Q4 2020 Bed Bath & Beyond Inc Earnings Call
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Welcome to Bed Bath & Beyond fiscal twenty twenty fourth quarter earnings call all participants will be in a listen-only mode until the Q&A portion of the call. Today is Thursday is being recorded it re-broke broadcast of the conference call will be available via webcast found on the company's investor relations website at this time. I would not like to turn the conference back to Janet Barth vice president of investor relations, please go ahead. Thank you and good morning everyone Welcome to our fiscal two thousand and twenty fourth quarter earnings call off with us. Today is president and CEO Mark Tritton Chief merchandising officer and president of Harmon face values Joe Hartzog Chief Operating Officer and president of bye-bye, baby John home and she financial officer and Treasurer Gustavo are now
Before we begin let me remind you that our fiscal two thousand and twenty fourth quarter earnings release and slide presentation can be found in the investor relations section of our website at ww.w Bed Bath and Beyond and as exhibits to the form 8-k. We just file the head of this call.
This conference call and the slides we refer to may contain forward-looking statements including statements about or 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 factors section in our annual report on form 10-K. The company undertakes no obligation to update any forward-looking statements Additionally the information we will discuss today contains certain Financial measures that exclude amounts or a subject to adjustments that have the effect of excluding amounts that are included in the Box directly comparable measure prepared in accordance with generally accepted accounting principles.
For reconciliation to the most comparable measures presented in accordance with gaap. Please refer to the table in our earnings release available on our website and included as an exhibit to our form. 8-k filed today wage is now my pleasure to turn the call over to mark
Thank you, Janet and good morning, everyone this called twenty-twenty with a year a fast-paced transformation, which we reformed the past overcame extraordinary circumstances of the present and the same information for the future despite the challenges created by COVID-19. We have relentlessly focused on taking purposeful and bold steps to transform our entire organization and remain true to our plans to rebuild their Authority in home and restore this iconic company.
Throughout 2020 we achieved a great deal. We established an entirely new leadership team with world-class retail and digital experience who helped design and shape the growth strategy that will Define our future accelerated change in our operations to create a more competitive Omni always shopping experience with the introduction of new services, like bopus curbside pickup same day delivery and over a hundred meaningful improvements to our digital experience.
with this
Proved omnichannel offering in 2020. We registered more than 1 billion visit to our websites and more than three million downloads of our apps are online conversion rate increased by 30% and repeat purchases 34% of customers plate two or more digital orders. We drove a digital sales growth of over 80% on the year and month past three billion dollars in digital sales.
2020 was a pivotal year for our company. We returned a comp sales and adjusted ebitda margin growth as of Q2 after four years of Decline and sustain this positive amount consistently throughout the rest of the year.
The same time we showed her agility by securing and it's substantially improving our financial position through diligent and our job cash management and expense control as well as a laser focus off driving gross margin Improvement. We also streamlined our portfolio unlocking capital from non-core assets sales, which added even more cash to our war chest. We also significantly reduced our debt.
We kept the year with strong fourth-quarter results, which enhanced our strategic position for our 20 21 and further strengthen our 3-year growth plan.
Importantly the company ended the year net cash positive and a much stronger financial position that we started. We now have a refined and strategically aligned portfolio of retail been a long day and a very healthy cash position to invest where it feels our growth and where it supports our customers and our people we have exciting strategic and impactful initiatives for fiscal 2012 one that will create a platform for sustainable long-term growth these include moving beyond transactional private-label offerings to launching strategic new own brand that can suck differentiation and preference for our Enterprise.
Introducing new and unique Digital Services designed to enhance our Omni or experience and further accelerate growth.
Upgrading and remodeling stores under our store Network optimization program to elevate our omnichannel shopping experience.
Modernizing our technology and operations and Reinventing our supply chain to support our digital first Omni always growth strategy investing to further strengthen our bye-bye, baby Harmon banners to broaden our customer base and dog cost better engagement and continuing to build a foundation for long-term growth and unlock shareholder value age.
As we turn the page on a year of unprecedented change, I would like to take this opportunity to think out team of talented Associates who are extraordinary efforts throughout this past year and alighting our customer and restoring growth in the business hour recovery is real and shows the strength of our own efforts and output rather than Reliance on outside factors such as stimulus spend-down know this because by and large the demographic of our call customer base is not eligible to stimulus benefits in addition data shows. The stimulus band is primarily a Korean category such a food technology and apparel which are not core offerings from our current momentum fortifies. Our customer inspired data-driven approach as we reestablish The Authority in our home baby and beauty and wellness Market.
I will now turn the call over to Joe Chief merchandising officer and president Harmon face values.
Will speak about the quarter from a commercial perspective and then John Hartman Chief Operating Officer and president bye-bye, baby. He will do the same for our baby and our operation. Finally. Chief Financial Officer and Treasurer will review by that strong fourth-quarter financial results and our outlook for physical 20-21. We will then take questions about Joe. Thank you bark our digital first time. The oil strategy is working and was the key driver of our fourth quarter performance. We elevated the customer experience across all of our channels to make it easier to shop with us and create a more inspirational and more productive assortment that deliver growth in both calm sales and product margins.
They don't you start with some highlights on the quarter from a commercial perspective, including our strong performance in digital and within our top product categories. Then it will talk about our own Brands including the recent loss as well.
Are positive, sales this quarter were again driven by strong digital growth of 86% marketing our fourth consecutive quarter of greater than 75% growth this year.
This was led by our Bed Bath & Beyond Banner, which posted digital cam sales growth of 99% practically doubling last year sales.
During the quarter we gain three point 1 million new digital customers of which the bed bath Banner loan added 2.4 million a year to date. We have gained approximately eleven million new jobs online customers and increase of 95% over last year.
In the quarter, we experienced more than three hundred million visits to our digital channels, including 162 million unique visitors and we had more than one billing business for the year with converging up by 30%
And not only are we attracting new customers. We're also seeing them returned at a higher rate than ever before in the fourth quarter 22% of our customers Place more than one online order of compared to about 17% last year.
We've also seen tremendous growth in Mobile representing more than half of our digital sales in the quarter the new Bed Bath & Beyond mobile app was launched over 21 million times during the quarter and mobile Revenue more than double versus last year.
