Q1 2021 Bed Bath & Beyond Inc Earnings Call
Welcome to the bed Bath on beyond fiscal 2021 first quarter earnings Conference call. My name is Sylvia and I'll be the operator for today's call at.
At this time all participants are in a listen only mode.
Later, we will conduct a question and answer session during.
During the question and answer session. If you have a question of please press Star then 1 on you touched on phone. Please note that this conference is being recorded I would now turn the call over to Susie Kim Susan you may begin.
Thank you and good morning, everyone welcome to our fiscal 2021 first quarter earnings call.
On the call with US today, our March at our President and Chief Executive Officer, and at the stubborn at all our Chief Financial Officer.
Before we begin let me remind you that our fiscal 2021 first quarter earnings release and slide presentation can be found in the Investor Relations section of our website at the.
Back at beyond Dotcom.
The exhibit to the form 8-K, you filed the ahead of this call.
This conference call on the slides when you start you may contain forward looking statements, including statements about or references to the outlook regarding of the company's performance, our internal models and our long term objectives. All such statements are subject to risks and uncertainties that could cause actual results to differ materially.
The really from what we say during the call today.
Please refer to our most recent periodic SEC filings for more detail on the east risks and uncertainties, including the risk factors section and I know of course on form 10-K on quarterly report of 1.10-Q. The company undertakes no obligation to update or revise any forward looking so.
Additionally, the information we will discuss today contains certain financial measures that exclude amounts or are subject to adjustments, but the fact of the excluding amounts that are included in the most directly comparable measure prepared in accordance with generally accepted accounting principles.
For a 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.
It is now my pleasure to turn the call over to Mark Triton. Thank.
Thank you Susie and good morning, everyone of.
First quarter results demonstrate continued momentum in our transformation as we progress towards the goals, we outlined last quarter and most importantly at our Investor day.
2021 marks the first year of about 3 year transformation. Following the groundwork we laid in 2020, a year of the stark and necessary change for this organization against the backdrop of unprecedented challenges due to COVID-19.
Took bold steps to go the strong foundations for talented team financial capital on strategy, which enabled us to begin changing trajectory of that business last year.
Our first quarter results prove we continued to deliver profitable growth as we reestablish our authority at volume recapture market share and unlock at group's potential.
For Q1, we delivered our fourth consecutive quarter of comp sales growth and achieved gross margin that exceeded our expectations.
We continue to execute quarter after quarter, and we are pleased to be raising at full year guidance outlook today.
Gustavo will discuss our financial performance and outlook in more detail. Shortly in summary, we have started the new fiscal year in a position of strength and are clearly on track to accomplish out 'twenty 'twenty 1 goal as part of about 3 year plans.
On a touch on some of the important highlights from the quarter that underscore our progress.
We are accelerating growth throughout the digital first omni always focus net.
<unk> of approximately $2 billion for the quarter were comprised of 38% of digital penetration at similar sales levels to a strong performance last year, even the stores recovered with customers returning to in store shopping.
This digital penetration is nearly double our 2019 levels by from digital unused strength for our organization.
This growth on a cheap basis was 84%.
We're continuing to improve the customer experience. Most recently expanding our same day delivery capabilities in both the U S and Canada.
Through our partnership with door Dash same day delivery is now available in an additional 3000 ZIP codes in the U S and 47 of the cities across 9 Canadian provinces.
The successful launches of out both of us and contactless curbside pickup services during 2020.
Our stores continued to be an operational strength of bed bath of beyond during the quarter in Q1 at 31 per cent about digital demand was fulfilled from stores with purpose, representing 14% and ship from store at the same day delivery of accounting for 17%.
Our footprint plays a vital role in our digital test omni always strategy.
We are also enhancing the customer experience with bed Bath and beyond the upgrades and Remodels through our previously announced store remodel program.
While we have already upgraded and refreshed the entire store fleet the signage and the assortment duration. We also in the she added 26 full remodels during the quarter, which was our target of quarterly call as part of that of 130 to 150 stores remodel plan this year.
Ultimately, we will read model of 450 stores at 3 years, representing approximately 60% of Bath store revenue base.
Early data from operating model shows positive indications of sales of margin growth are exceeding our plans across bath out part of the type of I N b upgrades in our pilot Houston market.
As New York City returned to its original strength, we're excited about the upcoming in battling the bad flagship Chelsea storage at all as.
The city fully reopens the summer.
We have transformed the store with the new concept fixtures.
Hotlines revised merchandise and the customer centric lay out the easy and convenient but at this and checkout directly in the city.
