Overview
Bed Bath & Beyond Inc. and subsidiaries (the "Company", "we", "our", "us",
"ourselves" or the "group") is an omni-channel retailer that makes it easy for
our customers to feel at home. We sell a wide assortment of merchandise in the
Home, Baby, Beauty & Wellness markets and operate under the names Bed Bath &
Beyond, Harmon, Harmon Face Values, or Face Values (collectively, "Harmon"), and
buybuy BABY ("BABY"). We also operate Decorist, an online interior design
platform that provides personalized home design services. In addition, we are a
partner in a joint venture, which operates retail stores in Mexico under the
name Bed Bath & Beyond.
For fiscal 2021, we accounted for the operations of the group as one operating
segment, North American Retail. For fiscal 2020 until the divestiture of Linen
Holdings in October 2020, we accounted for our operations as two operating
segments: North American Retail and Institutional Sales (which is comprised of
Linen Holdings), which did not meet the quantitative thresholds under U.S.
generally accepted accounting principles and, therefore, was not a reportable
segment.
We are driving a digital-first, omni-always growth strategy and optimizing our
digital and physical store channels to provide our customers with a seamless
omni-channel shopping experience. Digital purchases, including web and mobile,
can be shipped to a customer from our distribution facilities, directly from
vendors, or from a store. Store purchases are primarily fulfilled from that
store's inventory or may also be shipped to a customer from one of our
distribution facilities, from a vendor, or from another store. Customers can
also choose to pick up orders using our Buy Online Pickup In Store ("BOPIS") and
contactless Curbside Pickup services, as well as return online purchases to a
store. Customers can also make purchases through one of our customer contact
centers and in-store through The Beyond Store, our proprietary web-based
platform. These capabilities allow us to better serve our customers across
various channels.
Across our banners, we carry a wide variety of domestics and home furnishings
merchandise. 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.
Business Transformation and Restructuring
Since 2019, we have undertaken significant changes to transform our business and
adapt to the dynamic retail environment and the evolving needs of our customers
in order to position ourselves for long-term success. As part of these changes,
our management team, led by President and Chief Executive Officer (CEO) Mark
Tritton who was appointed in November 2019, has been focused on driving an
omni-always, customer-inspired strategy to re-establish our authority in the
Home, Baby, Beauty & Wellness markets. We have created a more focused portfolio
through the divestiture of non-core assets and further strengthened our
financial flexibility through key actions such as corporate restructurings and
operating expense control to re-set our cost structure and support our ongoing
business transformation.
We are implementing a growth strategy that will harness the power of data and
insights to engage customers across our four core banners (Bed Bath & Beyond,
buybuy BABY, Harmon and Decorist) in an enterprise-wide plan to accelerate our
omni-channel transformation. Our strategy is underpinned by five key pillars of
strategic focus and investment: product, price, promise, place and people.
Through this approach, we are becoming a digital-first, customer-focused
omni-channel retailer with a more curated, inspirational and differentiated
product collection across categories, and creating a more convenient and
inspirational shopping experience.
In March 2021, we announced our plan to introduce at least eight new Owned
Brands during fiscal year 2021. During the first three quarters of fiscal 2021
the following eight Owned Brands were launched:
First Quarter Second Quarter Third Quarter
Nestwell™ Our Table™ Studio 3B™
Haven™ Wild Sage™ H For Happy™
Simply Essential™ Squared Away™
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The assortment for these Owned Brands includes thousands of new products across
our key Destination Categories of Bed, Bath, Kitchen Food Prep, Home
Organization, and Indoor Decor. We also continue to redefine certain of our
existing proprietary Owned Brands, such as Bee & Willow™ and Marmalade™,
including new brand imagery and packaging as well as refined product assortment
and presentation.
We will continue to build on this strong foundation as we execute our three-year
growth strategy to further elevate the shopping experience, modernize our
operations and unlock strong and sustainable shareholder value.
As part of our business transformation plan, we are also pursuing a
comprehensive cost restructuring program, to drive improved financial
performance over the next two-to-three years. We expect to reinvest a portion of
the expected cost savings into future growth initiatives. Key components of the
expected financial improvement include:
•Approximately $100 million in annual savings from our previously disclosed
store network optimization program which includes the planned closure of
approximately 200 mostly Bed Bath & Beyond stores by the end of fiscal 2021,
including the 144 stores closed in fiscal 2020. During the three months ended
November 27, 2021, we closed 5 stores (bringing the total store closures to 170
since the program's inception) and expect to close an additional 35 Bed Bath &
Beyond stores by the end of fiscal 2021 (not including the 26 stores closed in
the first nine months of fiscal 2021). We continue to believe that our physical
store channel is an asset for our transformation into a digital-first company,
especially with new omni-fulfillment capabilities in BOPIS, Curbside Pickup,
Same Day Delivery and fulfill-from-store.
•Approximately $200 million in annual savings from product sourcing, through
renegotiations with existing vendors.
•Approximately $100 to $150 million in annual selling, general and
administrative expense savings from continued optimization of our corporate
overhead cost structure and reductions in other discretionary expense. During
the second quarter of fiscal 2020, we implemented a workforce reduction of
approximately 2,800 roles from across our corporate headquarters and retail
stores, designed to further reduce layers at the corporate level, significantly
reposition field operations to better serve customers in a digital-first
environment and realign our technology, supply chain and merchandising teams to
support our strategic growth initiatives.
