Overview
Bed Bath & Beyond Inc. and subsidiaries (the "Company") is an omnichannel
retailer that makes it easy for its customers to feel at home. The Company sells
a wide assortment of domestics merchandise and home furnishings which operates
under the names Bed Bath & Beyond ("BBB"), Christmas Tree Shops, Christmas Tree
Shops andThat! or andThat! (collectively, "CTS"), Harmon, Harmon Face Values, or
Face Values (collectively, "Harmon"), buybuy BABY ("Baby") and World Market,
Cost Plus World Market, or Cost Plus (collectively, "Cost Plus World Market").
Customers can purchase products either in-store, online, with a mobile device or
through a customer contact center. The Company generally has the ability to have
customer purchases picked up in-store or shipped direct to the customer from the
Company's distribution facilities, stores or vendors. In addition, the Company
operates One Kings Lane, an authority in home décor and design, offering a
unique collection of select home goods, designer and vintage items;
PersonalizationMall.com ("PMall"), an industry-leading online retailer of
personalized products; and Decorist, an online interior design platform that
provides personalized home design services. The Company also operates Linen
Holdings, a provider of a variety of textile products, amenities and other goods
to institutional customers in the hospitality, cruise line, healthcare and other
industries. Additionally, the Company is a partner in a joint venture which
operates retail stores in Mexico under the name Bed Bath & Beyond.
The Company accounts for its operations as two operating segments: North
American Retail and Institutional Sales. The Institutional Sales operating
segment, which is comprised of Linen Holdings, does not meet the quantitative
thresholds under U.S. generally accepted accounting principles and therefore is
not a reportable segment.
The Company is executing on a comprehensive plan to transform its business and
position the Company for long-term success. On May 13, 2019, the Company
announced that Mary Winston, a seasoned public company executive who had
recently joined the Company's Board of Directors (the "Board"), was appointed
Interim Chief Executive Officer ("Interim CEO"), after the former CEO stepped
down. During this interim period, the Board and management team were focused on
driving four key near-term priorities that include: 1) stabilizing sales and
driving top-line growth; 2) resetting the cost structure; 3) reviewing and
optimizing the Company's asset base, including its portfolio of retail banners;
and 4) refining the Company's organization structure. On October 6, 2019, the
Company's Board appointed Mark J. Tritton as President and CEO of the Company,
effective as of November 4, 2019, succeeding Interim CEO, Mary A. Winston.
During the first two months of his tenure, Mr. Tritton has been assessing the
operations, portfolio, capabilities and culture of the Company to develop a
strategic plan to position the Company to deliver long-term, sustainable growth.
Mr. Tritton plans to communicate the details of the Company's strategy over the
coming months.
The integration of retail store and customer facing digital channels allows the
Company to provide its customers with a seamless shopping experience. In-store
purchases are primarily fulfilled from that store's inventory, or may also be
shipped to a customer from one of the Company's distribution facilities, from a
vendor, or from another store. Purchases, including web and mobile, can be
shipped to a customer from the Company's distribution facilities, directly from
vendors, or from a store. The Company's customers can also choose to pick up
online orders in a store, as well as return online purchases to a store.
Customers can also make purchases through one of the Company's customer contact
centers and in-store through The Beyond Store, the Company's proprietary
web-based platform. These capabilities allow the Company to better serve
customers across various channels.
Operating in the highly competitive retail industry, the Company, along with
other retail companies, is influenced by a number of factors including, but not
limited to: general economic conditions including the housing market,
unemployment levels and commodity prices; the overall macroeconomic environment
and related changes in the retailing environment; consumer preferences, spending
habits and adoption of new technologies; unusual weather patterns and natural
disasters; competition from existing and potential competitors across all
channels; potential supply chain disruption; the ability to find suitable
locations at acceptable occupancy costs and other terms to support the Company's
plans for new stores; and the ability to assess and implement technologies in
support of the Company's development of its omnichannel capabilities. The
Company cannot predict whether, when or the manner in which these factors could
affect the Company's operating results.