As for our assortment, we continue to differentiate bed bath and beyond with the curated mix of important national brands.
And the addition of our own brand portfolio.
Planned and previously discussed we successfully launched on NES, well Haven and simply at central lines during the quarter.
On this month, we also announced the next launches of our type of at Bald Sage.
Our fixed spread squared away we'll launch this July.
We have now reached at first half goal to launch 6 of 8 owned brands ahead of schedule.
Furthermore, our own brand penetration is currently at a high teens percentage almost double last year's levels.
We are well on Hawaii, 2 at 20% Gulf of 2021 at.
30% by 2023.
At a buy buy baby bed Huh, we returned to strong but in Q1 with net sales increasing more than 20% versus last year when stores were still open.
More importantly, sustaining it's returned to positive comp growth baby delivered a low single digit comp on a 2 year basis.
Our goal to be the partner of choice for the New parents is resonating and we are confident of bye bye babies bolt trajectory towards at 'twenty to 'twenty 3 goal of more than $1.5 billion in sales.
Finally, we are modernizing our infrastructure that fed the support our strategy at pursuit greater operational efficiencies by enhancing our supply chain and technological foundation.
The first phase about end to end.
Supply chain transformation is underway with.
The construction of our northeast distribution center as part of this endeavor. We at currently finalizing an agreement with the third party logistics partner to begin establishing a new store replenishment approach.
We've made progress towards reinventing at financial inventory management, and merchandising capabilities through our technology transformation.
We selected Oracle is at enterprise resource planning provide the last quarter and the next component of the roadmap is progressing with the appropriate designing and planning for a full ERP migration.
We're making great strides in all aspects of our transformation at <unk>.
Customers are also recognizing the evolution.
Our active customer base increased sequentially versus last quarter.
Even more exciting.
Off of these active customers of shopping omni and digital doubled 2019 levels.
These customers shop, more frequently and with the larger basket size. We're also paving the way for a market share of rebound in Q1, we recaptured market share on a year are the prices the significant guidance in that key categories of bed Bath and kitchen.
Sure.
We also experienced sequential monthly improvement, particularly in the bed category.
As a result show we've made meaningful progress with that tricks of I shouldn't just the first quarter of about 3 idiots.
We are constantly achieved each milestone along that transformation, thus far on them I think at time of incredible associates for the work in defining and driving these results.
We are stronger more agile company than ever before and we are well on our way of the building long term growth on I'm looking greater shareholder value.
I will now turn the call of Gustavo on now our Chief Financial Officer to review, but the strong first quarter results and are at look for the second quarter and revised full year Gustavo.
Thank you Mark and good morning, everyone.
I'll provide additional perspective on our strong first quarter results and also on our second quarter guidance and the improved full year outlook.
Let me start by saying that our first quarter performance was better than our expectations on several levels as we deliver on our fourth consecutive quarter of growth.
Core sales growth of 73% came in higher than our guidance of 65% to 70% growth.
This was a stronger than expected recoveries from part of Covid related store closures last year.
Gross margin of 34, 9% was also ahead of our 34% guidance driven by strong own brand penetration of assortment and better channel mix.
Given the specific started the year, we're raising our full year outlook for sales on EBIT.
And at the same time reintroducing guidance for adjusted EPS.
Looking more specifically at our first quarter results.
As a reminder, reported net sales continue to reflect the impact from non core banner of divestitures completed last year as well as our ongoing store fleet optimization program.
Total net sales were $1.95 billion. This represented 73% growth from core banners.
As noted we believe that while first quarter growth rates are not fully comparable due to last year's COVID-19 closures for the.
Transparency and analyst modeling purposes, we estimate the comparable sales growth of approximately 86%.
This excludes an estimated at 13% negative comp sales feedback from our store fleet optimization program the.
The impact was more pronounced this quarter due to last year's lower Covid impacted revenue base.
Versus 2019 on a 2 year stack basis comparable sales grew 3% fueled by significant digital growth of 84% and offsetting store sales reductions of 20%.
As Mark described our digital force only always strategy remains an important component of our performance at <unk>.
<unk> channel represented 38% of total net sales for the quarter doubling versus the penetration rate of 2019, and creating a sustainable strength in our business.
For consistency and comparability or sales perspective by banner or category will be rooted in core net sales comparisons versus last year and on comp sales on a 2 year stack versus 2019.
Bed Bath on beyond banner, net sales increased 96% or since the last year and deliver 3% comp growth on a 2 year stack basis.
