconstruct to modernize our operating model to drive efficiency and effectiveness charting a new costs for our company.
We look forward to sharing more details on these five strategic pillars and expectations for future performance over the next month.
And hosting an investor event in the spring of 2020 and we thank you in advance for your patience and support while we finalize these plans.
In the meantime, how teams remain focused on accelerating our extensive transformation efforts and driving against our new two priorities to generate savings and reinvest for the future growth.
We have been reviewing and optimizing the companys asset base, including the portfolio of retail banners as a peaceful to further funds to potentially redeploy and reinvest.
We've been reviewing them resetting the cost structure modernizing for growth and refining our organization, which is expected result in significant savings in both cost of sales and SDMA, including reducing overhead improving sourcing increasing private label penetration and optimizing our supply chain.
We also have been more definitively analyzing our sales and share an effort to improve our sales trend and topline growth in line with our future goals.
But topline still remains challenged with by tangible progress on many of these priority.
What action. We've taken includes the announcement earlier this week of the completion of a real estate sales leaseback transaction, which generated net proceeds of over $250 million.
This still includes commercial space, including retail stores, a distribution facility and our corporate office in New Jersey, which will be continued to be occupied onto the long term leases.
This activity marks the first step towards unlocking valuable capital in that business that can be put to work to amplify our plans to build a stronger and more efficient company to support revenue growth financial stability and shareholder value.
Well the specifics of our capital allocation start to remain and review as the board management team evaluate future capital investments required to accelerate the companys ongoing business transformation.
The net proceeds from the sale leaseback transaction and other potential cash generating transactions could be used to reinvest in the company's core business operations to drive growth.
Fund share repurchases reduce the company's outstanding debt was some combination of these.
While we can outline any specifics at this time, we are still actively pursuing other potential portfolio adjustments and working through the process with our outside advisors.
In connection with this process. The company continues to evaluate set and remaining owned real estate.
With the Reengage in any such action in the associated timing will be based on a careful assessment of each asset and how to best optimize its value for that business on a go forward basis I look forward to updating you on our progress in due course.
As we reconstructive modernize our operating model, we need to embed the right leadership capabilities and accountability measures to ensure the business operates efficiently and effectively.
Rethink of the company's leadership team was necessary to propel bed bath and beyond forward.
Last month, I announced extensive changes to our leadership team, including the departure of six senior members.
We'll be putting a team in place that will not only have the right talent and expertise to execute our new vision and inject new ideas, but also the right organizational structure to facilitate most streamline decision making.
To accelerate the pace of transformation and to reestablish bed bath and be until 30 in the home space.
Balancing our existing expertise with fresh perspectives from new innovative leaders of change will help us to better anticipate and support our customers in a lot journeys and shopping needs.
During this period of transition I am grateful to our leaders who have stepped up from five key interim leadership in merchandising digital marketing and brand and legal.
I've been Boyd by the immediate positive change the engagement of these key leadership teams has provided.
I'll be also leaning in during this transition period and personally overseeing the work of several teams as we solidify our strategy and plans together.
In connection with the leadership announcement I have been active in the recruitment process for these wells already.
Hum volume of inbound interest has been extremely high Im confident that we will recruit top talent to these positions.
In other activity as part of our strategic focus we have been further evaluating our product assortment.
Are they taking aggressive steps to rationalize the assortment and better manage inventory as we started journey and building out offering of owned brands balance with a powerful arsenal of coal National brand.
More to come on this soon.
These are among the early accelerated actions were taken to lay the foundation to create a new vision for our company one in which we work together to build a better business every day and a place where we make it easy for millions of customers to feel at heart.
With respect to ourselves stabilization efforts, we did see some positive signs of growth during the recent Thanksgiving sales period benefiting from all of those being open on Thanksgiving day, this year, new promotional activities and new pricing models.
Comparing these five days from Thanksgiving through cyber Monday, 2019 versus 2019 comp sales actually increased by 7.1% supported by growth in physical stores about a 5% and strong growth from our digital channels in excess of 13%.
These results begin to demonstrate that when we think can act differently, we can create meaningful positive outcomes.
Strong promotional activity. During this holiday period is not preferred we will be sharpening of value for quality proposition in an effort to not only winning back customers, but also attract new month.
As I said earlier, a third quarter results were on satisfactory.
To some extent outperformance was impacted by self inflicted issues, such as poor inventory management non competitive pricing and a lack of convenient shopping options like BOPUS, which you do know can be rectified going forward.