In connection with the above restructuring and transformation initiatives,
during the three and nine months ended November 27, 2021, we recorded total
expense of $47.3 million and $226.5 million, respectively, including $6.1
million and $127.1 million, respectively, in cost of sales associated with the
transition of our product assortment to Owned Brands and, to a lesser extent, to
redefine certain existing proprietary Owned Brands, as well as $41.2 million and
$99.4 million, respectively, in restructuring and transformation initiative
expenses for costs associated with our planned store closures as part of the
network optimization plan and other transformation initiatives. At this point,
we are unable to estimate the amount or range of amounts expected to be incurred
in connection with future restructuring and transformation initiatives,
including additional Owned Brand introductions and further store closures, and
will provide such estimates as they become available.
Additionally, as part of these efforts, we completed the divestitures of the
following banners:
•In December 2020, we entered into a definitive agreement to sell Cost Plus
World Market to Kingswood Capital Management, a Los Angeles-based private equity
firm.
•In October 2020, we entered into definitive agreements to sell Christmas Tree
Shops ("CTS") to Handil Holdings LLC.
•In October 2020, we entered into a definitive agreement to sell Linen Holdings
to The Linen Group, LLC, an affiliate of Lion Equity Partners.
•In February 2020, we entered into a definitive agreement to sell
PersonalizationMall.com ("PMall") to 1-800-FLOWERS.COM.
•During the first quarter of fiscal 2020, we also sold One Kings Lane to a third
party.
The net proceeds from these transactions have been included in our cash and
short-term investments and were reinvested in our core business operations to
drive growth, fund share repurchases and reduce our outstanding debt.
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During the three and nine months ended November 27, 2021, we recognized
approximately $14.1 million and $18.2 million of loss on the sale of businesses,
respectively, primarily associated with the fiscal 2021 settlement of the CTS
pension plan (See "Assets Held for Sale and Divestitures," Note 18 to the
accompanying consolidated financial statements) and certain working capital and
other adjustments related to the above divestitures. During the three and nine
months ended November 28, 2020, we recognized a loss of approximately $113.9
million and a gain of approximately $75.6 million, respectively, on the sale of
businesses related to certain of the above divestitures.
Executive Summary
The following represents a summary of key financial results and related business
developments for the periods indicated:
•Net sales for the three months ended November 27, 2021 were $1.878 billion, a
decrease of approximately 28.3% as compared with the three months ended November
28, 2020. Net sales for the nine months ended November 27, 2021 were $5.816
billion, a decrease of approximately 12.1% as compared with the nine months
ended November 28, 2020.
•Excluding the impact of the business divestitures described above, which
represented net sales of $432.5 million for the three months ended November 28,
2020, net sales for our four core banners for the three months ended November
27, 2021 decreased by 14.1% compared with the three months ended November 28,
2020. Excluding the impact of the business divestitures described above, which
represented net sales of $1.061 billion for the nine months ended November 28,
2020, net sales for our four core banners for the nine months ended November 27,
2021 increased by 4.7% compared with the nine months ended November 28, 2020.
•Comparable sales* for the three months ended November 27, 2021 decreased by
approximately 7%, compared to an increase of approximately 2% for the three
months ended November 28, 2020.
* See "Results of Operations - Net Sales" in this Management's Discussion and
Analysis for the definition and further information related to Comparable Sales.
•During the third quarter of fiscal 2021, we continued to execute against key
initiatives under our transformation program, including:
•Owned Brands. During the third quarter of fiscal 2021 we launched two new Owned
Brands - Studio 3B™ and H for Happy™, bringing the total launches of new Owned
Brands for the first three quarters of fiscal 2021 to eight.
•Omni-Channel Capabilities. We continued our focus on being a digital-first,
omni-always retailer. During the third quarter of fiscal 2021, we announced
separate partnerships with DoorDash and Uber to provide on-demand delivery of
essential homeware products and items from more than 700 Bed Bath & Beyond
locations and nearly 120 BABY locations nationwide. Additionally, in November
2021, we launched our new digital marketplace to build on our existing authority
in key Home & Baby categories with an assortment of products from a highly
curated selection of third-party brand partners that will be seamlessly
integrated into our digital platform.
•Additional Product Initiatives. Our Bed Bath & Beyond banner launched the Home,
Happier Team, the brand's first-ever curated advisory panel of industry experts
who will serve as "host and hostesses of the home," providing ideas, innovative
solutions and compelling content to help customers personalize their living
spaces and make it easy to feel at home. Our buybuy BABY banner introduced its
"welcome to parenthood" program of in-store and online through educational
resources, reimagined shopping experiences, a revised registry, new digital
offerings and a new marketing campaign to inspire customers to embrace every
aspect of parenthood.
•Store Network Optimization. During the third quarter of fiscal 2021, we closed
an additional 5 stores in connection with our store network optimization
program, bringing total store closures in the nine months ended November 27,
2021 to 26 and for the overall program to 170.
•Supply Chain Transformation. During the third quarter of fiscal 2021, we
started operations at our first regional distribution center, an approximately
one million square foot facility in Frackville, Pennsylvania, and executed a
lease for our second regional distribution center in California. Ryder Systems,
Inc. will operate these two regional distribution centers under a strategic
partnership, with the objective of reducing product replenishment times and
improving the customer experience.
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•Strategic Collaboration with The Kroger Co. In November 2021, we announced a
strategic collaboration with The Kroger Co. to directly offer Kroger customers
an extensive selection of the most sought-after goods for the Home & Baby
products carried by the Bed Bath & Beyond and buybuy BABY banners through
Kroger.com as well as a small-scale physical store pilot at select Kroger Family
of Companies stores beginning in fiscal 2022.