Our key destination categories of bed Bath kitchen in there of the core and home organization grew 100% per suite last year recapturing strong market share.
And on the 2 year stack comp basis sales grew 7%.
Or by type of Baby banner delivered another strong quarter.
Versus last year of growth exceeded 20%.
Paul our baby stores remained opening of the base period.
Also growth continued versus 2019 with comps in the low single digits.
Adjusted gross margin expanded the 34, 9% ahead of our guidance of approximately 34%.
Gross margin expense at significantly versus the prior year at the result of a strong recovery from our stores the normalization of our digital mix and the faster penetration of owned brands.
We are on track for our full year guidance of 35% gross margin.
SG&A was lower than last year and remains on track to our full year plan.
During the quarter, we made a strategic and incremental marketing investments to fortify the launch of our bed Bath on beyond home happier campaign.
Add on investments to accelerate our own brand launches.
These actions drove additional profitable growth with strong returns.
For the quarter, we delivered adjusted EBITDA of 86 million within our guidance range. Our EBITDA performance illustrates how our healthy top line and strong gross margin enabled us to increase marketing investments in the high.
Joe and effective way.
GAAP net loss for the quarter was <unk> 48 per diluted share compared to a net loss of $2.44.
Since last year.
<unk> back to profitability of approximately $2 per share.
On the GAAP basis net income includes approximately $56 million of costs, such as charges related to our restructuring and transformation initiatives the.
Special items are excluded from adjusted results to provide a more accurate picture of the underlying performance of our business.
On an adjusted basis EPS was <unk> <unk> versus a loss of $1.96 last year.
Also a positive fee look back the profitability of about $2 per share.
During the quarter, we manage our liquidity and cash consistent with our capital allocation principles.
We reduced inventory in our core banners by more than $100 million versus the prior quarter, an approximate 6% reduction enabled by further assortment curation.
We continue to transition product in preparation for the introduction of our own brands as well as from seasonal selling and store closures associated with our network optimization program.
We continue to invest in some form of business capital spending accelerated this quarter given the.
So Natalie free cash flow was on investment of approximately $100 million in line with our expectations.
Our cash balance remained solid at $1.2 billion.
And even stronger on the liquidity at $1.9 billion, including our ABL.
In addition to funding our transformation initiatives, we continue to follow of financial roadmap with the balance data driven approach to prioritize shareholder return.
As a result during the quarter, we repurchased approximately $130 million or 5 million shares.
Program to date, we have repurchased approximately half of 1 billion or 17% of our shares at an estimated average price of $24.
This puts us well on track towards our $1 billion goal by fiscal 2023 and ahead of what we communicated at our Investor Day in October.
Finally, I will discuss our guidance outlook for the second quarter and full year.
Based on the strong performance for the first quarter and our current expectations for the second quarter, we're raising our full year guidance outlook.
I'll first discuss Q2, which covers the month of June July and August in.
In the month of June we have continued fee growth versus the last year as well as on a 2 year stack basis.
For the balance of the quarter July and August on important months, when considering the July 4th holiday and the back to college season.
Taking these factors into consideration, we estimate comp sales growth of low single digits.
Net sales are expected to be in a range of 2.0422 points.
$8 billion.
As a reminder, divestitures and fleet optimization will continue to impact year on year comparisons.
Driving adjusted gross margin improvement will continue being in the acute area of focus for us.
Accordingly, we expect adjusted gross margin to improve sequentially versus Q1 and be in the range of 35% to 36%.
This will be enabled by higher owned brand penetration the more favorable assortment mix and continued cost savings. Additionally.
Additionally, this guidance reflects the ongoing impact of higher industry wide freight costs versus last year.
In terms of adjusted EBITDA, we are guiding to a range of $150 million to $160 million and on the adjusted EPS range of 48% to 55.
And as Mark and I mentioned, we're raising our full year outlook for fiscal 'twenty 1.
We expect higher net sales in the range of 8.2 to $8.4 billion.
We're also raising our comp sales growth expectation for the second through fourth quarters of the fiscal year, which are fully comparable period of previously discussed.
We now expect to deliver low single digit comp growth compared to robust sales performance during Q2 through Q4 of last year.
We are reaffirming our full year adjusted gross margin of approximately 35%.
As the year progresses, we will continue to focus on driving progress the.
Higher penetration of newly launched on brands product sourcing savings from negotiated in the contract and more effective data driven promotion on markdown strategies.
Historically, even category mixed gross margin in the latter part of the fiscal year tend to be somewhat lower during the earlier part of the year.
For the full year SG&A is expected to be approximately 31% of total net sales on.