The following represents an overview of the Company's financial performance for
the periods indicated:
• Net sales for the three months ended November 30, 2019 were $2.759
billion, a decrease of approximately 9.0% as compared with the three
months ended December 1, 2018. Net sales for the nine months ended
November 30, 2019 were $8.052 billion, a decrease of approximately 7.7% as
compared with the nine months ended December 1, 2018.
• Comparable sales for the three and nine months ended November 30, 2019
decreased by approximately 8.3% and 7.2%, respectively, as compared to a
decrease of approximately 1.8% and 1.0% for the three and nine months
ended December
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1, 2018, respectively. For the three months ended November 30, 2019, comparable
sales consummated in-store declined in the high-single-digit percentage range,
while comparable sales consummated through customer facing digital channels
declined in the mid-single digit percentage range. For the nine months ended
November 30, 2019, comparable sales consummated in-store declined in the
high-single-digit percentage range, while comparable sales consummated through
customer facing digital channels declined in the low-single digit percentage
range.
Comparable sales include sales consummated through all retail channels which
have been operating for twelve full months following the opening period
(typically four to six weeks). The Company is an omnichannel retailer with
capabilities that allow a customer to use more than one channel when making a
purchase, including in-store, online, with a mobile device or through a customer
contact center, and have it fulfilled, in most cases, either through in-store
customer pickup or by direct shipment to the customer from one of the Company's
distribution facilities, stores or vendors.
Sales consummated on a mobile device while physically in a store location are
recorded as customer facing digital channel sales. Customer orders taken
in-store by an associate through The Beyond Store, the Company's proprietary,
web-based platform, are recorded as in-store sales. Customer orders reserved
online and picked up in a store are recorded as in-store sales. Sales originally
consummated from customer facing digital channels and subsequently returned
in-store are recorded as a reduction of in-store sales.
Stores relocated or expanded are excluded from comparable sales if the change in
square footage would cause meaningful disparity in sales over the prior period.
In the case of a store to be closed, such store's sales are not considered
comparable once the store closing process has commenced. Stores impacted by
unusual and unexpected events outside the Company's control, including severe
weather, fire or floods, are excluded from comparable sales for the period of
time that such event would cause a meaningful disparity in sales over the prior
period. One Kings Lane and Decorist are included in the comparable sales
calculation beginning in the first quarter of fiscal 2018. Linen Holdings is
excluded from the comparable sales calculations and will continue to be excluded
on an ongoing basis as it represents non-retail activity.
• Gross profit for the three months ended November 30, 2019 was $913.8
million, or 33.1% of net sales, compared with $1.004 billion, or 33.1% of
net sales, for the three months ended December 1, 2018. Gross profit for
the nine months ended November 30, 2019 was $2.528 billion, or 31.4% of
net sales, compared with $2.957 billion, or 33.9% of net sales, for the
nine months ended December 1, 2018. The decrease in the gross profit
margin for the nine months ended November 30, 2019 was primarily
attributable to a decrease in merchandise margin, as a result of an
incremental inventory reserve for future markdowns of approximately $169.8
million related to the Company's transformation initiatives, which was an
incremental charge to the actual markdowns recorded in the second and
third quarters of fiscal 2019.
• Selling, general and administrative expenses ("SG&A") for the three months
ended November 30, 2019 were $931.8 million, or 33.8% of net sales,
compared with $954.2 million, or 31.5% of net sales, for the three months
ended December 1, 2018. SG&A for the nine months ended November 30, 2019
were $2.705 billion, or 33.6% of net sales, compared with $2.748 billion,
or 31.5% of net sales, for the nine months ended December 1, 2018.
• Goodwill and other impairments for the three and nine months ended
November 30, 2019 were $11.8 million, or 0.4% of net sales, and $441.4
million or 5.5% of net sales, respectively. There were no goodwill and
other impairments in the three and nine months ended December 1, 2018.