Enter top destination product categories in which we had double-digit growth in the quarter. We're developing category experiences by room and implementing new integrated room reset took typing programs and leveraging new data-driven category binary prophecies. We are overhauling and Merchandising assortment the focus on more productive items eliminating redundancy and adding new ninja and on brands.
In addition to having less inventory in a more curated assortment online and across our store free. We have enhanced the in-store experience by creating more open. I'll space better site life and new signage her office door to clearly communicate value and price these improvements are already complete across most of the chain. This is a revolutionary change. We are taking omnichannel approach here aligning both stores and digital experiences to make it easier for our customers to shop and feel at home. Our associates also benefit from these changes because there is less inventory divorce, which makes it easier to restart and leaves more time to provide great customer service.
now turning to
performance
sales in our top five destinations categories collectively group 12% in the quarter with four of the five categories posting double-digit, with the exception of bath. The bathtub was impacted by a planned assortment transition in preparation for the launch of our new home branch, which resulted in higher category markdowns and temporary out of stocks early in the first quarter. We are already seeing that can be returned to solid growth.
During the fourth quarter pandemic related product needs continued to dominate with a focus on home decor and organization customer preferences were also driven by Colder Weather during the holidays Pub and we saw strength and warm and cozy products which became a holiday gift game of choice as people stayed in doors. This included comforters flannel sheets and electric blankets with increased with a dying to get home. There was continued strength in the kitchen and food prep category which grew 16% in the quarter toaster oven and air fryers were standouts showing strong growth of 60% and 70% respectively.
Is that referenced earlier following the holidays and it started the year? We also achieved success in the home organization category which grew 17% in the fourth quarter as customers were focused on flashlight closet and getting more organized. We leaned into this trend with a new and exciting storage and organization shop in the front of our store and online. The successful event was supported by a 360-degree marketing campaign to create strong awareness and excitement.
Another growth area for us was Wellness including products such as juicers and blenders other products such as air and water purifiers and getting Basics also performed. Well as customers committed to healthy options for the new year.
At home furnishings indoor Decor was strong this quarter with comp growth of approximately 16% We are seeing customers have a deeper connection to their homes as it continued to spend money to fix up their spaces month. We believe this is a sustainable muscle that has been built which will support continued growth in the home furnishings category.
Turning now to one of my favorite topics, which is our own brand as we have said in our press statement last month. The introduction of own Brands is the biggest change in Bed Bath & Beyond product assortment of generation, and it's critically important for us to drive growth Bill differentiation and customer preference in the marketplace by introducing brand that can only be found at Bed Bath & Beyond. We create a unique reasons for customers to shop with us.
We plan to introduce at least eight home Brands this fiscal year including six in the first half with three and the first quarter alone.
Overall, our own Branch department will include thousands of new products across bed bath kitchen and dining storage and organization and Home Decor available only at Bed Bath & Beyond.
as we drive
When differentiation preference in Authority we anticipate own brands of go from about a 10% penetration rate to approximately 30% within the first three years as such we expect to first off handset gross. Margin as a result of being able to strategically designed to cost source that scale and provide great everyday value to ensure that great Authority and differentiation.
We're off to an excellent start with Maxwell our new line of every day bedding and bath product Essentials inspired by the way. Our customers live Ness will feature. Why am I not of nearly 1,200 stylish? Hi folks and solution-oriented wedding a bath products all at affordable price points. The national line includes a variety of sheet sets pillows blankets and comforters bath towels and much more off all of our products incorporate high-quality modern fabrics and colorations designed to blend well with a customer's own design study.
That's what would help customers find your perfect sleeping solution with setting options that cater to an array of sleep Styles and bedtime routines.
By using the interactiveness Walter rest will guide customers can identify their unique style and receive recommendations as well as design tips from our decorative team and sleep Wellness advice from renowned expert. Dr. Shelby Harris.
This March is being supported by a robust omni-channel marketing program that has already reached millions of customers online and in our stores the campaign includes content that crosses social media print digital email registry and SMS text notifications feedback from customers. That's very positive and early sales results are very encouraging.
That's why I was just the start of our amazing Grand romance. And I'm so excited to share more with you in the weeks and months ahead later this month. We will introduce Haven of Spawn spired assortment a monkey and a cotton products from a we were introduced simply a central a new value-based brand including 1000 home essential products across multiple categories and rooms offered at opening price points, simply essential a very powerful brand and helping us attract those customers drawn to opening price point Brands across many categories.
It's Mark said it has been an unprecedented year and I'm both proud and grateful to our teams who have worked tirelessly in response to the pandemic to ensure we are they're with customers need as most wage same time. Our teams are driving significant merchandising and marketing transformational performance improvements aligned two our three-year plan across the company and are fully committed to our business transformation month as part of this commitment. We are rebuilding Authority and destination categories such as bed bath kitchen indoor record storage and organization and our fourth quarter performance demonstrates the tremendous project. I guess we made to make it easier for customers to feel at home at the new Bed Bath & Beyond bath.
Now I will turn the call over to John Hartman Chief Operating Officer and president Abide a t John thank you, Joe today. I will first provide some perspective on the quarterly performer of our bye-bye, baby business and then continue with an update on our Enterprise operations to expand on Joe's commercial update. Our bye-bye, baby Banner showed significant Improvement in the fourth quarter returned a positive growth of low single-digit comp sales led by strong growth in digital of over 50% on a full year basis baby sales were over 1 billion dollars.
as we discussed
Our last call maybe with disproportionately impacted in the third quarter by COVID-19 related headwinds.
We've been made keep pivots in November and December including crisper customer Communications collaborative Partnerships with our vendors in targeted digital marketing which produce positive sales and category trends that sustained throughout the fourth quarter in our continuing into the current quarter.
Top-performing categories in the quarter included baby and toddler safety feeding toys educational and play room as well as apparel.
In 2020 baby game two point five million online customers an increase of 45% versus prior year including more than 600,000 in the fourth quarter alone.
Nearly two-thirds of those customers shopped only online. We had an over 40% increase in visits this quarter to fifty 1 million, including 24 million unique visitors in an eight percent increase in conversion.
19% of customers placed more than two orders compared to 15% in the prior year. In more than two hundred thousand customers placed a boat this order including almost 20% from mobile both this represented 14% of our digital sales in the quarter in approximately 87% of orders were ready for pick up within 2 hours.