•In connection with these restructuring and transformation initiatives, during
the three and nine months ended November 27, 2021, we recorded total expense of
$47.3 million and $226.5 million, respectively, including $6.1 million and
$127.1 million, respectively, in cost of sales, and $41.2 million and
$99.4 million, respectively, in restructuring and transformation initiative
expenses in the consolidated statement of operations.
•During the three and nine months ended November 27, 2021, we repurchased
approximately 5.1 million and 13.6 million shares, respectively, of our common
stock under the share repurchase plan approved by our Board of Directors, at a
total cost of approximately 113.4 million and $392.2 million, respectively.
During the third quarter of fiscal 2021, we announced that we expect to complete
our $1 billion three-year repurchase plan by the end of fiscal 2021, two years
ahead of schedule.
•Net loss for the three months ended November 27, 2021 was $276.4 million, or
$2.78 per diluted share, compared with net loss of $75.4 million, or $0.61 per
diluted share, for the three months ended November 28, 2020. Net loss for the
three months ended November 27, 2021 included a net unfavorable impact of $2.53
per diluted share associated with restructuring and other transformation
initiatives, non-cash impairments and loss on sale of business, and the impact
of recording a valuation allowance against the Company's U.S. federal and state
deferred tax assets (See "Income Taxes," Note 10 to the accompanying
consolidated financial statements). Net earnings for the three months ended
November 28, 2020 included a net favorable impact of $0.69 per diluted share
related to the gain on sale of business, gain on extinguishment of debt and
decrease in the incremental inventory reserve for future markdowns recorded in
fiscal 2019, partially offset by non-cash impairment charges and charges
associated with restructuring program and transformation initiatives, as well as
the associated tax effects.
•Net loss for the nine months ended November 27, 2021 was $400.5 million, or
$3.90 per diluted share, compared with net loss of $159.8 million, or $1.29 per
diluted share, for the nine months ended November 28, 2020. Net loss for the
nine months ended November 27, 2021 included a net unfavorable impact of $3.74
per diluted share associated with restructuring and other transformation
initiatives, non-cash impairments, loss on sale of business and loss on debt
extinguishment, partially offset by a gain on the sale of property, and the
impact of recording a valuation allowance against the Company's U.S. federal and
state deferred tax assets (See "Income Taxes," Note 10 to the accompanying
consolidated financial statements). Net loss for the nine months ended November
28, 2020 included a net favorable impact of $0.09 per diluted share associated
with the gain on sale of business, gain on extinguishment of debt and decrease
in the incremental inventory reserve for future markdowns recorded in fiscal
2019, partially offset by non-cash impairments and charges recorded in
connection with the restructuring program and transformation initiatives, as
well as the associated tax effects.
Impact of the COVID-19 Pandemic
In March 2020, the World Health Organization declared the COVID-19 outbreak a
global pandemic. That same month, as a result of the COVID-19 pandemic, we began
to temporarily close certain store locations that did not have a health and
personal care department, and as of March 23, 2020, all of our retail stores
across the U.S. and Canada were temporarily closed except for most stand-alone
buybuy BABY and Harmon stores, subject to state and local regulations. In May
2020, we announced a phased approach to re-open our stores in compliance with
relevant government directives, and as of the end of July 2020, nearly all of
our stores re-opened. During portions of fiscal 2021, a limited number of stores
in Canada either closed temporarily or continued to operate under restrictions
in compliance with local governmental orders. As of November 27, 2021, all of
our stores were operating without restriction subject to compliance with mask
and vaccine requirements.
The COVID-19 pandemic materially adversely impacted our results of operations
and cash flows for the three and nine months ended November 28, 2020. In
addition, numerous significant uncertainties continue to surround the pandemic
and its ultimate impact on us, including:
•the timing and extent of recovery in consumer traffic and spending;
•potential delays, interruptions and disruptions in our supply chain, including
higher freight charges;
•labor shortages and competition for talent;
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•the extent of dissemination and adoption of COVID-19 vaccines and their
effectiveness against COVID-19 and its evolving strains, some of which may be
more transmissible or virulent than the initial strain;
•additional widespread resurgences in COVID-19 infections; and
•evolving safety protocols such as requirements for proof of vaccination or
regular testing in certain of our markets.
Further discussion of the risks and uncertainties posed by the COVID-19 pandemic
is included in "Risk Factors" under Part II, Item 1A of this Form 10-Q and Part
I, Item 1A of our 2020 Form 10-K.
Results of Operations
Net Sales
Net sales for the three months ended November 27, 2021 were $1.878 billion, a
decrease of approximately $740.6 million, or approximately 28.3%, compared with
net sales of $2.618 billion for the three months ended November 28, 2020. Net
sales for the nine months ended November 27, 2021 were $5.816 billion, a
decrease of $797.5 million, or approximately 12.1%, compared with net sales of
$6.614 billion for the nine months ended November 28, 2020. Excluding the impact
of the business divestitures described above, which represented net sales of
$432.5 million for the three months ended November 28, 2020, net sales for our
four core banners for the three months ended November 27, 2021 decreased by
14.1% compared with the three months ended November 28, 2020, due to the
decrease in comparable sales noted below and the impact of fleet optimization.