• Interest expense, net for the three and nine months ended November 30,
2019 was $17.2 million and $49.4 million, respectively, compared with
$22.7 million and $54.0 million, respectively, for the three and nine
months ended December 1, 2018.
• The effective tax rate for both the three and nine months ended November
30, 2019 was 17.9%, as compared with 9.2% and 25.1%, respectively, for the
three and nine months ended December 1, 2018. For the three and nine
months ended November 30, 2019, the effective tax rate reflects the impact
of charges for goodwill and other impairments and severance costs,
portions of which are non-deductible for tax purposes. The tax rates also
included other discrete tax items resulting in net after tax costs of
approximately $3.5 million and $10.5 million, respectively for the three
and nine months ended November 30, 2019 and net after tax benefits of
approximately $4.8 million and $3.2 million for the three and nine months
ended December 1, 2018.
• For the three months ended November 30, 2019, net loss per diluted share
was $(0.31) ($(38.6) million), as compared with net earnings per diluted
share of $0.18 ($24.4 million) for the three months ended December 1,
2018. The decrease in net earnings per diluted share for the three months
ended November 30, 2019 is the result of the decrease in net earnings due
to the items described above and by the impact of the Company's
repurchases of its common stock. In addition, for
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the three months ended November 30, 2019, net loss per diluted share included a
net benefit of approximately $0.07 per diluted share from the favorable impact
from an adjustment to the incremental inventory reserve for future markdowns
related to the Company's transformation initiatives, partially offset by a
non-cash charge for the impairment of certain store-level assets incurred during
the fiscal third quarter of 2019. For the three months ended December 1, 2018,
net earnings per diluted share included the favorable impact of approximately
$0.16 from the gain on the sale of a building.
For the nine months ended November 30, 2019, net loss per diluted share was
$(4.40) ($(548.4) million), as compared with net earnings per diluted share of
$0.86 ($116.6 million) for the nine months ended December 1, 2018. The decrease
in net earnings per diluted share for the nine months ended November 30, 2019 is
the result of the decrease in net earnings due to the items described above and
by the impact of the Company's repurchases of its common stock. In addition, for
the nine months ended November 30, 2019, net loss per diluted share included the
unfavorable impact of approximately $4.48 per diluted share related to goodwill
and other impairments charges, including store impairment charges, an
incremental inventory reserve for future markdowns related to the Company's
transformation initiatives, severance costs and shareholder activity costs. For
the nine months ended December 1, 2018, net earnings per diluted share included
the favorable impact of approximately $0.16 from the gain on the sale of a
building.
Capital expenditures for the nine months ended November 30, 2019 and December 1,
2018 were $188.4 million and $256.5 million, respectively. In the first nine
months of fiscal 2019, approximately 50% of the capital expenditures related to
technology projects, including investments in the Company's digital
capabilities, analytics, logistics, and the development and deployment of new
systems and equipment in its stores. The remaining capital expenditures were
primarily related to investments in stores, including remodels and new store
openings.
The Company continues to review and prioritize its capital needs and remains
committed to making the required investments to accelerate the Company's ongoing
business transformation.
During the nine months ended November 30, 2019, the Company opened seven new
stores and closed 16 stores. The Company has also completed an initial
assessment based on the results of a fleet optimization project for all Bed Bath
& Beyond stores with the goal to create a better balance between its physical
and digital presence within the markets it serves. As part of this project, the
Company continues to analyze stores' performance, profitability, geographic
location and customer demographics to understand how best to position its store
locations in various markets across the country. Over the past several years,
the Company's pace of its store openings has slowed, and the Company has
increased the number of store closings. The Company expects to close
approximately 40 stores in fiscal 2019, including approximately 20 Bed Bath &
Beyond stores and 20 other concept stores. As of the end of the fiscal second
quarter of 2019, the Company had planned to close 60 stores, including
approximately 40 Bed Bath & Beyond stores and 20 other concept stores. The
Company has decided to delay the closing of 20 of the 40 Bed Bath & Beyond
stores that were scheduled to close, to utilize these stores during the first
half of fiscal 2020 to better facilitate the clearance and sell through of the
merchandise associated with the inventory reduction initiative. In fiscal 2019,
the Company expects to open approximately 10 new stores. As of November 30,
2019, the Company operated 1,524 stores plus the Company's interactive
platforms, including websites and applications, and distribution facilities and
total store square footage, net of openings and closings, was approximately 42.7
million square feet. As of November 30, 2019, the Company had distribution
facilities totaling approximately 7.2 million square feet, supporting its
customer facing digital channels as well as its stores and its institutional
sales segment.