There were a hundred and fifty thousand bye-bye baby mobile app downloads in the quarter which contributed to significant mobile growth representing more than 60% of total digital sales.
We are excited to begin the transformation of the baby Banner this year and unlock the value of this brand. We previously outlined our six-point strategy to accelerate growth which includes Investments to suck our store footprint Nationwide in fiscal 2021. We expect to open 7, baby stores bringing the total store count to 139 by fiscal year end up in preparation for this transformation. We have taken a deep dive into understanding who our customer is and how we can exceed their expectations.
This work has manifested into a new customer value proposition which states we build trust with parents by supporting them with what they need next. So families can celebrate birthday Milestone big and small together.
We know that parenting looks different for every person in the journey is unique to every family but there are experiences that are shared by all. We want Buy Buy Baby to be the destination of choice all new parents and young families and to help guide them on their journey and grow with them. We will continue to share our progress in future conference calls.
pivoting now to an update on our whole Enterprise operations
We remain focused on modernizing our operations and optimizing our use of data and analytics to meet our customer and business expectations. The advancements made across our Real Estate Network box apply chain operations and Technology roadmap during the fourth quarter reflect these strategic objectives.
We continue to make substantial progress with our store Network optimization program and remain on Pace to achieve are targeted closings of approximately 200 stores by the end of fiscal 2021 through the end of fiscal 2020. We have closed a total of 144 Bed Bath & Beyond stores, including 118 stores closed during the fourth quarter.
The program is tracking to plan. It is now about 70% complete. The remaining store closings will occur in fiscal 2021 and be weighted toward the second half.
As we move through the year, we will continue to review our plans and assess the evolving real estate market and conduct further negotiations with our landlord partners.
We also remain on track with our previously communicated 100 million dollar contribution Target for this program and importantly while still early transference from these couples store the other store locations and or our digital channels is measuring above 20% vs are previously communicated goal of between fifteen and 20%
Turning now to our Bed Bath & Beyond store remodel program. We recently completed our proof-of-concept store remodels in the Houston Market which consisted of four type in a full store remodels in three type B remodels, which involved the room reset and updates to about half the store this represents the First full designated mom area we have addressed in the country.
Above and beyond the General Store improvements Joe mentioned including room resets in new signage. We are now beginning the next wave of remodels by applying the learnings from the New Jersey test store and the Boston Market to iterate and continuously improve.
As we have said previously we plan to invest approximately 250 million dollars over the next three years to remodel a total of approximately 450 stores. Which together represent about 60% of our Revenue.
In fiscal 2021. We are targeting about 130 to 150 stores across the country covering nearly Thirty States including 26 stores during our first quarter.
We applied a similar level of focus in execution with our supply chain during the fourth quarter which included the Christmas holiday sales. As expected our comp sales growth in the birth-order was led by digital which nearly doubled in size versus the last year to approximately 40% of our total comparable sales.
Throughout this year. We've been moving with agility to optimize our store Network to support this rapid growth.
Earlier in the year we converted about 25% of Bed Bath & Beyond in Buy Buy Baby stores in the United States and Canada into Regional fulfillment centers to use our vast inventory resources to assign orders locally in deliver even faster in the fourth quarter our stores fulfilled 41% of total digital sales, including 17% in bopus org it as we got closer to the holiday bopus accounted for 48% of our Bed Bath & Beyond digital demand during Christmas week as we highlighted the ease and convenience of these surveys and customers chose to avoid third-party shipping constraints and ensure they would have their gifts in time.
more than 80% of
Bopus orders were ready within our to our promise window.
We've experienced about a six-fold increase in both his penetration since first launching the service in April 2020 driven by nearly four million customers in addition customer feedback highly positive and our net promoter score has increased further from $79 to $81.
We've had very similar strong customer adoption in satisfaction with our new same day delivery services in Q4 over 220,000 same day delivery orders were placed with 78% of orders coming directly from our websites in 22% through a combination of shift and instacart Market places, which have access to over 80% of American households.
We also watched Harmon face values on instacart enabling same day delivery for everyday Health and Beauty care Essentials.
In other supply chain activity. We kicked off our search for a third-party Logistics partner. As I mentioned last quarter, we plan to establish for regional distribution centers to more efficiently off cost effectively manage the flow of merchandise to our stores.
We believe this is a key first step in vastly improving our store replenishment approach.
During the quarter. We conducted a thorough RFP evaluation process which included many market-leading third-party logistics companies. Ultimately. Our partner selection will be based on what we believe is the best strategic partner and long-term economic outcome for the business. We are working now through the final stages of selection and anticipate being able to make a public announcement soon. Once we have signed an agreement.
The initial focus of the Strategic partnership will be to establish two rtc's both in key trading areas one in the Northeast in the other in the west once in place. We expect to achieve many operational and business benefits over time including reducing the store replenishment time from a non-competitive. Of 35 days currently two under 10 days, which will yield wage proof sales based on reduced out of stocks as well as lower store inventory levels.
20 miles to an update on our technology roadmap
having the right retail technology in place is fundamental to our business transformation over the past year. We've been laying the foundation for this change including our expanded partnership with Google to log their Cloud Technologies and personalize the shopping experience for our customers enhanced fulfillment capacity and optimize merchandise planning and demand forecasting in February month. We announced the selection of Oracle as our enterprise resource planning or Erp technology provider to replace our Legacy Suite of Technology systems and deliver new Data Insights planning capabilities.
this Erp
Appointment is the first key component in our plan 250 million dollar technology investment roadmap over the next three years to deploy industry-leading solutions that enhance the experience for customers and drive efficiencies across the Enterprise.
Last month, we announced another technology partnership this one to help modernize our inventory management systems. We selected relics solutions to deliver automated forecasting replenishment and dedication planning in order to improve inventory productivity and our ability to respond to customer demand.
Our technology transformation effort is expressly focused on building proficiencies to reconstruct and modernize stabilize and optimize invest in and construct and operationalize this technology transformation is further enabling our business transformation and the building blocks for all of our fulfillment forecasting Inventory management and sourcing proficiencies alongside these transformations in real estate stores supply chain and Technology. There's also a cultural transformation underway. For example, we have put in place of business operating structure to manage all of our transformation initiatives having this formalized structure has strengthened our foundation contributed to our progress to date palm and will guide us as we continue on our commitments.