In the near term, we will be focused on these issues and our operating model and will improve performance will not be linear we will continue to lay the foundation of our transformation as we look to address the internal and external headwinds that are impacting on our business currently.
In short my mission is to ensure the bed bath and beyond as well position for the long term success.
We have a highly recognizable in block brand with passionate associates and customers I truly believe this one of the lost iconic retailer turnarounds in this country and I'm excited about the future about business.
I'll now turn the call over to Robert to review, our quarterly financials, and then afterwards I will make some closing remarks robin.
Thank you Mark.
Let's start with a review of our GAAP results.
We reported a net loss per diluted share of 31 cents for the third quarter fiscal 2019 compared to net income per diluted share of 18 cents in the prior year period.
Which included a benefit of 16 cents from a gain on sale of the building.
Our reported net loss this quarter.
Included in net benefit of seven cents per diluted share for special items, which include a favorable adjustment of $24 million to the company's previously established incremental reserve for future markdowns that was partially offset by a noncash charge.
<unk> million dollars for the impairment of certain store level asset.
On an adjusted basis, our non-GAAP net loss per diluted share with 38 cents.
To better represent the year over year performance of the business during the comparative corners, and consistent with our disclosures during previous earnings call in fiscal 2019.
My review of our quarterly result will be on a non-GAAP basis, excluding the adjustment to the inventory reserve and the store impairment charge as well as last year's gain from the building sale.
As a reminder, our third quarter. This year consisted of the 13 weeks ending November Thirtyth and included Black Friday and Saturday after Thanksgiving, while our third quarter last year consisted of the 13 weeks ending December 1st and included Black Friday Cyber Monday week.
Net sales in the quarter were 2.8 billion a decrease of 9% from the third quarter last year.
Sales for the quarter decreased 8.3% and reflected a decrease in a number of transactions, partially offset by an increase in the average transaction amount.
On a directional basin comp sales from our stores declined in the high single digit percentage range, while comp sales from our digital channel declined in the mid single digit percentage range.
Sales for the third quarter were significantly impacted by the calendar shift of the Thanksgiving holiday.
This year there has been last week of holiday sales compared to the prior year period.
Adjusting for this calendar shift to include Thanksgiving and cyber Monday leaks in both periods.
Our comp sales declined only 3.6% with a decline in store sales of 6.5%.
And growth in digital sale at 9.4%.
During a like for like comparable period, covering the five days from Thanksgiving Cyber Monday, our performance showed comp sales growth of 7.1%, including growth in stores of over 5% and digital growth in excess of 13%.
Despite the calendar shift our business remained challenged with some self inflicted issues, including core inventory management non competitive pricing and a lack of convenient shopping options and we are working to address these issues.
To create noticeably different shopping experience for our customers.
We executed a rapid refresh of 156 of our highest volume and most profitable at Bath and the on stores, including basic improvements to store anyways and checkout.
We also engaged in new promotional activity during the holiday period, including special in store and online sales events and the launch of our first ever National Black Friday advertising campaign.
Overall, either positive steps, but we know we have a lot more work to do to stabilize our topline and margins.
Moving now to the gross margin our adjusted gross margin for the quarter was 32.3% of net sales as compared to 33.1% in the third quarter last year.
This 80 basis point decline is primarily due to the decrease in merchandise margin driven by a higher level of promotional activity in the quarter and was partially offset by a decrease in net direct to customer shipping expense.
Our beyond plus membership program continues to grow and now stands at about 1.4 million members.
Beyond plus customers spend more and visits more often the program continues to unfavorably impact our gross margin, including by about 35 basis points. During the fiscal 2019 third quarter, which is similar to the prior year impact.
Moving to ask DNA.
Adjusted Ash DNA expense for the quarter was $931.8 million or 33.8% of net sales as compared to 982.5 million for 32.4% of net sale in the prior year period.
This $51 million decrease reflects our progress in resetting our cost structure, including lower payroll and payroll related expenses.
Several actions taken this year to reduce overhead costs.
And lower occupancy expenses, resulting from our ongoing comprehensive real estate optimization effort.
Partially offset by higher management consulting expenses associated with some of our strategic initiatives.
As a percentage of net sales 140 basis point increase Nash DNA. This primarily due to the effect of our fixed costs, such as occupancy and technology related expenses, including depreciation and a lower sales base.