Excluding the impact of the business divestitures described above, which
represented net sales of $1.061 billion for the nine months ended November 28,
2020, net sales for our four core banners for the nine months ended November 27,
2021 increased by 4.7% compared with the nine months ended November 28, 2020, as
fiscal 2020 was impacted by store closures in the first quarter of fiscal 2020
as a result of the COVID-19 pandemic.
In addition, beginning March 23, 2020, the majority of our stores were closed
due to the COVID-19 pandemic, except for most stand-alone BABY and Harmon
stores, which remained open during such period, subject to state and local
regulations. Most of our stores had reopened by the end of July of 2020;
however, during portions of the remainder of fiscal 2020 and in the first six
months of fiscal 2021, a limited number of stores in Canada either closed
temporarily or continued to operate under restrictions in compliance with local
governmental orders. As of November 27, 2021, all of our stores were operating
without restriction.
Sales consummated on a mobile device while physically in a store location and
BOPIS orders are recorded as customer facing digital channel sales. Customer
orders taken in-store by an associate through The Beyond Store, our proprietary,
web-based platform, are recorded as in-store sales. Prior to implementation of
BOPIS and contactless Curbside Pickup services, customer orders reserved online
and picked up in a store were 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. Net sales consummated
through digital channels represented approximately 35.1% and 35.8%,
respectively, of our sales for the three and nine months ended November 27, 2021
compared with approximately 31.2% and 38.0%, respectively, of our sales for the
three and nine months ended November 28, 2020.
Comparable sales* for the three months ended November 27, 2021 decreased by
approximately 7%, compared to an increase of approximately 2% for the three
months ended November 28, 2020. Management attributes a portion of this decline
to the lack of inventory availability in key product areas, due in part to
supply chain challenges. As a result of the extended closure of the majority of
our stores in the first quarter of fiscal 2020, as well as the month of June in
the second quarter of fiscal 2020, due to the COVID-19 pandemic and our policy
of excluding extended store closures from our comparable sales calculation, we
believe that comparable sales was not a meaningful metric for the first quarter
of fiscal 2020 as well as for the month of June 2020 and, therefore, are not a
meaningful metric for the nine months ended November 27, 2021 and November 28,
2020.
* Comparable sales normally include sales consummated through all retail
channels that have been operating for twelve full months following the opening
period (typically six to eight weeks), excluding the impact of store network
optimization program. We are an omni-channel 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 our distribution facilities, stores
or vendors.
Sales of domestics merchandise and home furnishings accounted for approximately
37.6% and 62.4% of net sales, respectively, for the three months ended November
27, 2021, and approximately 35.7% and 64.3% of net sales, respectively, for the
three months ended November 28, 2020. Sales of domestics merchandise and home
furnishings accounted for approximately 38.4% and 61.6% of net sales,
respectively, for the nine months ended November 27, 2021 and approximately
35.4% and 64.6% of net sales, respectively, for the nine months ended November
28, 2020.
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Gross Profit
Gross profit for the three months ended November 27, 2021 was $668.9 million, or
35.6% of net sales, compared with $956.6 million, or 36.5% of net sales, for the
three months ended November 28, 2020. Gross profit for the nine months ended
November 27, 2021 was $1.904 billion, or 32.7% of net sales, compared with
$2.293 billion, or 34.7% of net sales, for the nine months ended November 28,
2020. Gross profit margin as a percentage of net sales for the three and nine
months ended November 27, 2021 compared with the three and nine months ended
November 28, 2020 was negatively impacted by markdown activity associated with
inventory being removed from our assortment in connection with the launches of
new Owned Brands and, to a lesser extent, the redefinition of certain existing
Owned Brands. Gross profit for the three and nine months ended November 27, 2021
included the impact of $6.1 million and $127.1 million, respectively, of higher
markdowns on inventory sold in the three and nine month periods, as well as an
adjustment to reduce inventory on hand as of November 27, 2021 that will be
removed from the product assortment as part of these initiatives to its
estimated realizable value. In addition, higher freight expenses, both for
inbound product shipments and direct-to-customer fulfillment and in part due to
industry wide, global supply chain challenges, also negatively impacted the
gross margin in the three and nine months ended November 27, 2021 compared with
the prior year, which offset the favorable impacts of product mix from our new
Owned Brands and a more normalized mix of digital sales. Additionally, for the
three months ended November 27, 2021, gross profit margin as a percentage of net
sales was favorably impacted by the implementation of new pricing strategies in
the quarter in response to ongoing inflationary pressures and global supply
chain challenges, as well as lower clearance activity relative to the first two
quarters of fiscal 2021.
Selling, General and Administrative Expenses
SG&A for the three months ended November 27, 2021 was $698.0 million, or 37.2%
of net sales, compared with $890.7 million, or 34.0% of net sales, for the three
months ended November 28, 2020. SG&A for the nine months ended November 27, 2021
was $2.010 billion, or 34.6% of net sales, compared with $2.461 billion, or
37.2% of net sales, for the nine months ended November 28, 2020. The decrease in
SG&A for the three and nine months ended November 27, 2021 compared with the
three and nine months ended November 28, 2020 was primarily attributable to cost
reductions including divestitures of non-core assets and lower rent and
occupancy expenses as a result of our fleet optimization program, while the
increase in SG&A as a percentage of net sales for the three months ended
November 27, 2021 was primarily due to the impact of de-leveraging of SG&A due
to the declines in sales noted above.