I look forward to sharing our progress on these important investments in a future call. Now. I will turn the call over to the stove arnal or Chief Financial Officer and Treasurer Gustavo.
Thank you, John and good morning everyone. I will provide additional perspective on the strong results of our fourth quarter and we'll also discuss our outlook for fiscal 2021 including some discipline on the current first quarter before I go on I'd like to highlight a few key messages first or strategies are working. We deliver our third consecutive quarter of comparable sales and adjusted ebitda growth with positive free cash flow Generation II, we showed exceptional business agility and financial discipline during a year of unprecedented challenges Thursday. We deliver positive comp Sales Group optimize our cost structure divested non-core assets reduced debt investing the business and at the same time return Capital to share home while increasing liquidity and third in a year of fast-paced transformation. We strengthen our strategic positioning to deliver on our three year Financial Club.
We are reaffirming our fiscal 2021 outlook on sales and ebitda while further investing in the business. We are improving our projection of gross debt to ebitda ratio to below three times this year and we have increased our three-year share repurchase program to a billion dollars above what we communicate at that investors day. Now looking at the fourth quarter month total Enterprise comparable sales grew 4% led by continued strong digital growth of 86% or digital first only always strategy continues to be a key driver of our results sales some more digital channels represented approximately 40% of total net sales for the full year and surpassed three billion dollars almost doubling in size probably again.
You know bed bath.
John Banner 6% fueled by 99% growth in digital partially offset by store declines of 20% Come sales were positive each month of the corner of Wythe High single-digit growth in January and February combined and this was in spite of industry-wide weather. In fact during February growth was strong and broad-based across key destination, which grew 12% in total and represented almost two-thirds of driving importantly our bye-bye Daily Banner return to delivering positive Khan sales growth netbox digital growth of over 50%
As previously communicated are reporting that sales would continue to be impacted from our Banner portfolio transformation as well as our Fleet optimization program.
As expected total Enterprise net sales of two point six billion dollars reflected these impacts and declined 16% healthier end of the 15 to 20 range of decline. We communicated on earnings go in general.
In terms of the bridge from net sales to Corps Banner sales. We saw an approximately 12% unfavorable impact from the non-core banner that passengers therefore excluding divestitures. Job Corps Banner net sales were down only 3% on around the basis on these store closures reduce Sail by approximately 8% in line with expectations. Does resulting in comparable sales growth of 4%
On a gaap basis we delivered net earnings per diluted share of $0.08 compared to a net loss of $0.53 in the prior-year reported net incomes results include approximately 38 million dollars from unfavorable impacts from a special items, which are excluded from adjusted results to provide better perspective on the underlying performance of our business.
These special items include the net loss of the sale of businesses non-cash impairment charges related to certain store level assets and charges recorded in connection with the restructuring and transformation initiative excluding. These impacts adjusted EPS was $0.40, which was also an increase over last year.
Let's plan we drove significant adjusted ebitda margin Improvement in the quarter ebitda margin expanded approximately 160 basis points to 6.4% as we said, we increased adjusted either down and optimized and healthier revenue-based adjusted gross margin improved approximately 20 basis points to 32.8% align with our guidance office gross. Margin Drive is included sixty basis points of favorable product mix from higher-margin categories, 90 basis points of favorable marketing and promotion optimisation 190 basis points of damage from distribution of fulfillment cost efficiencies partially offset by 170 basis points on federal impact from Channel mix due to the anticipated larger proportion of digital sales forces pack and lastly as expected. We saw an unfavorable impact of around a hundred and fifty basis points from higher shipping costs given industry-wide Freight rate coughing.
just adjust the
Safety and expense to find a hundred and ninety million dollars versus the prior-year this was driven by reduction from the non-core banner that passengers and lower occupancy extends on more efficient stores as a percent of net sales sg&a declined approximately 160 basis points to 29.1%
estimation a stronger top-line couple with gross margin expansion and sg&a reduction. We solve hitting another quarter of ebitda growth fourth quarter adjusted ebitda, increased 13% to 168 million dollars turning now to some cash flow and balance sheet highlight operating cash flow was Seventy-Six million dollars given working capital improvement from lowering. Then Tori balances free cash flow was sixty-two million dollars. We reduced inventory in ark or banners by approximately $110 per month or quarter primarily from seasonal setting and product transitions in preparation for the introduction of All Brands as well as store closures related to our Network optimization program.
Capital expenditures were 66 million nearly double the average in Prior quarters as our transformation Investments accelerate according to plan we maintain a strong cash balance one point four billion dollars with even stronger liquidity of two point 1 billion dollars, including our abl we're managing cash including our plan Investments to find our growth are healthier more focus and stronger business.
We also return significant Capital to shareholders through accelerated share repurchases things invested in October. We have repurchased approximately 16 million shares 16% of our shares of standing at an estimated average price of $23.
Are first accelerated share repurchase program of $225 billion dollars was completed at the end of January and our second ASR of a hundred and fifty million dollars will be fully completed next week.
We continue to be diligent and agile towards of cash with a data-driven and balanced approach to Capital allocation after having fully funded or capital investment for growth took today. We're announcing another increase in our three years share repurchase program to 1 billion dollars versus the previous $825 million dollar plan.
Our fiscal 2020 performance reflects our commitment to unlocking shareholder value. We have been and will continue being focused on driving comparable sales growth expanding margin and generating cash flow. We will continue deploying cash too attractive Investments for our business and also to our shareholders.
Turning now to our fiscal 2021 automatic or level our financial performance in fiscal 2021 will continue to be influenced by pandemic related headlines including uncertainty around the vaccine rollout and the subsequent impact the customer demands and shopping patterns, especially relating to store traffic and digital sales.
all Financial
Models assumes that our store will remain open and that the current environment will continue in the short-term with gradual Improvement as the year progresses.
We anticipate installed traffic trans to begin to recover throughout the year, but we continue seeing previously communicated industry-wide headwinds from three calls.
We have strengthened our positioning as we start fiscal 21 and embarked on our three-year transformation plan are significant portfolio transformation is leading to fewer get better performing stores, which we believe will include a healthier core Revenue base with a larger proportion of a faster-growing digital business.