As well as from higher advertising expenses.
On an adjusted basis, our effective tax rate was 20.6% and includes 2.8 million of net after tax costs.
Due to a distinct events occurring during the quarter.
Now looking through our balance sheet.
We ended the quarter with 920 million in cash and investments.
Retail inventories of 2.7 billion at cost.
Correct that a reduction of 10% or 289 million at cost during the quarter compared to the end of the prior year period, excluding the impact of the incremental reserves for future markdown.
This 10% reduction in inventory is despite our quarterly sales decline of 9%.
Let me now briefly give an update on our inventory reduction initiative and the adjustment to the reserve I referenced earlier.
As we disclosed last quarter, we initiated a plan to aggressively reduced up to $1 billion of inventory at retail over the next 18 months as part of our near term priority to review and optimize our asset base.
Is included the removal of approximately 350 million of inventory at retail before the holiday.
In conjunction with this decision we took an incremental reserve for future markdowns of 194 million in the second quarter.
We have subsequently refined our plan and as a result, we now estimate our recovery rate will be higher than originally planned and therefore, we recorded at 24 million dollar favorable adjustment to our reserve for future markdown in the third quarter.
This adjustment is reflected in our reconciliation for adjusted gross profit included in our financial disclosures.
Moving to Capex.
Our capital expenditures for the first nine months for 188 million with nearly 50% related to technology projects.
Merrily focused on logistics digital capabilities and analytics.
The remaining Capex was primarily related to investments in stores, including Remodels and new store openings.
During the third quarter, we closed 14 stores across all concepts and opened four stores.
We now plan to close approximately 40 total stores, including about 20 bed Bath and beyond stores.
We had previously planned to close 60 total stores, including about 40 bed Bath and beyond stores.
We have decided to delay the closing of 20 of the 40 bed Bath and beyond stores that were scheduled to close to utilize these stores during the first half for fiscal 2020 to better facilitate the clearance and sell through of the merchandise associated with the inventory reduction initiative.
We are still on target to open approximately 10 total stores, including about two bed Bath stores during fiscal 2019.
Regarding share repurchase activity, we had a low level of engagement in the market repurchasing $1.2 million or 87000 shares during the quarter.
And as Mark stated earlier, our capital allocation strategy remains under review as the board and management evaluate future capital investments required to accelerate the companys ongoing business transformation.
Today, our board of directors declared a quarterly dividend of 17 cents per share to be paid on April 14th 2020 to shareholders of record as of March 13 2020.
Similar to our third quarter results, we expect our sales and profitability to remain pressured during the fiscal 2019 fourth quarter.
Considering these headwinds and marks ongoing work to assess the business and finalize the details of our go forward strategic plan as well as the extensive senior leadership changes within the past month.
We believe is appropriate to withdraw our fiscal 2019 full year financial guidance.
Before I conclude.
I'd like to provide a few additional pieces of information.
First our fiscal 2019 fourth quarter pre tax earnings will include the following items.
Approximately $11 million a severance expense associated with the extensive leadership changes announced in December and approximately $33 million of a loss related to the sale leaseback transaction.
Second our fiscal 2019 capital expenditures are now plan to be lower at approximately 275 million to 300 million compared to our previous estimate of between 350 million to 375 million.
This lower estimate is primarily due to the timing of projects.
And finally in connection with the recently completed sale leaseback transactions.
We will incur annual incremental pre tax net occupancy cost of $11 million, which began with the closing of the transaction in late December .
Our balance sheet will include roughly 190 million of incremental lease assets and liabilities from this transaction.
The transaction generated net proceeds of more than $250 million and included about 2.1 of our nearly 4 million square feet of owned real estate.
And consisted of 12 retail locations, one distribution facility and our corporate campus in New Jersey.
And the lease term on these properties generally range from 12 to 18 years.
I'll now turn the call back over to Mark for some closing remarks.
Thank you Robin.
It's clear that we have some heavy lifting to do against emerging plan and clear goals.
I believe that to change the trajectory of our current results you must first identify understand where the customer needs and the marketplace. The headed and then invest quickly and consistently to ensure our core business conserve those needs competitively.
The approach we are taking set the future strategies very much aligned to fulfill this vision.
So today I want to be clear on where we stand and where we are going.
We are experiencing short term pain, some of which has been self inflicted.
We are making bold at both price changes to modernize up business.
We have a solid balance sheet.
