Bed Bath & Beyond, Inc.

Welcome to the second quarter 2022 FedBath and Beyond Incorporated earnings call. My name is Cheryl and I will be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session. During the question and answer session, if you'd like to ask a question, please press 01 on your touchtone phone. As a reminder, this conference is being recorded. I will now turn the call over to Suzy Kim. You may begin.

Thank you and good morning, everyone. Welcome to our fiscal 2022 second quarter earnings call. Joining us today are Sue Gove, Director and Interim Chief Executive Officer, Mara Serhal, Brand President of Bed Bath & Beyond, Patty Wu, Brand President for Bye Bye Baby, and Laura Crossan, our Interim CFO. Before we begin, I'd like to remind you that our fiscal 2022 second quarter earnings release and slide presentation can be found in the investor relations section of our website at bedbathandbeyond.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 factor 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 file today. I will now turn the call over to Sue.

Thanks, Susie. Good morning, everyone, and thank you for joining us. Before we discuss our second quarter results today, I want to take a moment to pay our respects to Gustavo Hernal. Gustavo was a distinguished leader and dedicated colleague to all of us at Bed Bath & Beyond, and we are proud to have known and worked with him over the past several years. His talent and contribution to our business and teams will be missed. His family remains in our thoughts during this difficult time. The last few weeks and months have redefined us in many ways, and I am grateful for how our teams have demonstrated their immeasurable dedication and resilience. This is an extraordinary and important time for our organization, and everyone has fully embraced the necessary changes we are instituting. We are more focused strategically and culturally. and our executives have been the pillar of strength and leadership that this company needs to drive results. Among these leaders is Laura Crossan, who has been named our interim CFO. Laura's tenure and expertise at Bed Bath spans more than 20 years. She has a proven track record and has led many of our teams within finance through a variety of functions and transactions. Most recently, she was instrumental in managing our working capital needs and facilitating our vendor partnerships over the past quarter. She's risen to every occasion and demonstrated our internal bench strength. I am confident our current leadership team positions us best to deliver on the targets we have established with Laura in her new role. Our results for the second quarter correspond to the interim update we provided a few weeks ago. While our sales and profit do not yet reflect the aggressive actions we have initiated to change our performance, they do demonstrate sequential progress in several key areas. In the first quarter, we experienced a significant dislocation between sales and inventory that we began to address immediately during the second quarter. Aggressive inventory optimization actions, including accelerated markdowns and strategic promotions, led to double-digit improvements in this gap from almost 40% in Q1 to below 30% in Q2. Although very early, we are also seeing signs of progress as merchandising and inventory adjustments begin. For example, in our Bed Bath banner, we have seen positive sales trends in seasonal categories and national brands, where in-stock positions and visual merchandising have improved. Additionally, our buy-buy baby business continues to hold market share relative to other mass market retailers despite the absence of child tax credits in a more competitive environment. This is also particularly impressive as baby lapped high teens comparisons versus last year. Still, our overall results are not acceptable nor demonstrative of our potential. We are moving fast to address a combination of legacy factors that led to these results. As we shared on our August 31st update, we are embracing a straightforward back-to-basics philosophy that focuses on better serving our customers, driving growth, and delivering business returns. These changes had minimal impact on our second quarter performance, which continue to reflect our prior merchandising assortment out of stocks and continued trends in customer traffic from Q1. On merchandising and inventory, we are making decisions focused on what our customer wants by bringing back popular national brands and introducing new emerging direct-to-consumer brands and rebalancing our inventory by exiting a third of our legacy-owned brands while supporting the private labels that worked. Mara and Patty will discuss how we are going to offer our customers the brands and products they seek at the values they rely on in time for the holidays. During this transition period, there remains a great desire to shop our brands as evidenced by the engagement we're seeing with welcome rewards. Since launching this summer, our cross-banner loyalty program has grown to 6.4 million members, including more than 30% in new sign-ups. Welcome Reward members represent more frequent purchases and higher transaction value across all three banners. While we have built out our digital capabilities extensively over the past two years, we continue to invest in customer-facing services to make it even easier to shop. Ahead of the important holiday season, we will be upgrading to a new universal mobile app that connects our three banners together. Enabling even easier cross-banner shopping dovetails well with the traction we are seeing with welcome rewards. In addition to regaining market share, enhancing liquidity is a top priority. As you know, we secured more than $500 million of new financing earlier this month. Our ongoing ATM program will also provide incremental liquidity. Organically, the financial changes we have deployed will also increase cash through our business. We have flattened our organization to reflect our more focused priorities, driving greater efficiency and productivity. This, in addition to a responsible reduction in indirect and overhead expense, is expected to yield approximately $250 million savings in the second half of this fiscal year, or $500 million on an annualized basis. We are confident that our current liquidity will enable the necessary strategic plans we have implemented to drive further improvement and increase organic cash generation over the coming quarters. Finally, working with our supplier partners remains an important focus area, and I'm pleased to share that our payables are considerably healthier than in the prior quarter, as evidenced on our balance sheet. Support from our suppliers, particularly our largest partners, remains solid and we remain committed to engaging with our vendor community intently. Plans for our first vendor summit are underway for next month and we will continue to demonstrate consistent and proactive communication. We are executing the strategic and financial actions that will unlock progress in the back half of this year. while also investing in our future, such as the new stores we're opening for our Bye Bye Baby business. We are a more focused and capable organization with confidence in our ability to achieve our plans and execute our turnaround. Now I'll turn the call over to Mara to provide you with an update on what's working at Bed Bath & Beyond. Mara?