And with the consistent execution of our transformation strategy, we remain well-positioned to achieve our long-term Financial objectives.
Also, we are reaffirming our previously provided fiscal 2021 modeling assumptions. We continue to project net sales to be in the range of between eight and eight point two billion dollars a month net sales include the impacts of the reason as well as ongoing store closures under the previously communicated Network optimization program on a quarterly basis in the first quarter. We expect to recapture sales that were lost in the prior-year from temporary store closures due to covet because of this we have said first-quarter sales may not be comparable.
In quarters 2 through 4, we expect to sustain Cub sales relative to the solid base we experience in those same three quarters of fiscal 2020. We continue to assuage for financial planning purposes that total Enterprise comparable sales in Q2 through Q4 will be flat versus a strong fiscal 2020 base as we started delivering a positive comes out of the second quarter of 2020. We continue to project full year adjusted gross margin to be approximately 35% Our model reflects sequential open during the year from several key positive drivers including product sourcing savings from negotiated, their contracts higher sales penetration of newly launched own brands in our product mix and more effective date agreement promotion and marketing strategies.
We continue to model full year as DNA to be approximately 31% of total net sales driven by federal impact from store closures under the network optimization program and saving your cost restructuring. And finally we continue to model adjusted ebitda to be in the range of between $500 and $525 million dollars.
Turning to some balance sheet and cash flow assumptions. We plan to invest approximately four hundred million dollars in Catholics, including key project supporting our IP transformation supply chain reinvention store remodels.
We now expect to achieve our improve leverage ratios faster than anticipated in fiscal 2021. We project our gross debt to either direction to be below three times. This is Faith. If you can be better than a previously stated goal of below 3 and 1/2 times for this year.
We all
So plan to increase cash return to shareholders as mentioned our 3-year plan for share repurchases has increased to 1 billion dollars. We're now planning up to $325 off purchases in fiscal 2021.
Together with the two already completed area SARS totally 375 million dollars. We will have repurchased $700 in shares by this fiscal year.
Again, we're doing this while the generating cash and funding or business or information. We remain committed to our Capital allocation principles, mainly investing in our business office maintaining Financial resilience and returning Capital to shareholders.
I will now provide some visibility on the current first quarter which includes the month of March April and May as you may recall this was the period last year when most of our stores were closed off and sales were depressed in addition to the comparisons when the majorities of our stores were closed are reporting itself will continue to be impacted by completed a visitors and Fleet application for the perspective on this portfolio confirmation and the quarterly comparisons of our core go forward banners. We have included a table in our press release it slide presentation with a quarterly summary of fiscal 2019 and 2020 net sales on both a reported cap and a core go-forward basis.
The latter includes Bed Bath & Beyond, bye-bye, baby Harmon face value and decorous on the score basis first-quarter sales last fiscal year 1.1 billion month directionally in q1 this year. We would expect Corps Banner sales to be significantly higher than last year by approximately 65 to 17%
Sales in the first month of the quarter showed a strong growth and the year and your growth will accelerate in April and May as we left. The prior-year. Wage stores were closed in terms of total net sales directionally, we expect them to increase by over 40% on a year-on-year basis this growth is built into the fiscal year guys mentioned earlier in terms of gross. Margin. We expect to show sequential Improvement as the year progresses directionally, we would expect adjusted gross. Margin in the first quarter to be in the 34% range in terms of adjusted ebitda. We expect to deliver between eighty and ninety million dollars in q1.
In 2021, we will continue to manage the business diligently leveraging data and analytics to drive performance and deliver and what we say. We remain confident in our future as long as we embark on the first year of our three-year transformation journey. I will now turn the call over to mark for some closing remarks. Thank you.
Thank you, as we enter out fiftieth year of business in our bed bath beyond our Focus remains on being customer inspired everything we do as we build Authority now call home wage, baby and beauty and wellness Market.
David headwinds expect it to subside and having our full omnichannel sweet of options available to us this year. We will be able to truly complete fairly and openly with our peers unlike June 2020 in addition to our internal strategic growth drivers. We believe we're well-positioned to better from the favorable macro-environment expecting to support continued growth in home related categories through 2021. Please include High consumer confidence a strong housing market continued work from home trends and the newly found appreciation for the comfort safety package value about harms. As you heard today, we're excited and confident about our business. We have reaffirmed a fiscal 2021 guidance and a well poised to activate a drive a transformation initiative to feel like right.
We have the capital the plan and the talent to deliver on our three year Financial objectives.
As our transformation continues to take hold we will show up differently for our customers with enhanced omnichannel experiences modern stores new Communications and differentiated Omni and all improved capabilities that will Elevate the shopping experience and make it even easier to shop with a new Bed Bath & Beyond.
Earlier this week. We launched on you how I'm happy a brand Campaign which exemplifies a strategic focus on helping. Our customers realize each room is potential that they can embrace the possibility in everyday life helping them to home happier. We will deliver the products values and experiences to inspire our customers to celebrate the important role their homes play in their lives Thursday. We're excited a booth fully integrated Campaign, which will be anchored by a 30-second spot during National today April Fourteen and featuring a suite of creative assets supported by omnichannel type media plan, including National broadcast and cable TV streaming online video paid social print install email and display off.
In 2021 will continue to make bold Tibbetts to reconstruct renovate and restore our company and deliver on what we said. We would do. We look forward to sharing our transformation progress with your life future quarterly Kohl's we will now take questions.
Thank you, and I'll begin the question-and-answer session. If you do have a question, press * then 1 on your touchtone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. Once again, if you do have a rep press star than one on your touchtone phone.
And our first question is from Bobby Griffin from Raymond James. Good morning, buddy. Thank you for taking my question. Hey, I'm working. This month is a lot of moving parts inside gross margin was shipping and distribution and things like that. But could you maybe unpack what's going on and what you're seeing inside the core merchandise margin, and that's what some of those drivers and expectations are for fiscal year 21.
