Bed Bath & Beyond, Inc.

Welcome to the Bed Bath & Beyond's Fiscal 2021 Fourth Quarter Earnings Conference Call. My name is John. I'll be your operator for today's call. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session. During the question and answer session, if you do have a question, press 01 on your touchtone phone. Please note the conference is being recorded. And now I'll turn the call over to Suzy Kim, Head of Investor Relations.

Thank you and good morning, everyone. Welcome to our fiscal 2021 fourth quarter earnings call. Joining us today are Mark Tritton, our president and CEO, and Gustavo Arnal, our chief financial officer. Before we begin, let me remind you that our fiscal 2021 fourth quarter earnings release and slide presentation can be found in the investor relations section of our website at bedbethandbeyond.com and as exhibits to our related Form 8K. This conference call and the slides we refer to may contain forward-looking statements, including statements about or references to our outlook regarding the company's performance, our internal models, and our long-term objectives. All such statements are subject to risks and uncertainties that could cause actual results to differ materially from what we say during the call today. Please refer to our most recent periodic SEC filings for more detail on these risks and uncertainties including the risk section in our annual report on Form 10-K and our quarterly reports on Form 10-Q. The company undertakes no obligation to update or revise any forward-looking statements. Additionally, the information we will discuss today contains certain financial measures that exclude amounts or are subject to adjustments that have the effect of excluding amounts that are included in the most directly comparable measure prepared in accordance with generally accepted accounting principles. For reconciliation to the most comparable measures presented in accordance with GAAP, please refer to the table in our earnings release available on our website and included as an exhibit to our Form 8-K file today. It is now my pleasure to turn the call over to Mark.

