Bed Bath & Beyond (BBBY) Q4 2020 Earnings Call Transcript

Bed Bath & Beyond (BBBY)
Q4 2020 Earnings Call
Apr 14, 2021, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Welcome to Bed Bath & Beyond's fiscal 2020 fourth-quarter earnings call. [Operator instructions] Today's conference call is being recorded. A rebroadcast of the conference call will be available via webcast found on the company's investor relations website. At this time, I would now like to turn the conference over to Janet Barth, vice president of investor relations.

Please go ahead.

Janet Barth -- Investor Relations

Thank you, and good morning, everyone. Welcome to our fiscal 2020 fourth-quarter earnings call. On the call with us today is president and CEO, Mark Tritton; chief merchandising officer and president of Harmon Face Values, Joe Hartsig, chief operating officer and president of buybuy BABY, John Hartmann; and chief financial officer and treasurer, Gustavo Arnal. Before we begin, let me remind you that our fiscal 2020 fourth-quarter earnings release and slide presentation can be found in the investor relations section of our website at www.bedbathandbeyond.com and as exhibits to the Form 8-K we just filed ahead of this call.

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 factors section in our annual report on Form 10-K. The company undertakes no obligation to update or revise any forward-looking statements.

Additionally, the information we will discuss today contain 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 a reconciliation to the most comparable measures presented in accordance with GAAP, please refer to the table in our earnings release available on our website and included as an exhibit to our Form 8-K filed today. It is now my pleasure to turn the call over to Mark.

Mark Tritton -- Chief Executive Officer

Thank you, Janet, and good morning, everyone. Fiscal 2020 was a year of fast-paced transformation, in which we reformed the past, overcame extraordinary circumstances of the present, and established a firm foundation for the future. Despite the challenges created by COVID-19, we have relentlessly focused on taking purposeful and bold steps to transform our entire organization and remain true to our plans to rebuild our authority in home and restore this iconic company. Throughout 2020, we achieved a great deal.

We established an entirely new leadership team with world-class retail and digital experience, who helped design and shape the growth strategy that will define our future. We accelerated change in our operations to create a more competitive, omni-always shopping experience with the introduction of new services like BOPIS, curbside pickup, same-day delivery, and over 100 meaningful improvements to our digital experience. With this improved omnichannel offering in 2020, we registered more than 1 billion visits to our websites and more than 3 million downloads of our apps. Our online conversion rate increased by 30%.

And repeat purchases, 34% of customers placed two or more digital orders. We drove digital sales growth of over 80% on the year and surpassed $3 billion in digital sales. 2020 was a pivotal year for our company. We returned to comp sales and adjusted EBITDA margin growth as of Q2 after four years of decline and sustained this positive momentum consistently throughout the rest of the year.

At the same time, we showed our agility by securing and substantially improving our financial position through diligent and agile cash management, and expense control, as well as, a laser focus on driving gross margin improvement. We also streamlined our portfolio, unlocking capital from noncore asset sales, which added even more cash to our war chest. We also significantly reduced our debt. We capped the year with strong fourth-quarter results, which enhanced our strategic position for our 2021 and further strengthened our three-year growth plan.

Importantly, the company ended the year net cash positive and in a much stronger financial position than we started. We now have a refined and strategically aligned portfolio of retail banners and a very healthy cash position to invest where it fuels our growth and where it supports our customers and our people. We have exciting strategic and impactful initiatives for fiscal 2021 that will create a platform for sustainable long-term growth. These include moving beyond transactional private label offering to launching strategic new owned brands that can drive differentiation and preference for our enterprise; introducing new and unique digital services designed to enhance our omni-always experience and further accelerate growth; upgrading and remodeling stores under our store network optimization program to elevate our omnichannel shopping experience; modernizing our technology and operations and reinventing our supply chain to support our digital-first, omni-always growth strategy; investing to further strengthen our buybuy BABY and Harmon banners to broaden our customer base and build across better engagement, and continuing to build a foundation for long-term growth and unlock shareholder value.

As we turn the page on a year of unprecedented change, I would like to take this opportunity to thank our team of talented associates for their extraordinary efforts throughout this past year in delighting our customers and restoring growth in the business. Our recovery is real and shows the strength of our own efforts and output rather than reliance on outside factors such as stimulus spend. We know this because, by and large, the demographic of our core customer base is not eligible to stimulus benefits. In addition, data shows that stimulus spend is primarily occurring in categories such as food, technology, and apparel, which are not core offerings for us.