Yeah, I think that some of the code Drive is is definitely you know, we've improved out mixed with improved our negotiated base cost. We're starting to see the work that we've done on, you know, negotiations really start to filter through and we see that moving through 2021. What you didn't see in the quarter was the improvement from my brand because that's a a march on would invest and we see that incremental benefit occurring quarter-by-quarter with the Investments. We've made with over eight grand for the full year. But you know also big part of that has been a daunting really re-engineering the markdown process and the promotional process of getting more Effectiveness out of our marketing dollars as well as our promotional spend and that's a Break Free engineer in this quarter and going forward that margin and that's despite as you know, getting ready for the own Brands coming in and read, you know taking additional markdowns to do our room recess.
Bed as well as absorbing some of those impacts of a freight. So we feel well poised with the prior work and the ongoing rolling work through 2021 that will see incremental benefit of cigars budget.
Okay, so is it fair to say that the you know, we saw the sequential slow down in the year-over-year growth and gross margin, but shipping and different things were were different headwinds in the fourth quarter. Is it fair to say that the core performance the merchandise margin was similar in 4q as it was in f2q and f3q of this year.
yeah, I think you know the have a big differential in that Bobby is the mix of digital versus stores and the impact that has in the interim on margin and so we continuing to double down but as we move through to q1 and Beyond clearly, we see a different balance in that margin proposition between increasing our stores velocity and balancing out our digital sales and I had imagined
and our next question is from Brad Thomas from keybanc Capital markets.
Yeah, hi. Good morning. Thanks for all the details and thanks for taking my question. I just wanted to follow up on on some of the margin puts and takes their cuz dead ends to be one of the most important things we find investors asking us about and and I was hoping to again just follow up on what Bobby was asking about and and how you're thinking about some of those puts and takes on Monday and how much of an opportunity there may be as these category resets take hold and what they may be able to add for you. Thanks.
Bradley Gustavo, he just give you some perspective. We see sequential Improvement in gross margin from q1 and as a fiscal year progresses as Mark mentioned before we expect the penetration of own-brand to improve quarter after quarter, so expect the 34% or guiding for in q1 to improve as the year progresses wage. Also. It's important to keep in mind that we've accounted into our estimates the headwinds that we continue seeing in terms of cost shipping rate increases and so we will continue manage that and you're getting better and better on the processes that Joe is leading in terms of optimizing promotion mark down more promotions that drive both revenue and marginal increase. So you will see that Improvement as the fiscal year.
goes
and Brad, you just mentioned it resets and draws up there. I think that is part of that. I wrote plan divesting underperforming products and lower margin products resetting that wage your National Brands, but definitely featuring our Kia brand and the Imagine Rich potential.
Our next question is from Jenna janela firm Goldman Sachs.
Hi there. Thanks for taking the question. I was just curious when you think about your excess liquidity on hand and and some of your bonds trading below par if that might be an opportunity to to manage that leverage or get down to that below three times goal if we could see being opportunistic again with your debt stack. Thank you.
Hi, Jenna Gustavo here.
First let me reinforce that we will be already in q1 below the gross that to either the ratio of three months without taking any additional action on our capital structure.
Now as you say we have some trenches trading below par, we also have some of the closer maturities trading above part that is all in our mix. We will remain focus on what we said in terms of capital allocation personally investing in the business and we have the capital capital spending allocated to that in the business. We're doing the share BuyBacks as you age or increasing it this year and we will continue monitoring during the year on how to optimize our debt structure and certainly Bond it's part of that equation.
Excellent. Thank you so much.
Next question is from Steven Forbes from Guggenheim.
Good morning. Hey Mark. I wanted to sort of focus on the new Digital customer Trends the 11 million customers you called out curious. If you could sort of just give us a nice review here right age categories. Do they transact right understanding their customer Journey transacting enduring 20/20. How often are they repeating? Right, you know, maybe a timeframe cuz it you know, one month one quarter and you know, just your overall thoughts on how that greater, you know base of new customers entering 20-21 how the evolution of the you know, they're they're spending Trends impact the guide red as we think about this path to a flat cord comp, you know, what you know, what is happening in the there's eleven million customers. And and how did you incorporate that into the the guidance here?
Yeah, it's a great question Steven. I think we've Incorporated conservatively into the plan.
But there's no doubt that we have been acquiring new customers and they have been behaving differently coming to being a digital first and then an omni always customer. We're seeing them within the quarter and we shared some of those ratios in terms of their increase the increase that we've seen in the secondary item purchased within the quarter good news is that they're on average younger and they are less likely to to buy promotional e and in category wise we're really seeing them cuz of delve into all that law degrees out cold categories in particular and and some growth in the indoor daycor area which for us is really On The Rise and it's something we haven't doubled down in the past and we're staying to invest and grow in now, which is terrific. So we're seeing younger with things stickier and for us, you know, we see this as a great Avenue to connect with a wider customer base and particularly Thursday.
Digital focused we're able to kind of use the data and the storytelling to share a plethora of of details around the new Bed Bath & Beyond including the launch of the newer Brands to a white. So is that the the kind of trouble of COVID-19 is actually generated at you have in your growth for us but to your point we think that in conservatively we want to see things really dead. It'll with the vaccines and the return to the new normal and how that plays into our mix so some potential upside down.
Our next question is from Kurt Nagel from Bank of America.
Good morning, guys. Thanks very much. So just a quick one for you to stop. Oh just curious. What's driving keep some specificity, I guess to was driving too fast, or do you leverage and 20 21 to even a month is the same is this primarily I guess I'm working capital and I guess just what should we expect for working capital, you know games for this year.
Yeah, a couple of comments that occur. Thanks for the question. We couple of things improved first is we complete it before we complete it and sign up with Cost Plus World Market that has an impact on the operating these abilities and it's a reaffirmation for us saying now as we start the fiscal year and look at the debt off in the balance of the year and look at the ebitda and adjusted ebitda the balance of the year to reaffirm. That's why we're below 3x already. If we look at the mapping Q with your question on working capital, you saw sequential Improvement in the fourth quarter relative to the third quarter a hundred and ten million dollars of inventory Improvement on the core banners. We opposed to continuing but improving inventory as we go along recall a few months ago. We said we will reduce inventory by a billion dollars of retail versus a closing position of 2019 dead.
That would take us to about one point.
Six billion dollars at the inventory for now a 1.7. So we're well on track with what we said in terms of working Capital Improvements, it could vary quarter-to-quarter, but our objective remains driving working Capital Improvements and on our way to three point five times inventory terms.