In addition, during the three and nine months ended November 27, 2021, we
recorded credits of approximately $0.8 million and $3.7 million, respectively,
as an offset to selling, general and administrative expenses as a result of the
employee retention credits made available under the CARES Act for U.S. employees
and under the Canada Emergency Wage Subsidy for Canadian employees. During three
and nine months ended November 28, 2020, we recorded credits of approximately
$1.0 million and $28.3 million, respectively.
Impairments, Including on Assets Held For Sale
Impairments for the three and nine months ended November 27, 2021 were $1.8
million and $18.5 million, respectively, compared with $58.0 million and $172.4
million, respectively, during the comparable periods last year. Impairment
charges for both the three months ended November 27, 2021 and November 28, 2020
also included $1.6 million, relating to certain store-level assets (including
leasehold improvements and operating lease assets) and tradename impairments of
$0.2 million and $2.4 million, respectively. During the third quarter of fiscal
2020, we also recorded a loss on business held for sale of $54.0 million to
remeasure Cost Plus World Market to the lower of its carrying value or fair
value less costs to sell. Impairment charges for the nine months ended November
27, 2021 and November 28, 2020 included $15.6 million and $84.0 million,
respectively, relating to certain store-level assets (including leasehold
improvements and operating lease assets) and tradename impairments of $2.9
million and $35.1 million, respectively.
Restructuring and Transformation Initiative Expenses
During the three and nine months ended November 27, 2021, restructuring and
transformation initiative expenses were $41.2 million and $99.4 million,
respectively, which included costs recorded in connection with termination of
facilities leases, including in connection with the store network optimization
program described above, as well as costs associated with other transformation
initiatives. During the three and nine months ended November 28, 2020,
restructuring and transformation initiative expenses were $16.8 million and
$47.6 million, respectively, primarily related to severance costs recorded in
connection with the workforce reduction program (See "Restructuring and
Transformation Initiative Expenses," Note 17 to the accompanying consolidated
financial statements).
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Loss (Gain) on Sale of Businesses
During the three and nine months ended November 27, 2021, we recognized
approximately $14.1 million and $18.2 million, respectively, of loss on the sale
of businesses, primarily related to a $13.5 million charge associated with the
fiscal 2021 settlement of the CTS pension plan (See "Assets Held for Sale and
Divestitures," Note 18 to the accompanying consolidated financial statements),
as well as certain working capital and other adjustments related to the fiscal
2020 divestitures. During the three and nine months ended November 28, 2020, we
recognized a loss of approximately $113.9 million and a gain of approximately
$75.6 million, respectively, on the sale of businesses related to the fiscal
2020 divestitures.
Operating Loss
Operating loss for the three months ended November 27, 2021 was $86.1 million,
or 4.6% of net sales, compared with an operating loss of $122.8 million, or 4.7%
of net sales, during the comparable period last year. Operating loss for three
months ended November 27, 2021 included the impact of pre-tax charges of
$6.1 million included in gross profit associated with the transition of our
product assortment, primarily related to launches of new Owned Brands, as well
as $41.2 million associated with restructuring and other transformation
initiatives, $1.8 million for non-cash impairments and $14.1 million for loss on
sale of business (each as discussed above or below). The remaining change in
operating loss as a percentage of net sales for the three months ended November
27, 2021 was primarily due to the effects of sales decline and an increase in
selling, general and administrative expenses as a percentage of sales in fiscal
2021.
For the nine months ended November 27, 2021, operating loss was $242.1 million,
or 4.2% of net sales, compared with an operating loss of $313.2 million, or 4.7%
of net sales, for the nine months ended November 28, 2020. Operating loss for
nine months ended November 27, 2021 included the impact of pre-tax charges of
$127.1 million included in gross profit associated with the transition of our
product assortment to Owned Brands, as well as $99.4 million associated with
restructuring and other transformation initiatives, $18.5 million for non-cash
impairments, $18.2 million for loss on sale of business, and $0.4 million for
losses on debt extinguishments (each as discussed above or below). The remaining
change in operating loss as a percentage of net sales for the nine months ended
November 27, 2021 was primarily due to the effect of store closures in the first
six months of fiscal 2020.
Interest Expense, net
Interest expense, net for the three and nine months ended November 27, 2021 was
$15.8 million and $47.9 million, respectively, compared with $17.8 million and
$58.3 million, respectively, for the three and nine months ended November 28,
2020. For the three and nine months ended November 27, 2021 the decrease in
interest expense, net was primarily driven by decreased interest costs
attributable to our revolving credit facilities and the impact of the repurchase
of a portion of our senior unsecured notes in 2020.
(Loss) Gain on Extinguishment of Debt
Loss on extinguishment of debt for the nine months ended November 27, 2021 of
$0.4 million related to partial repayment of senior unsecured notes. We did not
record a gain or loss on extinguishment during the three months ended November
27, 2021.
During the nine months ended November 28, 2020, we recorded a $77.0 million gain
on the repurchase of approximately $75.0 million principal amount of 4.915%
senior unsecured notes due August 1, 2034 and $225.0 million principal of 5.165%
senior unsecured notes due August 1, 2044. We did not record a gain or loss on
extinguishment of debt during the three months ended November 28, 2020.
Income Taxes
The effective tax rate for the three months ended November 27, 2021 was
(171.3)%, compared with 46.4% for the three months ended November 28, 2020. For
the three months ended November 27, 2021, the effective tax rate reflects the
impact of a charge to record a valuation allowance in the fiscal third quarter
of $181.5 million, discussed below, charges for restructuring and transformation
initiatives as well as a benefit under the provisions of the CARES Act. For the
three months ended November 28, 2020, the effective tax rate included the impact
of impairment charges for leasehold improvements and lease assets, a $0.7
million benefit related to fiscal 2019 net operating loss carry-back under the
CARES Act and other discrete tax items.