On a year over year basis savings will continue to be driven by favorable impacts from store closures and last year's cost restructuring.
And finally, we are raising adjusted EBITDA to a range of $520 million to $540 million.
This translates to an adjusted EPS range of $1.40 to $1.55.
On our balance sheet on cash flow assumptions, we are reaffirming our guidance of approximately $400 million on capex the growth debt to EBITDA ratio below 3 times plan for a total of $325 million of share repurchases for the full year or approximately $200 million for the rig.
<unk> of the year.
We have also provided additional assumptions on depreciation and amortization interest and tax rates in today's presentation to assist with EPS modeling.
We've also included the previously provided breakdown of core sales on the historical basis.
We continue to operating in a rapidly changing environment as it relates to both societal health and economic recovery.
We continue to monitor the penetration of the COVID-19 vaccine, particularly as it relates to customer demand and traffic patterns, both in stores and online.
Inflation continues to be a key area of review as we remain vigilant on raw materials freight and labor variability facing many industries.
We're establishing a consistent track record of performance, while also driving a fast based on comprehensive strategic transformation.
But at the end of this year, we will have driven the 25% increase in EBITDA versus 2019 with.
With the healthier more focused and growing portfolio of core banners.
And over the same period.
Just 2 years later, our EPS will be 3 times higher given of disciplined capital allocation and share repurchase program.
I will now turn the call over to Mark for some closing remarks.
Exceeding our plans for the first quarter is yet another positive step during the early stages about 3 year plan.
We are proving that our strategy is clear at our ability to execute at strong by delivering on our transformation plan quarter after quarter.
We continue to fortify our position as a digital first omni always retailer and I am confident the that team and our initiatives will enable us to become a more successful enterprise.
<unk> all of that stakeholders the ease.
To come.
This year will not on a mark up.
<unk> as a business.
Also of being important inflection point of bed Bath and beyond the history.
We are reinventing ourselves at North authority at home and repositioning at the iconic company the unlock at potential for a new feature of sustainable growth and profitability.
We will now take your questions.
Thank you we will now begin the question and answer session. If you have a question. Please press Star then 1 touch the telephone.
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And the first question comes from Peter Benedict from Baird.
Hi, guys good morning.
So a couple of questions first of all.
A lot of noise in the market here over the over the first quarter, but.
Just wondering if you could maybe expand a little bit on your share gains.
How youre kind of thinking about that how you are measuring that at.
Sounds like you think you gained share and the number of these core categories. So that's kind of my first question I don't know Mark if you could maybe if the build off on that.
Yes, thanks, good morning.
Been tracking our market share obviously, we took a hit last year in the subsequent quarter.
Because of the store closures and so we've been looking at not only how we can perform at an equivalent market. What is the share kind of ratio look like and we see a couple of things that Peter its preliminary clearly we're not back to our 2019 levels of share because we have less doors of operating as a leaner organization.
But what we sort of is that rebound was very very strong at actually exceeded that of a number of of our competitors who were also closed at the same time. So outside of your debt is a specialty retailer at the harm at baby space about health and wellness, we regained really strong share there that we're going to be building off of quarter by quarter.
And sequential growth by month as we've tracked at.
Okay. Thanks.
Next question is just on.
On kind of inventory and how you're managing that is kind of in store versus online.
In stock levels, just kind of curious I know you mentioned there is the new store replenishment process.
Believe it's on tap so could you just talk about that as you're as you're kind of transforming the merchandize assortment in the stores.
Just any timeline or metrics around that would be helpful.
Yes.
It really places of that progress at Peter I think of prior to implementing the full technology suite, that's going to help us and enable us with the use of AI to manage our inventory at D. C. At store at the level, we're seeing the curation of the merchandise first at store level and the.
Then the exit of underperforming.
Brands on labels, the Mike White for a clean punctuated by a brand that has resulted us in being in stock at about 95 per cent.
And definitely in the high end some of our key items, which is 1 of our highest statistics in many of the salaried stock levels of healthy.
This is important at night is the key right at the assortment mix as we noted we were up for the for the quarter, but our inventory was down at $100 million of 6%. So we are doing both sales on less inventory, we're getting that inventory faster than the customer than ever before and this is prior to us implementing a full suite of <unk>.
<unk> management and tracking systems at new supply chain. So we see those big net benefits of <unk>.
Through the 3 year plan, but the fundamentals of what we put in place is working well for us.
Okay, Great and I guess, maybe lastly, 1 for Gustavo just on the on the free cash flow.