Our next question is from Seth Basham from wedbush Securities. Thanks a lot, and good morning. My questions around market share performance. You gave some comments last quarter on your performance for categories. If you talk about the trends this category this quarter in addition, if we think about the non-core categories in your business, it seemed to decline pretty material this quarter that one third of your business. That's not for what are you doing to improve performance in those categories? Thank you.
Yes, I think for the question I think in some of those, you know, they they pertain to care is like personal care for which varieties really depended on Starbase traffic and we know that package is returning stronger than stores were still in the entry point of 2021 and The COVID-19 New Normal. So we have plans to see that stabilize and contribute more, but that is going to be dependent on store traffic. So, you know again great compensation and strength to to reduce the share declines that we've seen. We do know that we're up against you know with the store closes is uh, a more compact Market that we're going to be working in so we continue to focus on that mix of store and digital throughout the year and and focus on sharing creases.
But just to follow up on that if I may, how did your core categories perform market share wise this quarter and compared to last quarter. It doesn't seem like you made as much improvement. It might have slipped backwards a little bit off. Yeah. I think that it was definitely what we're excited about that is that we had positive comps consistently while we were really readjusting in the fourth quarter back in Readiness for a 20 21 plan and focusing on those were only porting room and assortment reset reducing overall inventory curating them down so that we can be more powerful and come back. So we knew that we would take a dip in a couple of spices as we orig opted our assortment taking markdowns and having some out of stock in some key areas to get back in to completely new set off. So, I think a quarter of um, you know, re-establishment and Foundation getting ready for 20 21 yet still creating growth. So we were felt comfortable about that but definition
For work to be done with Scarecrow throughout 2021.
Our next question is from Michael Lasser from UBS.
On the on the private brand penetration going from 30 going to 30% from 10% How much gross margin expansion can that contribute over time? Are you able to sign off?
Yes, good morning. We set and we're looking at about 10 percentage margin points improvement in our own brand assortment. So think a thousand basis points and that is part of our gross margin algorithm. This is very important. It's part of our gross margin of 35% in fiscal twenty one and thirty eight percent in fiscal twenty-three. We look at continue driving all brand penetration see proof gross margin with that and while continue optimizing a pricing and promotion and continue driving cost savings. It's crucial element of our strategy is a crucial element of differentiation and it's a crucial element of them underlined gross margin expansion.
Good morning. This is John from Michael Lasser. Thanks a lot for taking my questions.
I just thank you. And as soon as follow-up you guided to additional $65 70% of car for sales growth for them for the first quarter. Where are you tracking relative to that expectation right now?
We're tracking very well relative to that expectation. Keep in mind. We're not going to give.
Revenue performance month by month keep in mind this is verses the base last year March April June in March. We close our stores the majority of our stores as of March 13th, May April and May sorry, March April May in April and May the revenues are much much more depressing. That's what we said in the prepared remarks. You have a growth rate in March the growth will be much higher in April much higher in May overall in the quarter $65 70% and I'm very glad you're picking up on core performance. That's what we're focused on the quarter and I may say that q1 that q1 corg. It's a low single-digit growth rate on a two-year stock basis. So when we compare q1 versus q1, nineteen, it's positive, sales.
There's a 2019.
Next question is from Anthony from Luke capital.
Good morning, and thanks for taking my question. You know, you talked to a fair amount about the change in in private label penetration that you're projecting over the next few years, but I was wondering about the merchandising changes that you had talked about, you know, particularly in terms of rationalizing SKU count and I was just wondering, you know kind of where you are there in terms of what inning we are off with the other merchandising changes aside from increasing private label penetration. Thank you and a few things you saw the growth in our destination categories, which is really great for us to see cuz it's been a focus. I think we've been pretty clear in our investor day that we didn't have category line of you. So we're well on our way and using data both internal and external to drive back tones. We we've done the bed bath kitchen resets and we're taking that capability across other categories now,
a coupling us up with
A lot of the room resets that you're starting to see so if you look at the introduction of nest with our new home brand that was part of the category line of you worked. We removed a lot of unproductive scuse that were cluttering up our investment at common price points that were helping the customer shop and we're bringing that to the newly remodeled stores both of you stand that John talk about but across the banner across the chain, we're we're not working at a new Reset program. So very excited about coupling all this together product and proposition using our new go-to-market integrated planning process that we call blueprint to deliver a unified centralized plan to our stores and our digital channels at the same time. So if you can see you can really see things are coming together from a a common view our customer diet proposition that marked off. That's launching today is really emblematic of kind of the new bed bath. So very excited about the progress more work to be done. But very very happy about the new muscle that we're we're building.
Our next question is from Carla Casella from JP Morgan. Hi, I'm wondering if you could give us the same store sales for the stores only or the digital package of sales in fourth-quarter. I think you said the 40% was for the full year.
Hi Carla, it was 40% for the full year. It was also 40% for the fourth quarter and the store Campos - 20%
We saw a 20% on stores 86% digital 4% Total Comfort. That's great. And then I'm just giving the Cost Cuts that you've made to date. Are you done implementing costs in the remainder is just a flow through and and have you given the the amount that's remaining on the program. And then I'm also wondering what the additional asset sales if you'll if you're really looking at a new cost-cutting program for going forward yet. So in terms of cost-cutting we constantly look at optimizing our cost structure. So we're looking at zero-based approach to optimize costs we're working on rent reduction will continue working with vendors on uh, we do think our input costs that is going all as plan in terms of additional restructuring et cetera.
For capitalizing on all the savings of the restructuring done last year.
Yeah.
And our next question is from Alex Arnold Odeon Capital group. Hey guys, thanks for taking my question. Mine's pretty easy one. If could you give us any sort of granularity or update off the relative performance of re merchandise remodeled stores?
No, I I think what we would say to you is that that really parking lot of the moment and we're very pleased that John said with the initial response we've seen on the store closes at the track is ahead of hit about plan and on the remodel, we're we're really happy with the results. We're seeing in a preliminary way. The reason why I was saying no Alex is is it's really going to be quite a bike water from Iranian may come and share that cuz we're in the very early stages and we need this stores to we get remodeled and settled. So we're going to be looking forward to sharing the progress of those results early indications are very strong and fight in line with that plans or a little bit Above So feeling good about that, but stay tuned for q1 onwards and we look forward to sharing more on that or either my very positive.