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The effective tax rate for the nine months ended November 27, 2021 was (37.9)%,
compared with 45.7% for the nine months ended November 28, 2020. For the nine
months ended November 27, 2021, the effective tax rate reflects the impact of a
charge to record a valuation allowance in the fiscal third quarter of $181.5
million, discussed below, charges for restructuring and transformation
initiatives as well as a benefit under the provisions of the CARES Act. For the
nine months ended November 28, 2020, the effective tax rate included the impact
of impairment charges for leasehold improvements and lease assets, a $43.7
million benefit related to fiscal 2019 net operating loss carry-back under the
CARES Act and other discrete tax items.
In assessing the recoverability of our deferred tax assets, we evaluated the
available objective positive and negative evidence to estimate whether it is
more likely than not that sufficient future taxable income will be generated to
permit use of existing deferred tax assets in each taxpaying jurisdiction. For
any deferred tax asset in excess of the amount for which it is more likely than
not that we will realize a benefit, we established a valuation allowance. A
valuation allowance is a non-cash charge, and does not limit the our ability to
utilize our deferred tax assets, including our ability to utilize tax loss and
credit carryforward amounts, against future taxable income.
During the three months ended November 27, 2021, we concluded that, based on our
evaluation of available objective positive and negative evidence, it is no
longer more likely than not that our net U.S. federal and state deferred tax
assets are recoverable. In assessing the realizability of deferred tax assets,
the key assumptions used to determine positive and negative evidence included
our cumulative taxable loss for the past three years, current trends related to
actual taxable earnings or losses, and expected future reversals of existing
taxable temporary differences, as well as timing and cost of our transformation
initiatives and their expected associated benefits. Accordingly, we recorded a
charge of $181.5 million in the third fiscal quarter of 2021 as a reserve
against our net U.S. federal and state deferred tax assets. As of November 27,
2021, the total valuation allowance relative to U.S. federal and state deferred
tax assets was $192.0 million.
The amount of the deferred tax assets considered realizable, and the associated
valuation allowance, could be adjusted in a future period if estimates of future
taxable income change or if objective negative evidence in the form of
cumulative losses is no longer present and additional weight is given to
subjective evidence such as projections for future growth.
On March 27, 2020, the CARES Act was enacted in the United States, which
provided for certain changes to tax laws, which impacted our results of
operations, financial position and cash flows. We implemented certain provisions
of the CARES Act, such as deferring employer payroll taxes and utilizing the
ability to carry back and deduct losses to offset prior income in previously
filed tax returns. As of both November 27, 2021 and February 27, 2021, we
deferred $3.1 million of employer payroll taxes, of which approximately 50% was
deposited during December 2021 with the remaining 50% required to be deposited
by December 2022. During the three and nine months ended November 27, 2021,
under the CARES Act, we recorded income tax benefits of $2.4 million and $18.6
million, respectively, as a result of the fiscal 2020 and fiscal 2019 net
operating losses were carried back to prior years during which the federal tax
rate was 35%.
Potential volatility in the effective tax rate from year to year may occur as we
are required each year to determine whether new information changes our
assessment of both the probability that a tax position will effectively be
sustained and the appropriateness of the amount of recognized benefit.
Net Loss
As a result of the factors described above, net loss for the three months ended
November 27, 2021 was $276.4 million, or $2.78 per diluted share, compared with
net loss of $75.4 million, or $0.61 per diluted share, for the three months
ended November 28, 2020. Net loss for the three months ended November 27, 2021
included a net unfavorable impact of $2.53 per diluted share associated with
restructuring and other transformation initiatives, non-cash impairments and
loss on sale of business, and the impact of recording a valuation allowance
against our U.S. federal and state deferred tax assets (See "Income Taxes," Note
10 to the accompanying consolidated financial statements). Net loss for the
three months ended November 28, 2020 included a net unfavorable impact of $0.69
per diluted share related to the loss on sale of businesses, non-cash impairment
charges and charges associated with restructuring program and transformation
initiatives (each as discussed above). These charges were partially offset by a
reduction in the incremental inventory reserve for future markdowns recorded in
fiscal 2019, as well as the associated tax effects.
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As a result of the factors described above, net loss for the nine months ended
November 27, 2021 was $400.5 million, or $3.90 per diluted share, compared with
net loss of $159.8 million, or $1.29 per diluted share, for the nine months
ended November 28, 2020. Net loss for the nine months ended November 27, 2021
included a net unfavorable impact of $3.74 per diluted share associated with
restructuring and other transformation initiatives, non-cash impairments, loss
on sale of business and loss on debt extinguishment, partially offset by a gain
on the sale of property, and the impact of recording a valuation allowance
against our U.S. federal and state deferred tax assets (See "Income Taxes," Note
10 to the accompanying consolidated financial statements). Net loss for the nine
months ended November 28, 2020 included a net favorable impact of $0.09 per
diluted share associated with the gain on sale of businesses, gain on partial
extinguishment of debt and decrease in the incremental inventory reserve for
future markdowns recorded in fiscal 2019, partially offset by non-cash
impairments and charges recorded in connection with the restructuring program
and transformation initiatives (each as discussed above), as well as the
associated tax effects.