We will have a relentless focus on our customer.
We will act as a true omni channel retailer.
We will be agile and take a measured approach and as such these results will be accomplished over a period accorded the news to create a stronger authority in that market and the sustainable durable business model.
One of the advantages of more than 30 years of experience in different retail environments is seeing other coaches different structures and different models during turnaround situations in growth recovery.
Through the lens of these experiences I can see accompanies fundamental advantages challenges and opportunities much more clearly.
Is this perspective is helping middle look objectively the business and make bold pivots to reconstruct renovate and restore bed bath and beyond.
We have plenty of options and a healthy balance sheet as I said to get to work and accomplish our goals.
As I said before our path to achieving our objectives will not be linear as evidenced by our third quarter results, but we will move quickly the course, correct and drive the business forward.
In closing I want to say once again has a lot as I am to have the opportunity to lead this iconic company.
Our entire team with more than 60000 associates and I recognize that we have worked due to give bit above and beyond to master the fundamentals and strengthen our execution. We will work together to finalize the details of our strategy and we'll share. These plans with you over the coming up.
We appreciate your patience as we embark and pursue on this journey to position bit above and beyond to deliver long term sustainable growth.
We are all dedicated to advancing our company for the benefit of our customers our vendor partners and shareholders with that I'd like to open the call to your questions.
Thank you well now begin the question answer session.
If you have a question. Please press Star then one on your Touchtone phone.
I wish to be removed from the Q. Please press the pound sign or the hash key.
You see speaker phone may need to pick up the first for pressing the numbers and also please limit your questions to one question and one follow up question. Once again, if you have a question. Please press Star then one on your Touchtone phone and our first question comes from current Nagle from Bank of America. Your line is open.
Hi, good morning. Thanks.
Thanks, very much for taking the.
My question, So I guess the first one.
For your Mark I will be looking military early on but then there is lot to work to do but what would be.
Perhaps reasonable timeframe for you guys to start seeing.
Stabilization and then fall to that.
I guess any more thoughts you could share in terms of all the extent and maybe the timeline.
For the new.
Or refresh.
Bed Bath terms of volume what operating segments, given your long term.
Yeah. Thanks cuts so in terms of the timeframe again, we're still on the process of evaluation and I want to be really CLIA continuing to accelerate the existing transformation work that was put in place which is really solid.
And we're being able to double down on that since becoming onboard.
And just looking to get a clarity on our priorities our investments in our Capex, we still have a few both in the year. There that we're looking to solidify so we can help prioritized both that plan, that's why I'm sharing that I'll come back in the spring to be really clear on 2020 plants and the pagination of those goals.
So it's more work to be done but work in slide so stay tuned on that.
So the timeline on the operating model will be commensurate with that but there is some some individual efforts there already taking shape and we see ourselves doubling down on buyers to date, they mostly focused on operational strength and excellence and reconciliation Im looking to drive more of the growth initiatives against those same.
Pyramids of.
Transformation and opportunity. So again, that's can be built into our plan.
And our next question comes from Bobby Griffin from Raymond James Your line is open.
Getting everybody I appreciate taking my questions and Marco welcome to buy back in June .
Thanks, Bobby.
Our first question Thomas to Mark and I appreciate some of the the early details on kind of five pillars, but all could you maybe talk about your view of couponing and how that fits into those pillars in your customers and then my follow up question is just on the remaining real estate. That's left off can you give a little color on whatsoever properties. Those are the distribution centers stores.
Other type of property that we might not be thinking of.
Yes, so let's start with couponing, So I think what the key was that it comes from on here is really balance. So we know that the coupon as part of our heritage now DNA and we want to maintain that in our mix as part of our tools that we can reach out to customers with but we do see the there's an opportunity to readjust our value proposition directly with the cost.
And our research shows that we can sometimes be ambiguous or unclear about what that first prices. When this searching online which is a primary vehicle for research. So really rebalancing opening price points price right daily as well as meaningful promotions and coupon usage.
He is going to be our structure going forward, we're already analyzing where our coupon has strength and where it has opportunities to be morphed into other opportunities such as promos or troop regular price well priced business and that work is currently in flight Wi.
Regarding the real estate we.
We continue to look at all our options on the table equivalent to what we've seen now.
Stores warehousing and other assets.
Again, we're still in the process of valuing that with outside support out with made a ball first move with that we'll see it as or other opportunities and I look forward sharing more as we evaluate.