During fiscal 2016, the Company's Board of Directors authorized a quarterly
dividend program. During the nine months ended November 30, 2019 and December 1,
2018, total cash dividends of $64.3 million and $64.9 million were paid,
respectively. Subsequent to the end of the third quarter of fiscal 2019, on
January 8, 2020, the Company's Board of Directors declared a quarterly dividend
of $0.17 per share to be paid on April 14, 2020 to shareholders of record as of
the close of business on March 13, 2020. The Company expects to pay quarterly
cash dividends on its common stock in the future, subject to the determination
by the Board of Directors, based on an evaluation of the Company's earnings,
financial condition and requirements, business conditions and other factors.
During the three and nine months ended November 30, 2019, the Company
repurchased approximately 87,000 and 6.8 million shares, respectively, of its
common stock at a total cost of approximately $1.2 million and $99.1 million,
respectively. During the three and nine months ended December 1, 2018, the
Company repurchased approximately 0.5 million and 3.9 million shares,
respectively, of its common stock at a total cost of approximately $7.7 million
and $70.5 million, respectively. The Company's share repurchase program may be
influenced by several factors, including business and market conditions. The
Company reviews its alternatives with respect to its capital structure on an
ongoing basis.
Results of Operations
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Net Sales
Net sales for the three months ended November 30, 2019 were $2.759 billion, a
decrease of $272.9 million or approximately 9.0%, compared to $3.032 billion of
net sales for the corresponding quarter last year. Net sales for the nine months
ended November 30, 2019 were $8.052 billion, a decrease of $669.2 million, or
approximately 7.7%, over net sales of $8.721 billion for the corresponding nine
months last year. The decrease in net sales for the three and nine months ended
November 30, 2019 was primarily due to a decrease in comparable sales.
The decrease in comparable sales for the three and nine months ended November
30, 2019 was approximately 8.3% and 7.2%, respectively, as compared to a
decrease of approximately 1.8% and 1.0% for the three and nine months ended
December 1, 2018. The decrease in comparable sales for the three and nine months
ended November 30, 2019 was due to a decrease in the number of transactions in
stores, partially offset by an increase in the average transaction amount. In
addition, the Company's fiscal third quarter was significantly impacted by the
calendar shift of the Thanksgiving holiday this fiscal year resulting in one
less week of holiday sales compared to the prior year period.
The Company's comparable sales metric considers sales consummated through all
retail channels - in-store, online, with a mobile device or through a customer
contact center. Customers today may take advantage of the Company's omnichannel
environment by using more than one channel when making a purchase. The Company
believes in an integrated and seamless customer experience. A few examples are:
a customer may be assisted by an in-store associate to create a wedding or baby
registry, while the guests may ultimately purchase a gift from the Company's
websites; or a customer may research a particular item, and read other customer
reviews on the Company's websites before visiting a store to consummate the
actual purchase; or a customer may reserve an item online for in-store pick up;
or while in a store, a customer may make the purchase on a mobile device for in
home delivery from either a distribution facility, a store or directly from a
vendor. In addition, the Company accepts returns in-store without regard to the
channel in which the purchase was consummated, therefore resulting in reducing
store sales by sales originally consummated through customer facing digital
channels. As the Company's retail operations are integrated and it cannot
reasonably track the channel in which the ultimate sale is initiated, the
Company can, however, provide directional information on where the sale was
consummated.