Liquidity and Capital Resources
We ended the third quarter of fiscal 2021 in a solid cash position, which we
anticipate maintaining, to provide us the flexibility to fund our ongoing
initiatives and act upon other opportunities that may arise. As of November 27,
2021, we had approximately $0.5 billion in cash and short-term investment
securities, a decrease of approximately $840.0 million as compared with
February 27, 2021, which included $358.9 million for share repurchases. We
believe that existing and internally generated funds will be sufficient to
continue to finance our operations for the next twelve months. In addition, if
necessary, we have the ability to borrow under our ABL Facility, subject to
customary conditions, including no default, the accuracy of representations and
warranties, and borrowing base availability. The ABL Facility matures on August
9, 2026 and provides us with additional liquidity. Our ability to borrow under
the ABL Facility is based upon a specified borrowing base consisting of a
percentage of our eligible inventory and credit card receivables as defined in
the ABL Facility, net of applicable reserves (See "Long Term Debt," Note 12 to
the accompanying consolidated financial statements).
In fiscal 2020, similar to other retailers, we withheld portions of and/or
delayed payments to certain of our business partners as we sought to renegotiate
payment terms, in order to further maintain liquidity during 2020. In some
instances, the renegotiations of lease terms have led to agreements with
landlords for rent abatements or rental deferrals. Total payments withheld
and/or delayed or deferred as of November 27, 2021 were approximately $3.0
million and are included in current liabilities. During the three and nine
months ended November 27, 2021, we recognized reduced rent expense of $0.3
million and $2.6 million, respectively, related to rent abatement concessions.
Additional negotiations of payment terms are still in process, and there can be
no assurance that we will be able to successfully renegotiate payment terms with
all such business partners, and the ultimate outcome of these activities
including the responses of certain business partners are not yet known. We are
also executing on our business transformation program, which is designed to
improve our profitability and includes the planned closure of 200 mostly Bed
Bath & Beyond stores under our store network optimization program and the
introduction of new Owned Brand products in a number of categories.
Our liquidity may continue to be negatively impacted by the uncertainty
regarding the spread of COVID-19 and the timing of economic recovery.
Capital Expenditures
Capital expenditures for nine months ended November 27, 2021 were $232.5
million, and for fiscal 2021 are projected to be approximately $350 million to
$375 million. Our capital expenditures are related to digital and omni-channel
capabilities, store remodels and investments in technology across a number of
areas including supply chain, merchandising, and finance.
We continue to review and prioritize our capital needs and remain committed to
making the required investments in our infrastructure to help position us for
continued growth and success. Key areas of investment include: continuing to
improve the presentation and content as well as the functionality, general
search and navigation across our customer facing digital channels; improving
customer data integration and customer relations management capabilities;
continuing to enhance service offerings to our customers; continuing to
strengthen and deepen our information technology, analytics, marketing,
e-commerce, merchandising and finance capabilities; and creating more flexible
fulfillment options designed to improve our delivery capabilities and lower our
shipping costs. These and other investments are expected to, among other things,
provide a seamless and compelling customer experience across our omni-channel
retail platform.
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Stock Repurchases
During the three and nine months ended November 27, 2021, we repurchased
approximately 5.3 million and 14.0 million shares, respectively, of our common
stock, at a total cost of approximately $118.9 million and $358.9 million,
respectively, which included approximately 5.1 million and 13.4 million shares,
respectively, at a total cost of approximately $113.4 million and
$344.6 million, respectively, repurchased under our share repurchase programs as
authorized by our Board of Directors, as well as approximately 0.2 million and
0.6 million shares, respectively, to cover employee related taxes withheld on
vested restricted stock, restricted stock unit awards and performance stock unit
awards, at a total cost of approximately $5.5 million and $14.3 million,
respectively. During the third quarter of fiscal 2021, we announced that we
expect to complete our $1 billion three-year share repurchase plan by the end of
fiscal 2021, two years ahead of schedule.
In the first quarter of fiscal 2020, we had postponed share repurchases, but
lifted this postponement in October 2020. In October 2020, we entered into an
accelerated share repurchase agreement ("ASR Agreement") with JPMorgan Chase
Bank, National Association to repurchase $225.0 million of our common stock,
subject to market conditions, which settled in the fourth quarter of fiscal
2020, resulting in the repurchase of a total of 10.8 million shares. In January
2021, we entered into a second accelerated share repurchase agreement to
repurchase an aggregate $150.0 million of our common stock, subject to market
conditions. This resulted in the repurchase of 5.0 million shares in the fourth
quarter of fiscal 2020, and an additional 0.2 million shares received upon final
settlement in the first quarter of fiscal 2021. During the three and nine months
ended November 28, 2020, we also repurchased approximately 0.1 million and 0.6
million shares, respectively, of our common stock, to cover employee related
taxes withheld on vested restricted stock, restricted stock unit awards and
performance stock unit awards, at a total cost of approximately $1.7 million and
$4.7 million, respectively, including fees.
Between December 2004 and April 2021, our Board of Directors authorized, through
several share repurchase programs, the repurchase of up to $12.950 billion of
our shares of common stock. We also acquire shares of our common stock to cover
employee related taxes withheld on vested restricted stock, restricted stock
units and performance stock unit awards. Since the initial authorization in
December 2004, the aggregate total of common stock repurchased is approximately
247.8 million shares for a total cost of approximately $11.5 billion. We had
approximately $1.5 billion remaining of authorized share repurchases as of
November 27, 2021.