The negative 100 million this quarter, but just how are you thinking about that at and as we cadence throughout the rest of the year of what's your kind of view on on free cash flow for 'twenty, 1 based on the updated guidance and maybe end of the puts and takes there.
Would be helpful. Thanks, so much.
Sure Peter so of free cash flow in the first quarter came in line with our expectations as we accelerated our capital investments in line with our 3 year plan.
Relative to the balance of the fiscal year, we're not guiding too specific of free cash flow number, but I will say that we are definitely planning for positive free cash flow. We have a strong plan in terms of EBITDA a strong plan in terms of further inventory optimization and were fully funded in our restructuring.
Cost end marketing spending so all of that will be sufficient to fund our $400 million with capex in the year. So look for positive free cash flow at the year progresses, we typically see the first quarter.
Lower.
And then the balance of the quarter on seasonality.
Well couldnt grew at about that.
Our next question comes from Steven Forbes from Guggenheim Securities.
Good morning.
Maybe mark just a follow up on the Peter's question about market share.
Curious if you could provide maybe a brief overview on how you view of the company's performance right across the top 5 destination categories of what I mean by that is.
We look at what Youre trying to tell us here in the exhibits <unk> been providing right and all of the data you've been providing.
What is the big takeaways right like what are you really trying to tell us about share of what gives you confidence that share gain should build how are the legacy customers engaging with these categories versus the new customers that you acquired during the Covid, just any sort of context that helps us increase our own conviction right that the business is positioned to win.
Turn to share capture.
Yes.
Great question, Steve I think what we see happening is that we are doubling down on those core areas that we discussed bed Bath kitchen storage in Oregon Indoor day call, we were investing in dollars, but youre, adding your inventory the clarifying at price.
Our price equity in the market is very strong and we really trading at an omnichannel why at which means customers are viewing us online shopping in store or purchasing through digital all of that is adding up to a strong bounce back share recovery for us in those key areas at <unk>.
Saying, both existing and new customers fall out of that trained.
At seeing.
Slightly stronger baskets.
And average transaction value from our digital customer.
But we're seeing real strength in those areas 1 of the things we've been looking at stages. The 2 year stack and I think it's interesting to note that while we saw.
Over 100% growth in our top categories. It was interesting scenario like kitchen way of that really did booming Q1 last year by way of saying double digit comps in that category on 2019 numbers, which means that trend is the staples store cooking's to go by and they are still thinking of that.
Bed Bath and beyond in that equation. So we see that having a full omni channel swathe of stores and digital back on operational on this quarter has really brought us back the share growth and we're going to continue that transformation quarter by quarter.
Our next question comes from Simeon Gutman from Morgan Stanley.
Hey, Good morning, guys. This is still home on stores Simeon 2 questions first 1 mark just on the owned brands and engagement around that could you just maybe share some of the Kpis that you guys are tracking to gauge your success, there whether that be Pos data just store traffic trends that you could share.
Once you've introduced those brands into income.
Into our store.
Sorry.
Wrong mute button.
Question.
For us definitely it's around our sales targets and plans and the penetration rate overall and.
We're seeing a lot of curiosity at a lot of engagement with the brands and so for us we.
Seeing at penetration rate on Brian.
Increased rapidly as we said on a.
The hold back from our 2020 number and actually the 2019 number so the priority of around 9% static we're seeing that in the high teens and we had declared that our golf for the full year.
The 20% penetration rate by the end of the so we're very early off to a great start we have exit of bed.
Product the disease as well as the introduction of new customers. The respond really really strongly we look at a number of digital metrics here as well as social media engagement and all of those have been extremely positive.
Our next question comes from Christopher <unk> from Jpmorgan.
Yes.
Thanks, Good morning, everybody.
She reached at 34.9 gross margin in the first quarter. So a few questions there 1.
Do you think the sort of the clearance activity in the from the store closures in the owned brand transition has done such that there wouldn't be any deductions going add back going forward in just the longer term. If we center on that 34.9 do you have an introduced all of the private label brands in the home.
Brands that.
At that you plan to so how are you how does that 35 from <unk> inform how you think the gross margin could be over the long term.
Yeah.
Thanks, Chris as we introduce the other brands, we have bought at the exit in clearance and markdowns.
As well as the introduction of the high margin products. So I would say to you at bodes well.
But we will continue to see of transition on markdown and introductions as we introduce the next 3 brands into key rooms and categories through Q2 with more stabilization in the second half and we've been really clear about that that we saw that the stronger margin potential in the second half than the first although we do see Q4 traditionally being a little.