And our next question comes from Simeon Gutman from Morgan Stanley . Your line is open.
Hi, This is Josh camote offices, and thanks for taking my questions Mark improving the digital offering is clearly in focus can you share. Some examples of what functions you think need to most work as well some of the time frames and live on investments in Golden making those fixes.
Yes, I think this is one of the areas we can be the most to agile because of the rapid change on the costs associated so I think everything from the speed and accuracy that that a customer coming through our website competitor our competition has being reviewed.
How we tell stories to our customer and involve them for consideration as well as purchase.
Talking about.
Digital thing and Trojan horse for the total experience in the true digital touch point as opposed to a net independent silo, So enterprise thinking really here as digital or the guidewire servicing from how we feature on our website, how we represent value how we celebrate key moments and missions and occasions for our customer as well as the key brands and.
Categories. They want to look at is really up for grabs now we started that work and we've got com support in analyzing that and looking at considerations like speed agility, and how we profile brands price points and storytelling and keep promotions. So all of that is being looked at.
And we deepen that at the moment, so we hope to get some traction on that very quickly in half one and be established term ready for the all important second half.
Thats very helpful. Thank you and then just one for Robin to follow up you mentioned the shifted comp of negative 3.6% versus the reported one what was the gross margin for the quarter on a shifted calendar basis.
We haven't quantified our share that information.
Okay. Thank you.
And our next question comes to Michael Lasser you'd be asked your line is open.
This is a pull my story on for Michael Lasser. Thanks, a lot for taking your questions.
So mark based on your initial assessment of the company's cost structure, where do you think are key opportunities, but costs one of the biggest bucket.
How much do you think the of the cost savings realized that you'll have to reinvest back into the business.
And then along those lines can you provide your initial assessment of which areas of the business most investments.
Right. So no I think that as we look at the buckets, we definitely see improvement in our call XOMA deepen negotiation process to revise our costs and work with have end device as well as we look to the more long term proposition of how we build out our RF brand capabilities and invest.
Just in better price point, and therefore, better margins Socalgas don't be one of those considerations I think across the board we've seen in that pre identified through the transformation programs opportunities to create efficiency and effectiveness in how we work and while we think more than enterprise and what will add with more agility, we can actually reduce some of these costs.
Costs.
As we've looked at all the buckets are not going to specify which ones at this point because we're still working fly where we see investing is really gain to be where I talked about and thats five pillars, we invest in our experience throughout place in our people throughout team and our product and our promise and so we guide.
Reach out to value and clearly from what I've stated digital will be one of the key areas, but the physical touch point of the stores and the digital touch point in tandem being.
Reconstructed and renovate is going to be a key focus.
And our next question comes from Brad Thomas from Keybanc Capital. Your line is open.
Hi, Thanks for taking my question and welcome to Bethlehem Mark.
I wanted to for SaaS kind of high level question that question with the fourth quarter.
I guess at a high level Mark I was hoping you could help us think about.
The.
Near term opportunities to improve merchandising and sourcing and costs do seem to be pretty tremendous as we look at the company from the outside and just your willingness to try to harvest time and follow them through the bottom line and the shorter term versus that.
Opportunity to maybe reinvest in the business from the longer term and just how youre thinking about balancing those two and then just as it relates to the fourth quarter. I was I was hoping you give us a little more color.
Around how December played out and if we should be thinking of that versus the.
Negative eight comp that you reported or the.
Negative 3.6 adjusted.
Just as we try to calibrate our models for the fourth quarter any anymore color you can provide be helpful.
Yes.
So let me take the first phase, which is harvesting the merchandising benefits as I expressed to earlier with knee deep in that at the moment and I'm really pleased with it.
The pace and what type of looks like there in terms of hopping better colleagues and really looking to Q right. Our assortment I think one of the real strengths of the season.
When we are under pressure is it will able to maintain our inventories now is look at that mix of.
Sales growth business inventory growth and the team has done a great job in terms of keeping a lid on inventory and really calling through that aged and excess inventory side of the business. So thats a real strength in help set us up for 2020 and really positive why as I mentioned earlier the ideas around harvesting RM brand opportunities.
Is one that needs.
The portfolio review and have already conducted that and we began the process of that but thats not an overnight sensation and we want to get it right, but we will reconstruct are off with a definitive mix of Arden brand curated with national brand to create a unique and differentiated harmonious already and so thats.