Decisions regarding share repurchases are within the discretion of the Board of
Directors, and are influenced by a number of factors, including the price of our
common stock, general business and economic conditions, our financial condition
and operating results, the emergence of alternative investment or acquisition
opportunities, changes in business strategy and other factors. Our share
repurchase program could change, and could be influenced by several factors,
including business and market conditions, such as the impact of the COVID-19
pandemic on our business operations or stock price. We review our alternatives
with respect to our capital structure on an ongoing basis. Any future share
repurchases will be subject to the determination of the Board of Directors,
based on an evaluation of our earnings, financial condition and requirements,
business conditions and other factors, including the restrictions on share
repurchases under the secured asset-based revolving credit facility (See "Long
Term Debt," Note 12 to the accompanying consolidated financial statements).
Debt Repurchases
During the nine months ended November 27, 2021, we purchased approximately $11.0
million aggregate principal amount of our outstanding 3.749% senior unsecured
notes due August 1, 2024. During the nine months ended November 28, 2020, we
purchased approximately $300.0 million aggregate principal amount of our
outstanding 4.915% Senior Notes due 2034 and 5.165% Senior Notes due 2044. There
were no debt repurchases made during the three months ended November 27, 2021
and November 28, 2020.
Cash Flow
Fiscal 2021 compared with Fiscal 2020
Net cash used in operating activities for the nine months ended November 27,
2021 was $264.7 million, compared with cash provided by operating activities of
$192.4 million in the corresponding period in fiscal 2020. The year-over-year
change in operating cash flow was primarily due to an increase in inventory in
anticipation of the holiday season, including as a result of changing the timing
of purchasing in response to the potential impact of global supply chain
disruptions on timing of inventory receipts.
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Retail inventory, which includes inventory in our distribution facilities for
direct to customer shipments, was approximately $1.912 billion at November 27,
2021, an increase of 14.4% compared with retail inventory at February 27, 2021.
We continue to focus on our inventory optimization strategies.
Net cash used in investing activities for the nine months ended November 27,
2021 was $227.5 million, compared with net cash provided by investing activities
of $751.9 million in the corresponding period of fiscal 2020. For the nine
months ended November 27, 2021, net cash used in investing activities included
$232.5 million of capital expenditures, partially offset by $5.0 million in
proceeds from the sale of property. For the nine months ended November 28, 2020,
net cash provided by investing activities was comprised of $386.5 million of
redemptions of investment securities and $482.7 million in proceeds from the
sale of PMall, CTS and Linen Holdings businesses, partially offset by $117.3
million of capital expenditures.
Net cash used in financing activities for the nine months ended November 27,
2021 was $374.5 million, compared with $481.9 million in the corresponding
period of fiscal 2020. Net cash used in financing activities in the nine months
ended November 27, 2021 was comprised of repurchases of common stock of $358.9
million, of which $344.6 million is related to our share repurchase program,
repayments of long-term debt of $11.4 million, payments of deferred financing
costs of $3.4 million and dividend payments of $0.8 million. Net cash used in
financing activities in the nine months ended November 28, 2020 was comprised of
net repayments of long-term debt of $221.4 million, a $132.6 million prepayment
under the ASR Agreement, repurchases of our common stock of $97.1 million,
payments of deferred financing costs of $7.7 million and dividend payments of
$23.1 million.
Seasonality
Our business is subject to seasonal influences. Generally, our 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 our Annual Report on Form
10-K for the fiscal year ended February 27, 2021 ("2020 Form 10-K"), filed with
the Securities and Exchange Commission ("SEC").
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Forward-Looking Statements
This Form 10-Q and Management's Discussion and Analysis of Financial Condition
and Results of Operations contain forward-looking statements within the meaning
of Section 21 E of the Securities Exchange Act of 1934 including, but not
limited to, our progress and anticipated progress towards our long-term
objectives, as well as more generally the status of our future liquidity and
financial condition and our outlook for our 2021 fiscal year. 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, preliminary, and similar words and phrases, although the absence of
those words does not necessarily mean that statements are not forward-looking.
Our 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; risks associated with the
COVID-19 pandemic and the governmental responses to it, including its impacts
across our businesses on demand and operations, as well as on the operations of
our suppliers and other business partners, and the effectiveness of our actions
taken in response to these risks; 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 us; 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, including our strategic restructuring program and store network
optimization strategies; the ability to attract and retain qualified employees
in all areas of the organization; the cost of labor, merchandise, logistical
costs and other costs and expenses; potential supply chain disruption due to
trade restrictions or otherwise, and other factors such as natural disasters,
pandemics, including the COVID-19 pandemic, 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 our plans for new stores;
the ability to establish and profitably maintain the appropriate mix of digital
and physical presence in the markets we serve; the ability to assess and
implement technologies in support of our development of our omni-channel
capabilities; the ability to effectively and timely adjust our plans in the face
of the rapidly changing retail and economic environment, including in response
to the COVID-19 pandemic; uncertainty in financial markets; volatility in the
price of our common stock and its effect, and the effect of other factors,
including the COVID-19 pandemic, on our capital allocation strategy; risks
associated with the ability to achieve a successful outcome for our business
concepts and to otherwise achieve our business strategies; the impact of
intangible asset and other impairments; disruptions to our 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 our 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 existing, litigation, claims or assessments; changes to, or new,
accounting standards; and foreign currency exchange rate fluctuations. Except as
required by law, we do not undertake any obligation to update our
forward-looking statements.
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