Okay, great and could how about an update on just recent very recent traffic Trends. Are you seeing any sort of shift as vaccination start to roll out, you know more aggressively into the marketplace. Yeah. I know we would say that it's generating a higher level of consumer confidence. I think about spending total as people can see maybe you know a New Horizon and it's definitely affecting traffic Trends but you know, we look at areas like Michigan and we know that there's still work to be dark. So overall I think consumer confidence is stronger. We're seeing some positivity in the market the home trend is continuing I think here and we see that as you know, a multi-year muscle not a moment and you know, so I think that overall positive trends.
And our next question is from Simeon for Morgan Stanley.
Everyone good morning couple questions on sales first the core BBB pump in the fourth quarter 4% I assume it's being helped or lifted by store closures and transfer pump. And I don't know if there's an assumption that it's reasonable to make there. Is that a fair way to look at it and then second of all if you look at your business sequentially and adjust it on a core basis, can you can you comment or help us think about is the business underlying Lee from North Palm to the first quarter sequentially accelerating again looking at a non. I'm trying to on a core basis and it looked like well, I guess I don't know the answer.
Yeah, so it's a man. Thanks for the question. I think it's not the transfer install is not a key generator or like where I just want to clarify with you the call Bed Bath & Beyond Bath Beyond 6% not 4% 4 percent with their Enterprise growth the 6% growth really we believe generated by our strategic efforts and we don't see anyone including stimulus checks which for us really focus is when we've done the math and we've unpacked it. They've really been more about essential bill paying something to Business and Technology package are not playing into the wider market and the subsequent check that are are focusing more on savings or our growth is actually predicated on our strategic intent now we're reaching out to the customer with marketing connecting with a customer in in their life moments in different ways. That's truly paying dividends. And so we see the growth as really strategic against our efforts as opposed to any transference or one-time moment wage.
That means that we are seeing.
Velocity in that growth and an ongoing increment of linear growth where we think will Express that clearly by quarter going through 2021.
Okay, and then I think that's just to put follow up the launch of some of the new private brand. Is it too soon to have already seen an impact or what's the reception like anything? Yeah, look I mean with similar to the previous question. We all kind of come back with a more robust detail by the end of q1. We will have launched three brands and insubstantial categories as well as across across the company cost been opening price point brand which is going to focus on I think during in an incremental customer and incremental sales, but what we would say so far is dead, uh, you know, extending your expectation the customer acceptance instantly of this brand has been terrific. I think the way that we approached it in terms of product and messaging and storytelling an engagement ring is something you'll see with every one of the brands going forward and it's really worked incredibly well so online in-store, you know in Social the brand is resonating really clearly it's being accepted.
And you know, the Run rate is a little higher than we expected. So good news so far. But again, we're only beginning our journey and we really look forward to sharing more about the growth rate the penetration acceptance as we complete our q1.
Our next question is from William router from Bank of America.
Good morning. Can you remind us what percentage of your products come from Asia? And then if you're seeing any impacts of out of stocks do to Port disruption on the west coast particularly proud of some of the category resets and if some of those new private brands that you're bringing in whether any of those have had such challenges. Yeah, so thanks William. We we might be kind of sharing centage of Aging Dakshin, right? I think that's a little too specific. What I would say to you is that the port issues be well well factored into our Blaze and I think they're you know, we picking the tow industry as it relates to own brand attended a really good job of thinking through demand and upside potential of these Brands. And so we got them in earlier. We got them in which room to set up, you know, a key learning from past experiences. Make sure we have it early and we're ready to set and then we can manage that accordingly and they've also build capacity and perhaps. Yep.
So at this point we've got really comfortable about our pre plans of set and protected our own brand launches. Look we're working really closely with our vendor base to restore a large chunk of our our business. He's he's in National branding then in replenishment of tea items and you know, they are getting back into stock and therefore we've been getting into the back of stock throughout the end of people wanting to be one really really well. We want to maintain that and so communication and partnership would have been debate is really critical.
and our last
question comes from Jonathan matuszewski from Jefferies
Hey guys. Thanks for taking my question first one Mark. I think you mentioned recently acquired customers are less likely to use discounts and and by on promotions wage curious the degree to which you think the backdrop is maybe influencing that Dynamic do you think this newly-acquired customer will be predisposed to talk to shop more full price without coupons as the backdrop normalizes a bit and if you could just refresh us on your latest view of where you think this this newly-acquired customer is coming from. Thanks.
Yeah, I think for us we focused a lot on her value everyday value he Jonathan and we had some work to do when I first joined good news is that we're showing incredible parody on every day prices. That's pretty coupon everyday prices to the General market and I think that's really important all customers. But particularly young customers are very Adept at looking on Thursday. And so they want to look at your first true price and they they'll compare you to your competition and for us where things that coming and seen that price comparing and knowing that we are strong and that's where there is a good thing. So, I think there's a lot of recognition of what is this everyday price in the market place and people shopping accordingly. So we think that's sticking now to what what age level that penetrates promotional activity with this younger customer or this newly quite a customer. We have to continue to see that play out, but we could positive about the birth.
Metric indicators with things so far in terms of we're requiring the new customer from it's a great question that we're just happy to be acquiring them. And I think we're doubling down on Thursday they are and then how to deepen that connection with them. We also see that there's an opportunity for us to expand our cross Banner shopping and therefore cultivate our country wherever they shop with inside-out band. So what you'll see online now is we've just launched on our Bed Bath & Beyond a website that there's direct connectivity at the top to Buy Buy Baby and so from Buy Buy Baby to Bed Bath Beyond, it's already starting to create a link. So where those customers may have been separate we're providing more of an ecosystem so growth in that we know metric-wise generation really positive return and higher average unit sales. So we're going to continue to cultivate the customers, but we're reaching out and I think that that our dog
Marketing effort has been incredibly strong and we really tapping into social and new avenues. I think that's helping to bring the new customer to Bed Bath & Beyond.
And leans gentleman that is all the time we have today for questions that will not turn the call back over to Janet Barth for closing remarks.
Thank you, John, and thank you all for participating in our call today. Please. Feel free to contact me or Felix with any additional questions. Have a great day. Stay safe, bye-bye.
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