Clearly on the agenda time of harvest size of harvest stay tuned are going to come back when we in spring outline their overall plan.
And Thats what were very actively working on at the moment in terms of Q4, we're still in the middle of that and when they're going to be declaring any numbers. There, but we have said that we continue to remain under pressure and we're working through how we're performing there and we have a number bowls in the air on what our options are and how we can come out so again not.
Offering that the mimed, but thanks for your question.
Your next question comes or Seth Sigman from Credit Suisse. Your line is open.
Hey, guys. Thanks for taking the question.
So I'm curious on the holiday performance, you talked about that 7.1% comp over the five day holiday period. You also mentioned that this was the first Black Friday campaign, you ran so I assume that helped anything else you would highlight that drove that positive comp and if you could give us some perspective on how that exact period performed in prior years, maybe just last.
Year to put it in context, there would be helpful.
Yes, so I can give you had obviously ewen and Robert can add some color to the actual numbers.
Having said that the issue for US was in the some of the corner of the Thanksgiving, giving came in the closing dies in that time with a bang, but our lead in was relatively softer than we did.
We did last quite traffic and enough to compensate.
And balance out our full color quarter, and Thats, a huge lining for us and we won't repeat that in 2020.
But what we did see is not only being an extra day, but we started entering into Thanksgiving period, and we saw group pressure on sales and we realize that some of our activity in digital by trying to remain.
You know independently profitable in that space.
And not thinking about the gateway experience on.
The Thanksgiving period was distorting our true price value equation in what we could mean to the customer at that time, we might really shop pivot and I was really proud of the team and we instantly sole key items, we're winning share back we're watching it hour by hour.
And we're having to do that digital first of course because of our agility there.
Having a stronger presence in store signage in office, and we think Thats something we can still move more assertively on next year and combining that threesixty experience, though they all lent itself to a much stronger period again light in the quarter and only a small part of our overall performance, but they did give us green.
Sure. It's about the chain decide when we act and think differently, we can win and now customers.
Loves Us and trust us we've discovered let them in the Dole.
And just regarding regarding the numbers we were pleased that when we made those changes we were able to deliver positive results, although in that in that window.
Window between Thanksgiving and cyber Monday, having a positive.
Over 5% comp in stores and a positive over 13 in digital any.
Trajectory than and let me stop.
Your next question comes from Oliver Wintermantel from Evercore. Your line is open.
Yes. Thanks.
I had a mark you mentioned five pillars.
Just wanted to focus on two of those.
One you mentioned Omnichannel multichannel investments and the other one was price investments.
And your prepared remarks on so I don't want to put words in your mouth, but as it is it fair to assume that.
In this and this transition period are you focusing more on top line growth dental margins to get get the top line going and maybe invest in margins is that that's a fair assumption.
I think that little to general I mean, I think we're looking at a very balanced by between sales and gross margin. What we are recognizing that Oliver is the need to ensure.
That in this new digital world and new retail environment that we're ensuring that traffic flows in the right why and that we're in the consideration pool appropriately for our customer so competitively priced and realistically process in the market becomes the investment that we need to Mike I'm, just trying to this I've been through it before.
Converting.
In our promotional sales will clearance sales to regular price sales and it can be meaningful to our business in terms of or overall sales and stabilized gross margin. So we're looking at the balance of those two it's a weather music frequently here and it's quite deliberate.
With not just driving topline thousand sacrifice all.
Got it thanks and floor.
Just as a follow up the you mentioned the real estate strategy and that is under review.
Have you.
Have you talked about the different different brands did you own what the strategies there.
Yes, we've taken external Panera, two assessed or overall concept from a continually continuing to look at opportunities to maximize our portfolio.
And identifying the share at this point valid for coming back and sharing more ideas on where we're heading with our operable concepts and portfolios.
And our next question comes to Steve Farr Guggenheim Your line is open.
Good evening.
I wanted to start with a follow up on the promotional plans you discussed and maybe to start on that maybe you can sort of give us some color and expand on the decision during the quarter, but I guess over the past couple months too.
Due to 25% off the entire purchase.
Multiple times in the reason I ask right is just looking for some insight into the customer response.
And then also just maybe how that relates to your initial take mark on the value proposition of the beyond plus membership program.
Given that that there is some inherent value right with those members abilities.
To utilize coupons.
All the time in the frequency.