For the three months ended November 30, 2019, comparable sales consummated
in-store declined in the high-single-digit percentage range, while comparable
sales consummated through customer facing digital channels declined in the
mid-single digit percentage range. For the nine months ended November 30, 2019,
comparable sales consummated in-store declined in the high-single-digit
percentage range, while comparable sales consummated through customer facing
digital channels declined in the low-single digit percentage range.
For the three and nine months ended November 30, 2019, comparable sales
represented $2.707 billion and $7.836 billion of net sales, respectively. For
the three and nine months ended December 1, 2018, comparable sales represented
$2.933 billion and $8.432 billion of net sales, respectively.
Domestics merchandise includes categories such as bed linens and related items,
bath items and kitchen textiles. Home furnishings include categories such as
kitchen and tabletop items, fine tabletop, basic housewares, general home
furnishings (including furniture and wall décor), consumables and certain
juvenile products. Sales of domestics merchandise and home furnishings accounted
for approximately 35.0% and 65.0% of net sales, respectively, for the three
months ended November 30, 2019, and approximately 34.6% and 65.4% of net sales,
respectively, for the three months ended December 1, 2018. Sales of domestics
merchandise and home furnishings accounted for approximately 36.4% and 63.6% of
net sales, respectively, for both the nine months ended November 30, 2019 and
December 1, 2018.
Gross Profit
Gross profit for the three months ended November 30, 2019 was $913.8 million, or
33.1% of net sales, compared with $1.004 billion, or 33.1% of net sales, for the
three months ended December 1, 2018. Gross profit for the nine months ended
November 30, 2019 was $2.528 billion, or 31.4% of net sales, compared with
$2.957 billion, or 33.9% of net sales, for the nine months ended December 1,
2018. The decrease in the gross profit margin for the nine months ended November
30, 2019 was primarily attributable to a decrease in merchandise margin, as a
result of an incremental inventory reserve for future markdowns of approximately
$169.8 million related to the Company's transformation initiatives, which was an
incremental charge to the actual markdowns recorded in the second and third
quarters of fiscal 2019.
This incremental reserve for future markdowns was the result of the Company's
strategic decision to reduce inventory by up to $1.0 billion at retail from the
end of the second quarter of fiscal 2019 through the end of fiscal 2020. This
reduction is being driven by the Company's inventory rationalization efforts,
including reductions of aged and duplicative SKUs within the Company's
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assortment. By taking this action, the Company is seeking to reset its inventory
levels in both stores and distribution centers, as well as refresh its
assortment, providing for newness and higher-margin products, all in an effort
to drive customer traffic and support top-line performance.
In addition, the Company is investing in the lifetime value of its customers
through its annual Beyond Plus membership program. The richer benefits of this
program, including twenty percent off entire purchase and free shipping, are
realized immediately upon sale and had, and will continue to have, an impact on
the Company's gross margin during the period of increasing enrollment. The
Beyond Plus membership fee is amortized over the one-year membership period. The
Company estimated that the impact of these programs reduced gross margin as a
percentage of net sales by approximately 35 and 50 basis points for the three
and nine months ended November 30, 2019, respectively, and 30 and 40 basis
points for the three and nine months ended December 1, 2018.
Selling, General and Administrative Expenses
SG&A for the three months ended November 30, 2019 was $931.8 million, or 33.8%
of net sales, compared with $954.2 million, or 31.5% of net sales, for the three
months ended December 1, 2018. SG&A for the three months ended December 1, 2018
included the gain on the sale of a building of $28.3 million. In addition, as a
percentage of net sales, SG&A included increases in advertising, due in part to
the growth in digital advertising; fixed costs, such as occupancy and
technology-related expenses, including depreciation; and higher management
consulting expenses associated with some of the Company's strategic initiatives.