Thank you, Susie, and good morning, everyone. As we close the first year of our comprehensive transformation, we're disappointed that our near-term results demonstrated a dislocation between our short-term operations versus our long-term strategy. Sales and gross margin during the fourth quarter did not reflect our team's hard work and execution against our long-term transformational efforts. Our business has been impacted by extraordinary macroeconomic factors, such as the derailing of the global supply chain, continued disruptions from the Omicron variant, unprecedented inflation, rising interest rates, and a turbulent geopolitical landscape, which have also weighed on consumer confidence. Internally, these factors have exposed more short-term to medium-term vulnerabilities that we did not foresee at this stage of our transformation as we completely rebuild the foundation of our business. There have been operational deficits in our near-term execution. And as we enter fiscal 2022, we are focused on restabilizing our business while navigating the headwinds that still persist. The core issues remain embedded in pervasive supply chain challenges. which led to fourth quarter comparable sales of minus 12% and adjusted gross margins of 28.8%. Specifically, the lack of available inventory, which impacted us last quarter, has proved to be a continuing impediment. Despite our overall inventory levels, product not available for sale or held at ports and DCs remain at abnormal highs. Sales through the fourth quarter suffered an impact of approximately $175 million or a high single digit deficit as a result of the ongoing lack of in-stock and available to sell merchandise in our Bed Bath banner. This level of pressure continued towards the end of the quarter and throughout March. For perspective, on a traditional November through January basis used by many of our retail peers, Our quarterly comparable sales would have been only down high single digits. Furthermore, through our own data tracking analysis, industry trends have continued to worsen since February as macro market volatility and overall consumer uncertainty has surged. Our not available to sell inventory remained high at 30% across key categories, compromising our traffic generating recovery strategies. For example, our initial projections had anticipated recovery in Q4 driven by our return to a more normalized circular strategy. However, major items advertised in our circular were affected by out of stocks and therefore were unable to proceed as planned. We will continue to align marketing resources with in-stock availability and redirect our strategies to other avenues such as postcards and doorbuster events which have seen relative success. although these do not mirror the traffic generating power of our circular. In line with our strategy, we continue to increase our structurally healthier merchandise margins through our own brands, as well as more efficient pricing and promo optimization. However, historically high freight and shipping costs and unexpected port related fees as part of those costs had a significant negative impact to overall gross margins for the quarter. Excluding these escalating supply chain costs, our adjusted gross margin would have been 32.4%. Taking a step back, 2021 marked the first year of our multi-year transformation. Amidst the macroeconomic environment, we have been charting a new course for our group by reconstructing our operating model to drive greater long-term efficiency and effectiveness. Our recent financial performance even further underscores the need for our long-term strategy. And in this first year, I'm encouraged that we achieved all of our transformational milestones to set the foundation for our future. This was no small feat. Firstly, we fortified our product offering through the launch of eight new own brands. Collectively, we exited 2021 at a run rate of approximately 25% in penetration of own brands, exceeding our 20% goal for the year and compared to only 10% in 2020. Through our own brands, we introduced a new suite of products to differentiate Bed Bath & Beyond, while also creating new opening price points to remain competitive, especially now in light of inflation pressures. Furthermore, we continue to deliver improvements with our customer connections in both digital and in stores. We enhanced our digital-first Omni Always commitment through the enablement of cross-banner shopping on our website, as well as the launch of our own marketplace. Our physical store footprint also improved as we initiated 131 store remodels, of which we completed approximately 80, and optimized our fleet by closing more than 200 underperforming stores programmed to date. Through expanded partnerships with Uber and DoorDash for same-day delivery and earlier BOCUS opportunities, The combination of our digital and stores channel has been a powerful enabler for the future of our Omni always customer promise. In fiscal 22, we will build on these foundations we established in 21. Inventory, pricing and traffic will continue to be the key areas of focus in the near term as we navigate the volatility of the current operating environment. Our year two transformation milestones will support these efforts, including The core of our product pillar will be clearly on unlocking inventory currently held in transit so that we can again fulfill customer demand in full. Additionally, we're going to continue building on the work we've done with our supply chain infrastructure. Following the opening of our first four regional distribution centers in Pennsylvania in very late 2021, work on our second distribution center for the West Coast is well underway and slated for opening in late 2022. The modernization of our operational foundation will be important tailwinds as we emerge from the current environment and protect us in a completely different way in the future. 2022 will also see some significant changes to our marketing offering. We will launch a new loyalty program that will span all our banners and fulfill our goal to create a compelling value and engagement proposition for our customers. You'll also begin to see our digital channel evolve further. This week, we soft-launched the Moments Ad Network, our retail media platform that builds on our authority in the home and baby markets. Customers and suppliers will be able to connect in a new way across our digital properties as they engage with our banners for each important life moment. Our strategic imperative remains to rebuild our authority in creating a home and family for all generations from infancy through adulthood, even into retirement. We'll continue building brand awareness and strength through partnerships and organic investments. Last week, we announced the exciting launch of our Kroger collaboration on their website, expanding the reach of both Bed Bath & Beyond and Bye Bye Baby to Kroger's extensive customer network. We are currently working on our initial shop-in-shop concept for Kroger, which remains slated for this year. I'm also pleased to announce that we will be opening 20 to 25 new buy-buy baby stores this year in line with our previously outlined plans to capture the opportunity we are seeing in this key space, in addition to incubating new offerings within our Harmon banner. Of course, our Bed Bath & Beyond store remodel program remains underway with a further 130 to 150 locations planned for this year, taking our remodel total to well over 200 by year end. We will share updates on our transformation as the year progresses. I'd like to take a moment to address Buy Buy Baby, as it is a firsthand example of our ability to stabilize and optimize businesses without encumbering forces. Buy Buy Baby achieved approximately $1.4 billion in sales for fiscal 2021, growing double digits versus last year, with an adjusted EBITDA margin in the MIG single digits. The actions we took in 2021 to recover and drive our baby business proved successful, and we look forward to unlocking additional value from this banner as we announced a few weeks ago. At this time, we do not have an update on the work that has already been underway by our board and management team to define how we unlock further value. We will update you all on material developments as they arise. We will not be commenting further on this work today. Now on to Gustavo to cover our financial results in more detail, in addition to addressing our outlook for fiscal 2022. Gustavo?