Software best of the rest of the business our annualized right. So the good news is that we see early positive upside we had all along.
We were very pleased to come above our guidance that we are in the transition of size and the establishment phase and then we'll stabilize that in the second half. So we think that will be positive, but again, we're in the early stages of that transformation I think on the deck, we see sequential growth in margin I think on out of the declaration of that.
It would be not prudent so we continue to monitor it carefully.
Our next question comes from Michael Lasser from UBS.
In light of meat of please on mute yourself.
Good morning, Thanks, a lot for taking my question.
The 2 parter. The first part is so you're the your core categories Youre destination categories. If you look at on a 2 year or from arithmetic stack, we're up 107% the other categories, which represented a little over a third of the business.
The only up on a 2 year stack, 88% I know you are focused on the core categories, but the other categories are still are important when do you think you can get all of them working together simultaneously and the second part of it of the question is your quarter overlapped with the period of the <unk>.
Distribution of some sizable stimulus how much do you think that contributed to your performance during the period.
So much yet.
Thanks, Michael Yeah, I think.
We've got areas like personal care for us.
Luggage some ancillary categories that are underperforming.
Versus those of the core categories of getting our investment has been in the core that's driving more of our attention on activity and Thats. The first cab off the rank I think what we'll see is more stability in the second half with that.
You can see some early signs of returns of that we really want to see encouraging store traffic because that is more of a store based business than a digital based on this.
So we will see that balance out in the second half.
I think in terms of the of rural stimulus.
Package of what we see what we saw in the quarter that for us.
You can provide the overall consumer confidence.
But in terms of the driving the majority of the South do you think thats more by some of the out initiatives at our engagement and then the incremental activities, we had like on the brand launches.
And so I think everyone's benefiting.
At degree, but we see at strategic factors driving that so for us versus a lot of our competitors, we see more stability in the trend rather than.
Getting trips and traffic through food and other areas that were benefited from the.
The stimulus package, which we've seen through the day that we don't participate at.
Our next question comes from Carla Casella from J P. Morgan.
Hi.
Relatively large cash balance and you gave some comments around cash flow of it can you talk about your priorities for that cash flow.
Yes.
Hi, Carla Gustavo here, we remain focused on on capital allocation principles, the first and foremost invest in the business that we're doing maintaining a strong balance sheet on improving our debt to EBITDA credit ratios and returning capital to shareholders is what we're doing with share buybacks. So we will continue to being agile on our cash.
Cash balance on our cash flow and accordingly to our principles.
Yes, the caller I'd just added their debt like we're at the very early stages all of that trip somebody should we have a lot of things implied on our brand investments technology supply chain.
Remodeling about stores and upgrading the digital what.
What we will continue to look to do is where we have free cash flow or additional free cash flow. How can we look to deploy that to get the accelerating our efforts in the transformation, but as yet.
She goes from of watching those plans evolve great uses of where in the right position to be able to.
Review at invest as we move forward.
Our next question comes from Kate Mcshane from Goldman Sachs.
Hi, good morning, Thanks for taking my question.
I just wanted to go back to the store comp.
Was down 20% versus 2019, I just wondered if you could.
Maybe contextualize what your expectation is specifically for store comp in your guidance, what you think drives the improvement specifically to the store and.
Is the solution really the completion of the fleet optimization.
Thanks Cai.
Of things there I think that we still see upside in the retail stores I think we're tracking is by region and seeing that there is different levels of competence and therefore traffic that are generated in the specific stores outside the northeast, which is a very strong part of that business historically that is.
I think more reticent than other areas like the south 2 returned to stores and so for US great news instead of the nominee always range with balancing that out and I think theres been a permanent shift.
The the mix and how our customers operate between nodes, which is great and we've reflected net operating plans. So I think at return to strength. There in traffic is really generated by a number of different things. We believed at the back to college period will be a really interesting pivot.
And to return to a new normal and we see that that brings multi generational traffic, both new and existing customers in the store on when they do that will be experiencing the new bed bath and beyond whether it is the assortment or whether it'll be remodel in terms of the rate model the traffic doesn't cleanly.
<unk> of that as a singular strategic labor, but we are seeing in at preliminary data that the sales lift margin lift and even down to the UGG brand penetration linked.
On traffic and transactions have increased above our existing plan, where we have complained of does remodels now we're in the early stages. So we will be sharing more at the end of Q2, probably around the statistics, there, but I think the multi faceted pathway to full traffic recovery that we're embarking on as we speak.
Our next question comes from Bobby Griffin from Raymond James.