SG&A for the nine months ended November 30, 2019 was $2.705 billion, or 33.6% of
net sales, compared with $2.748 billion, or 31.5% of net sales, for the nine
months ended December 1, 2018. The increase in SG&A as a percentage of net sales
was primarily attributable to, in order of magnitude, increases in
technology-related expenses, including depreciation; occupancy, payroll and
payroll-related expenses (due to severance); and advertising, due in part to the
growth in digital advertising. SG&A for the nine months ended December 1, 2018
included the gain on the sale of a building of $28.3 million.
Goodwill and other impairments
Goodwill and other impairments for the three and nine months ended November 30,
2019 was $11.8 million, or 0.4% of net sales, and $441.4 million, or 5.5% of net
sales, respectively. Goodwill impairments were $391.1 million, tradename
impairments were $10.2 million and certain store-level and operating lease
assets were $40.1 million. The non-cash pre-tax goodwill impairment charges were
primarily the result of a sustained decline in the Company's market
capitalization. There were no goodwill or other impairments for the three and
nine months ended December 1, 2018.
Operating (Loss) Profit
Operating loss for the three months ended November 30, 2019 was $29.8 million,
or (1.1%) of net sales, compared with operating profit of $49.5 million, or 1.6%
of net sales, during the comparable period last year. For the nine months ended
November 30, 2019, operating loss was $618.9 million, or (7.7%) of net sales,
compared with operating profit of $209.6 million, or 2.4% of net sales, during
the comparable period last year. The changes in operating (loss) profit as a
percentage of net sales were the result of the reductions in the gross profit
margin and the increases in SG&A as a percentage of net sales and goodwill and
other impairments as described above.
Interest Expense, net
Interest expense, net for the three and nine months ended November 30, 2019 was
$17.2 million and $49.4 million, respectively, as compared to $22.7 million and
$54.0 million, respectively, for the three and nine months ended December 1,
2018. For the three and nine months ended November 30, 2019 and December 1,
2018, interest expense, net primarily related to interest on the senior
unsecured notes issued by the Company in July 2014.
Income Taxes
The effective tax rate for the three months ended November 30, 2019 was 17.9%,
compared with 9.2% for the three months ended December 1, 2018. The tax rate for
the three months ended November 30, 2019 included net after tax costs of
approximately $3.5 million while the tax rate for the three months ended
December 1, 2018 included net after tax benefits of approximately $4.8 million,
respectively, due to discrete federal and state tax items occurring during these
quarters.
The effective tax rate for the nine months ended November 30, 2019 was 17.9%,
compared with 25.1% for the nine months ended December 1, 2018. For the nine
months ended November 30, 2019, the effective tax rate reflects the impact of
charges for goodwill
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and other impairments and severance costs, portions of which are non-deductible
for tax purposes. The tax rate for the nine months ended November 30, 2019
included net after tax costs of approximately $10.5 million and the tax rate for
the nine months ended December 1, 2018 included net after tax benefits of
approximately $3.2 million, respectively, due to discrete and federal and state
tax items occurring during these respective periods.
Potential volatility in the effective tax rate from year to year may occur as
the Company is required each year to determine whether new information changes
the assessment of both the probability that a tax position will effectively be
sustained and the appropriateness of the amount of recognized benefit.
Net (Loss) Earnings
As a result of the factors described above, net loss for the three and nine
months ended November 30, 2019 was $38.6 million and $548.4 million, compared
with net earnings of $24.4 million and $116.6 million, respectively, for the
corresponding periods in fiscal 2018.