Increasing the frequency in the depth of the coupon for everyone sort of distorts the value. So just love to hear how you're sort of balancing promotional efforts with the beyond post membership program.
Yes, so in terms of the Thanksgiving period. This was the first time that we actually deployed an active.
Matt promotional strategy not a coupon strategy.
And I think that what we did inside as we detected said there was an absolute and I think it talked clearly and resonated firstly with the customer about value and that's our really tight microcosm of time with hyper focused on price and value and discounts in the market. So it's not a long running opportunity.
Okay, and not a massively repeatable one about where we see that we can strike with a simple effective promotion.
And they won't be as steep as we've we've shown here. This was the as I've said in the time applies will balance that out with a portfolio of regular coupon and meaningful promotions. So well currently reviewing the results that we've had.
And helping to shape, how that becomes more meaningful effort throughout 2020 plans to more follow on that.
So the other part of your question can you just repeat that performing.
And maybe just your initial perception right of the value proposition of the beyond plus membership program.
Okay, obviously part of that is that 20% off coupon everyday every item.
If there is that if there's going be a change in the promotional plan here it distorts the value.
So just love to hear your initial production.
Yes, I mean I think.
You, we are kind of putting an opt for a total review across the board I think what we see is that we have a guess who is incredibly loyal and how do we reward them, but how do we engage them and I think they're looking for borrowers.
And so I think that the VR past, 20% off is one strategy and one often that weve used.
And I think there's probably several more notes that we can add into that to play at a different why.
But again, it's about a measured response between the action entire reaction of each of those pieces promo beyond plus coupon and regular price and so we are reviewing lies in real time at the moment, it's definitely an area of focus for us.
And our next question Jonathan met to ski from Jefferies. Your line is open.
Great. Thanks for taking my questions and welcome Mark I think so appreciate that will be yes of course appreciate we'll be getting more color on the timing of potential divestitures in a few months.
With the broader vision, but what are the parameters you will be using to prioritize.
In deciding which concepts you deem as core and which you deem as less important to the new bed Bath.
Yes, Great question, I think the bright spot arena as with the the criteria isn't necessarily cash because we also cash rich.
And we can add to that to invest in that business into another a number of different things. The criteria really is around what do we see is fundamentally connected to our core and that we can build sustainable growth and really build equity and over time.
And also to what is.
In addition to our current worldwide or subtraction to account workload and our focus also at portfolio is wide.
They are all strong and they're all great assets, but how do we want to be in 123 years time, I think we want to CRC itself is a core nucleus of brands and businesses that are in a related and that that can support one another and create true economies of scale. So thats part of the criteria that we using as we said.
Yes.
That's helpful and just a quick follow up you mentioned the vendor collaboration program I think slated for later this year, maybe just if you could you share kind of your vision for for what that will be calm and what what bed bath and seek into achieved there.
Yes, I think.
Overall IC vendors is a major cater the door in terms of future success that vested in us and we work is key partners and I think we can double down on the partnership.
And that really stems from a level of data understanding our customer and then needs.
And really tapping into our vendors for this strength and I think that.
That's an opportunity for us to be more symbiotic in the white that we work.
And transferring all the information and opportunity between US is I think one of the hallmarks of how operators in the past already won a double down on that.
Ed bed Bath and beyond.
As a set of only been hit 66 days than we've been doing a lot of things one of things I look forward to with my new team is really establishing a much deeper and customer relationship with our vendor partners along with more intuitive data to be able to make real time business decisions made our customer needs and all of us prosper.
And our next question comes in South fashion for Wedbush Securities. Your line is open.
Thanks, Hi, good afternoon, and welcome Mark Thanks sense.
My first question is around Omni talent you suggested a key piece of your turnaround plan to build a true omni channel retailer, which retailers do you view is best in class in this regard already and leaves these retailers as a roadmap for your transformation.
Yes, great questions I mean, I think that I'm I'm, we're looking at the total marketplace and really trying to understand.
The customer have a customer has learnt new ways of shopping and you might have interacting and really looking all buys best practices across the board.
And the key elements of volumes are really around additional first.
Strategy, and what we're calling on the or ways and really thinking about digital as the gateway experienced like we had we've seen congrats to six within the quarter that saw our mobile conversion outpace had desktop vision for the very best time, and that's with the App playing a great wrong, we think that it can be even more prevalent in the why that we interact with the customer.
We see that ease and convenience is a very important part of our business.
And I think that the loss.