Good morning. Thank you for taking my questions Mark I, just wanted to circle back on the composition of the comps a little bit of understanding it's still blurred between digital and stores, but if you look at it on just the transaction basis. We're at transactions include store and digital and then can you maybe give some color on transactions versus ticket end.
And what's the bigger driver there versus FY 19.
Yes, good morning, Bobby we actually seen transaction and value growth areas and again it is definitely buoyed by the digital we're seeing that the store.
Chips per year, I announced stable against 2019 statistics.
And what we are seeing is a change of behavior that weren't customers shop, they shop bigger.
And less less frequently bold, but thats relatively stable for us. So I think they will come in the building of basket in the going out the door. We're seeing the change in that we're going to continue to monitor that early on because we seeing.
The brand penetration.
The price value equation really resonating with customers, which is helping build the basket, but it's early on and we want to continue to monitor that through the year.
Our next question of Bob what I would.
What I would add to that real quick is that we see a larger proportion of our customers being homey and as Mark said in the remarks.
The frequency of their purchase it's more frequent and their ticket is larger so that's where we feel that our digital first on the always strategy is really really really driving our business.
And the next question comes from Zacks 8 on from Wells Fargo.
Hi, This is David Lance on for Zach Thanks for taking our questions just 2 questions for you.
Could you provide some color on the state of the coupon and how at some usage is trending and then second the 34, 9% Q1 gross margin is 40 basis points above 1.2019 levels and so I was wondering if you could help us bridge the gap there.
Yeah, I'll take the first part of the stomach can pick up on the second part of what you David I think in terms of coupons, we continue to just see.
At.
At this is a major part of our business and something that we celebrate but we are using more strategically and surgically. So what we're seeing is that the the.
The allocation of redemption slightly down as per our plan.
And that has mostly to do with strobe based traffic changes, but also to how we manage that on balance that against the great everyday prices. So it's definitely resonating with customers and we are seeing then our growth day now beyond plus membership, which slightly offset stag to establish the gross margin.
Breach.
Yes, David I would say 2 things about our gross margin versus 2019 at is above 2019 by about 50 basis points, we feel good about that because of that.
Of that expansion in spite of having 2 times the digital mix penetration and also in spite of the significant shipping cost increases that we have seen.
Over the period, which we will start the shopping is in Q3 of Q4.
Our next question comes from John men at dusk from Jefferies.
Hey, good morning, guys. Thanks for taking my question first 1 of them is just on the Remodels it looks like.
The 26, the recent ones are at.
Seating internal sales estimates youre going to be doing over a 100 more for the remainder of the year. So.
Is your updated annual sales guidance contingent on those.
Those initial expectations of remodeled store productivity and if so is that fair to assume maybe some bias above the midpoint of your updated sales range if the.
Several dozen remodeled stores do as well as the initial 1 that's my first question. Thanks.
Yes, Thanks, John look I think you're absolutely right, what we're seeing with the the.
The plan for the stores is that we actually plan for disruption ratio, we're actually performing better than that as we open in 4.812 weeks sequences were saying that the sales gross margin on brand penetration of chips of transactions are all of them.
Above our estimates now that's important to note because of our regional remodel plans had a very healthy ROIC.
And so we're exceeding that base, but from the sales, but therefore of the rich of of invested capital level.
Current plans for the full year with only 26 of these completed does not include a revision of our original estimates on the upside of what these remodels will be going in really looking for.
Ongoing proof of concept and consistent.
Liberals to share and to change that trajectory, but we're very household debt. We've got some positive on the cards that we can utilize through the year, but not reflected in current plans.
Quick follow up on Omni channel I think youre expanding the same day delivery capabilities with door Dash just curious if you've had a chance to take a look at kind of the customer utilizing the services, whether it skews more towards newer existing customers and obviously it may be.
Early but is there any discernible trend you can see so far in terms of after our customers engage with your brand through the the vehicle.
Anything interesting to call out thanks, so much.
Yes, I mean, we're tracking not only the.
The upside potential of what the introduction of both of US originally meant to our business, which is creating more stickiness with that customer and that definitely has brought new customers in but it's the patients being used by existing customers.
But in our agreement with shift and door dash of golf is too.
Yet.
Good through our customer at foster and create more joy, there, that's actually happening and that's happening with new customers as well as existing and I think people at big really really excited about the ease and convenience of shopping at the bed Bath <unk> beyond compare the east gone by the early indications is that customer is become.
Sticky.
We're looking at the IH pipe all of that.