Transformation
The Company has undertaken significant change to adapt to the dynamic retail
environment and the evolving needs of its customers to improve its competitive
position and has been executing on a comprehensive plan to transform its
business and position the Company for long-term success. During the interim
period as described above, the Board and management team were executing against
four key near-term priorities that include: 1) stabilizing sales and driving
top-line growth; 2) resetting the cost structure; 3) reviewing and optimizing
the Company's asset base, including its portfolio of retail banners; and 4)
refining the Company's organization structure. On October 6, 2019, the Company's
Board appointed Mark J. Tritton as President and CEO of the Company, effective
as of November 4, 2019. During the first two months of his tenure, Mr. Tritton
has been assessing the operations, portfolio, capabilities and culture of the
Company while maintaining focus on accelerating its extensive transformation
efforts and driving against these near-term priorities to generate saving and
reinvest for future growth. Early actions include the extensive restructure of
the Company's leadership team, including the departure of six senior members,
which was announced subsequent to the fiscal 2019 third quarter, on December 17,
2019. Interim leaders have been appointed in merchandising, digital, marketing,
owned brands and legal, while the Company actively recruits for these roles. The
new leadership team will be charged with streamlining decision-making,
accelerating the pace of transformation, and re-establishing the Company's
authority in the home space through a more customer focused, omnichannel retail
operation, a redefined product assortment, and a more convenient and
inspirational shopping experience. Subsequent to the end of the third quarter of
fiscal 2019, the Company completed a sale-leaseback transaction with respect to
approximately 2.1 million square feet of owned real estate, generating over $250
million in net proceeds. As previously announced, while the Company cannot make
any assurances, the Company, together with its outside advisors, continues to
review its portfolio of retail concepts and owned real estate to optimize its
asset base and enhance shareholder value. The net proceeds from the
sale-leaseback transaction and any other potential cash-generating transactions
could be used to reinvest in the Company's core business operations to drive
growth, fund share repurchases, reduce the Company's outstanding debt, or some
combination of these. In connection with this review, the Company continues to
evaluate certain remaining owned real estate. In other activity, the Company has
been further evaluating its product assortment and taking aggressive steps to
rationalize the assortment and better manage its inventory. These are among the
early accelerated actions being taken to lay the foundation to create a new
vision for the Company. The Company's President and CEO plans to communicate the
details of the Company's growth strategy over the coming months.
Liquidity and Capital Resources
The Company has been able to finance its operations, including its growth and
acquisitions, substantially through internally generated funds. The Company
ended the third quarter of fiscal 2019 in a strong cash position, which it
anticipates maintaining, to provide the Company the flexibility to fund its
ongoing initiatives and act upon other opportunities that may arise. As of
November 30, 2019, the Company had approximately $920.2 million in cash and
investment securities, a decrease of approximately $100.4 million compared with
the corresponding period in fiscal 2018. For fiscal 2019, the Company believes
that it can continue to finance its operations, including its planned capital
expenditures, debt service obligations, cash dividends, and share repurchases,
through existing and internally generated funds. In addition, if necessary, the
Company could borrow under its $250 million revolving credit facility or the
available balances under its lines of credit. Capital expenditures for fiscal
2019 are planned to be approximately $275 million to $300 million, with
approximately 50% related to technology projects, as well as the spend
associated with a store refresh program, and investments in warehouses for
e-commerce distribution and personalized product. In addition, the Company
reviews its alternatives with respect to its capital structure on an ongoing
basis.
Fiscal 2019 compared to Fiscal 2018
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Net cash provided by operating activities for the nine months ended November 30,
2019 was $257.1 million, compared with $665.4 million in the corresponding
period in fiscal 2018. Year over year, the Company experienced a decrease in net
earnings, as adjusted for non-cash expenses (primarily goodwill and other
impairments and deferred income taxes) and a decrease in cash provided by the
net components of working capital (primarily accounts payable and other assets,
partially offset by merchandise inventories.)
Retail inventory, which includes inventory in the Company's distribution
facilities for direct to customer shipments, was approximately $2.5 billion at
November 30, 2019, a decrease of 15.6% compared to retail inventory at
December 1, 2018. The Company continues to focus on its inventory optimization
strategies.