12 months to use this really seeing a renaissance in the interconnection between digital and physical especially around boxes, where there's been a lot of growth and on I think we've been given effectively for that and I think weve been missing out on that opportunity. We've seen some really great double digit comp growth in our robust business, but that.
As reserve online by on store, which is still creating friction for the guest to have to go through the actual purchase at store, we're going to move to frictionless purchasing in early 2020, as we moved into a bumps environment, which we see outcome a competition.
Already flourishing in that so we have begun Anthony is a really looking our competition, saying how this exceeding but also how their importance in future guest behavior and we're looking to more quickly come on board with that we know that we have been behind in non that's everything from assortment pricing, how we represent online and in store.
So how we make it easier for customers to shop. All these are highly emulate a bowl bought we also want to make sure that during that process, we're creating a unique and differentiated model from other retailers. So influenced yes copying no and we have a great opportunity being a single authority Anaheim space.
To create a really unique threesixty omni always environment that I look forward to fast tracking and sharing with you guys.
That's very helpful. Thank you and one follow up question for Robin just we think about that fourth quarter reporting comps should we consider those to the 500 basis points.
Better.
So to speak because of the calendar shift.
It will in terms and fourth quarter.
Because we have a lot going on and we're making life changes were still working on our plan at this point between.
Probably not to comment on any on any metrics there.
On slide just in terms of the calendar shift they impact in this third quarter was about 500 basis points between you reported an adjusted comp. So can you just get that back in the fourth quarter Thats, all I want to clarify.
Oh, I understand I'm sorry.
Yes, I believe it I don't know if it would wait the same way on that fourth quarter sales, but we'll provide that information once we report fourth quarter earnings.
And we have time for one more question Peter Benedict from Baird. Your line is open.
Great. Thanks method under the gun.
Great.
Good good to hear your voice. Thank you.
I guess.
She is one and one follow up your I'll start with the just the private brand strategy, because obviously, that's something that that you come with.
Very fresh and a lot of experience and I'm just curious what the.
What the infrastructure needs are.
And what needs to be put in place for you to kind of.
Push that initiative at the level I assume you want to push it.
Is it in place already is there a lot of investment asset take place just curious your thoughts around on that in terms of private brands.
Yes, so creating our bread stable really does take.
Two things I mean, it takes a talented team it takes a clear strategy, but also takes quite partners and we cultivating all three at the moment, we have an existing team who are very strong. We currently deepening our partnership workout team has been out in Asia working through that in the December period to fast track that.
We see tons of upside in terms of our Cogs assessment by converting discretionary labels into a more meaningful on brand portfolio and Thats high on our agenda, there will be some infrastructure investment to get even greater talent to add to add team to get the dump Don but this is why we're currently in flux looking.
Overall staniĊĦi? to make sure that weekend really re caught our operations to self fund and drive these businesses, we see setting up this team in full but still creating operational efficiencies and cost savings tourist DNA as a result, but we're really excited to build off that team and.
Build a portfolio and.
A staged set of events as I've done in prior companies around the introduction of our end and defendable brands that you can only five bed Bath and beyond and then now portfolio.
It's not as we have to design tools create brands move forward.
That's not an overnight sensation, but I'm really excited about what I'm seeing as early footprint of what we're going to be doing them.
Now that that's helpful. Thanks, and then I guess my last question are my follow up would be on.
Just the role of registry.
Bed Bath and beyond.
Historically, it's been a pretty important part of the business just curious your views on registry and what you think you can do there if that's an area of focus for you.
Yes, I mean, I actually was just reviewing some tighter on that yesterday and some really.
Some very positive signs there I think thats been a tougher market for everyone in title, but particularly in our baby business, we've been gaining market share as a result of our registry and we're building deeper trust and engagement with our customers.
And I think that as to why that we can reignite.
Our engagement even further we've seen some declines in our overall sales and registry, while still maintaining a very high share penetration in the registry space. We've known for this I think it's something we want to ignore and we'll find ways to ignited inside our strategic plan. If you can think about the combination of really unique product offerings through on.
Brand and the power of registry and the power of BOPUS and the power of digital you start to really get a new frontier in the way that we can drive our business.
And this concludes the question answer session I'll now turn call back over to Janet Barth for final remarks.
Thank you and thank you all for participating in our call today, if we didn't get to your questions or if you have additional questions as always please feel free to contact me for a follow up call otherwise have a good night. Thank you. Thank you.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.