Part of why we want to collect more data on it but we are seeing repeat purchases and repeat engagement as people become really happy with what that service delivers.
Stay tuned because we're going to be sharing more on how we're going to be expanding that kind of delivery timeframe as well is that proximity that the comp.
The focus brought some of that last mile.
Our next question comes from Jonathan <unk> from Goldman Sachs.
Yeah.
Hi, Thanks for taking my question.
The first 1 is just on marketing investments given the better topline growth margin you kept it up marketing in the first quarter is that something that we can extrapolate as true for the balance of beer I guess I'm just curious on the underlying guidance range granted at that but does it also include increased marketing investment.
The originally planned for the rest of the year.
Yes. It does include that for the rest of the year, although what I would.
Outline generally is that in Q1, we did have some exceptional circumstances holistic investment in our brand launches that will continue through more into Q2, and then we'll see in half 2 that really balancing down more of a maintenance perspective, so some incremental investment.
<unk> had at customer value proposition and a clear state of maintained throughout marketing campaign happier that we wanted to resonate with the customers.
And so there is some some in the quarter moments there that will show some sustainable investment with respect to the into our future growth and then there's some kind of more seasonal quarter based activity that will dissipate over the year.
Our next question comes from Cristina Fernandez from Telsey Advisory.
Hi, Good morning, I wanted to ask on the private label can you share I guess your early learnings so far.
The branch at launch.
Impact on on what categories and then also from the customer perspective, what is the feedback you're getting as far as the pricing or the headache of these new private label brands versus the national brands. They replaced.
Yes. Thank you so much Christine.
The book I mean, I'll go straight to the consumer patient, saying that what we're saying is at the customer online is providing reviews battery credibly high there's a great deal of satisfaction and excitement from the customer about quality.
Quality value aesthetic and that average writing actually exceeds our average digital writing across the board. So we're very happy with that in each of the brands I think at real powerhouses.
What were seeing very early on is out of the 3 that we launched in the quarter. There was 2 kind of bigger brands inside the mix 1 was the <unk> because it covers multiple categories at bed Bath and also to simply essential being the completely incremental business for us which is opening price points.
All 3 brands have done very well I think net well is probably the original stand out because it is.
Featuring at our top 10 brands of sales per day exceptionally highly and often is in the number 1 and 2 slots. So at the adoption from the customer has been very very strong and great repeat purchasing and what of mouth. The.
The visual presentation in store of the storytelling online we're getting really good feedback on all of that people are feeling very engaged understanding what these brands.
And at the value is very crisp at very clear about how we've articulated how back end value of that against the competition. So all greatly set at.
Really excited about how these brands will play in respect of college period, particularly simply essentially what we think will have at more of a shining moment in back to college, even more so than its may launch.
We have time for 1 more question that question comes from Seth Basham from Wedbush Securities.
Okay.
Thanks, a lot and good morning. My question is the first on the destination categories. Most of them performed quite well, but why do you debt that lie at.
Bath and indoor to core.
Lag versus 2019.
Yes, I think for us set the the <unk>.
Was that probably had 1 of the largest.
The product changes inside of this as we exited a lot of product it was within our plan.
And so we see this is the quarterly anomaly.
As we look to regain share that we exited a number of brands, which were very dominant in the assortment price to remix within net as well and heightened with other brands coming through the year. So it was the category that we knew were going to take the biggest hit with exit. So AUR was slightly off because we at markdown product in there at a higher mix.
We think that that is not representative of subsequent quarters. So thats more of a transformation of an adjustment category than others.
Got it and related range Atlanta comes to the.
I'm sorry go ahead.
So on an indoor day call suddenly we we saw some real booming in the in the Dyco area end.
And we see further opportunity there will of.
A lot of our investments in that space.
We're really focused on the second half of 2020 once the staging.
Got it and Relatedly when it come from the markdowns last quarter of your Delta between adjusted and reported gross margin was 130 basis points. This quarter was 250 basis points, how should we be thinking about that delta for the subsequent quarters this fiscal year.
We see these types of we see this as the transition then it should start coming down as we move into Q2 Q on Q3.
The net Q1.
Fair enough and by next fiscal year should we be clean with no adjustments.
No adjustment related to markdowns there might be some related to the mine are related to supply chain or that sort of restructuring will clearly fiscal 'twenty..1 is the major year of lease structure.
Thank you.
Yes.
I will now turn the call over to Susie Kim for final remarks.
Thank you for participating on the call today do you have any further questions. Please contact us at IR at bed Bath.
Com have a wonderful day.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.