Net cash provided by investing activities for the nine months ended November 30,
2019 was $299.6 million, compared with net cash used in investing activities of
$106.6 million in the corresponding period of fiscal 2018. For the nine months
ended November 30, 2019, net cash provided by investing activities was primarily
due to $488.0 million of redemptions of investment securities, net of purchases,
partially offset by $188.4 million of capital expenditures. For the nine months
ended December 1, 2018, net cash used in investing activities was primarily due
to $256.5 million of capital expenditures, partially offset by $138.7 million of
redemptions of investment securities, net of purchases and $11.2 million of
proceeds from the sale of a building.
Net cash used in financing activities for the nine months ended November 30,
2019 was $163.5 million, compared with $135.3 million in the corresponding
period of fiscal 2018. The increase in net cash used in financing activities was
primarily due to an increase in common stock repurchases of $28.7 million.
Seasonality
The Company's business is subject to seasonal influences. Generally, its sales
volumes are higher in the calendar months of August, November and December, and
lower in February.
Critical Accounting Policies
See "Critical Accounting Policies" under Item 7 of the Company's Annual Report
on Form 10-K for the fiscal year ended March 2, 2019 ("2018 Form 10-K"), filed
with the Securities and Exchange Commission ("SEC"). Except for the changes due
to the adoption of ASU 2016-02 related to leases discussed in "Recent Accounting
Pronouncements," Note 2, there were no changes to the Company's critical
accounting policies during the first nine months of fiscal 2019.
Forward-Looking Statements
This Form 10-Q may contain forward-looking statements, including, but not
limited to, the Company's progress and anticipated progress towards its
long-term objectives. Many of these forward-looking statements can be identified
by use of words such as may, will, expect, anticipate, approximate, estimate,
assume, continue, model, project, plan, goal and similar words and phrases. The
Company's actual results and future financial condition may differ materially
from those expressed in any such forward-looking statements as a result of many
factors. Such factors include, without limitation: general economic conditions
including the housing market, a challenging overall macroeconomic environment
and related changes in the retailing environment; consumer preferences, spending
habits and adoption of new technologies; demographics and other macroeconomic
factors that may impact the level of spending for the types of merchandise sold
by the Company; civil disturbances and terrorist acts; unusual weather patterns
and natural disasters; competition from existing and potential competitors
across all channels; pricing pressures; liquidity; the ability to achieve
anticipated cost savings, and to not exceed anticipated costs, associated with
organizational changes and investments; the ability to attract and retain
qualified employees in all areas of the organization; the cost of labor,
merchandise and other costs and expenses; potential supply chain disruption due
to trade restrictions, political instability, labor disturbances, product
recalls, financial or operational instability of suppliers or carriers, and
other items; the ability to find suitable locations at acceptable occupancy
costs and other terms to support the Company's plans for new stores; the ability
to establish and profitably maintain the appropriate mix of digital and physical
presence in the markets it serves; the ability to assess and implement
technologies in support of the Company's development of its omnichannel
capabilities; uncertainty in financial markets; volatility in the price of the
Company's common stock and its effect, and the effect of other factors, on the
Company's capital allocation strategy; risks associated with the ability to
achieve a successful outcome for its business concepts and to otherwise achieve
its business strategies; the impact of intangible asset and other impairments;
disruptions to the Company's information technology systems including but not
limited to security breaches of systems protecting consumer and employee
information or other types of cybercrimes or cybersecurity attacks; reputational
risk arising from challenges to the Company's or a third party product or
service supplier's compliance with various laws, regulations or standards,
including those related to labor, health, safety, privacy or the environment;
reputational risk arising from third-party merchandise or service vendor
performance in direct home delivery or assembly of product for customers;
changes to statutory, regulatory and legal requirements, including without
limitation proposed changes affecting international trade, changes to, or new
tax laws or interpretation of existing tax laws; new, or developments in
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existing, litigation, claims or assessments; changes to, or new, accounting
standards; and foreign currency exchange rate fluctuations. The Company does not
undertake any obligation to update its forward-looking statements.
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