Our current momentum fortifies our customer-inspired, data-driven approach as we reestablish authority in our core home, baby, and beauty, and wellness markets. I will now turn the call over to Joe Hartsig, chief merchandising officer and president, Harmon Face Values, who will speak about the quarter from a commercial perspective; and then John Hartmann, chief operating officer and president, buybuy BABY, who will do the same for our baby and our operations. Finally, Gustavo Arnal, chief financial officer and treasurer, will review both our strong fourth-quarter financial results and our outlook for fiscal 2021. We will then take questions.

Joe?

Joe Hartsig -- Chief Merchandising Officer

Thank you, Mark. Our digital-first, omni-always strategy is working and was a key driver of our fourth-quarter performance. We elevated the customer experience across all of our channels to make it easier to shop with us and create a more inspirational and more productive assortment that delivered growth in both comp sales and product margin. Today, let me start with some highlights on the quarter from a commercial perspective, including our strong performance in digital and within our top product categories.

Then I will talk about our owned brands, including the recent launch of Nestwell. Our positive comp sales this quarter were again driven by strong digital growth of 86%, marking our fourth consecutive quarter of greater than 75% growth this year. This was led by our Bed Bath & Beyond banner, which posted digital comp sales growth of 99%, practically doubling last year's sales. During the quarter, we gained 3.1 million new digital customers, of which the Bed Bath banner alone added 2.4 million.

Year to date, we have gained approximately 11 million new online customers, an increase of 95% over last year. In the quarter, we experienced more than 300 million visits to our digital channels, including 162 million unique visitors, and we had more than 1 billion visits for the year with conversion up by 30%. And not only are we attracting new customers, we are also seeing a return at a higher rate than ever before. In the fourth quarter, 22% of our customers placed more than one online order compared to about 17% last year.

We've also seen tremendous growth in mobile, representing more than half of our digital sales in the quarter. The new Bed Bath & Beyond mobile app was launched over 21 million times during the quarter, and mobile revenue more than doubled versus last year. In our top destination product categories, in which we had double-digit comp growth in the quarter, we are developing category experiences by room, and implementing new integrated room reset merchandising programs. By leveraging new data-driven category buying and new processes, we are overhauling our merchandising assortment to focus on more productive items, eliminating redundancy and adding newness in owned brands.

In addition to having less inventory and a more curated assortment online and across our store fleet, we have enhanced the in-store experience by creating more open aisle space, better site lines, and new signage throughout the store to clearly communicate value and price. These improvements are already complete across most of the chain. This is a revolutionary change. We are taking an omnichannel approach here, aligning both stores and digital experiences to make it easier for our customers to shop and feel at home.

Our associates also benefit from these changes because there is less inventory to manage, which makes it easier to restock and leaves more time to provide great customer service. Now turning to category performance. Sales in our top five destination categories collectively grew 12% in the quarter, with four of the five categories posting double-digit comp growth with the exception of bath. The bath category was impacted by a planned assortment transition in preparation for the launch of our new owned brands, which resulted in higher category markdowns and temporary out-of-stocks.

Early in the first quarter, we are already seeing the category return to solid growth. During the fourth quarter, pandemic-related product needs continued to dominate with a focus on home decor and organization. Customer preferences were also driven by colder weather during the holidays. To that end, we saw strength in warm and cozy products, which became a holiday gifting of choice as people stayed indoors.

This included comforters, flannel sheets, and electric blankets. With increased working and dining at home, there was continued strength in the kitchen and food prep category, which grew 16% in the quarter. Toaster ovens and air fryers were standouts, showing strong growth of 60% and 70%, respectively. As I referenced earlier, following the holidays and at the start of the year, we also achieved success in the home organization category, which grew 17% in the fourth quarter.

As customers were focused on cleaning out closets and getting more organized, we leaned into this trend with a new and exciting storage and organization shop in the front of our store and online. This successful event was supported by a 360-degree marketing campaign to create strong awareness and excitement. Another growth area for us was wellness, including products such as juicers and blenders. Other products such as air and water purifiers and bedding basics also performed well as customers committed to healthy resolutions for the new year.

In home furnishings, indoor decor was strong this quarter with comp growth of approximately 16%. We are seeing customers have a deeper connection to their homes as they continue to spend money to fix up their spaces. We believe this is a sustainable muscle that has been built which will support continued growth in the home furnishings category. Turning now to one of my favorite topics, which is our owned brands.

As we have said in our press statement last month, the introduction of owned brands is the biggest change in Bed Bath & Beyond's product assortment in a generation and is critically important for us to drive growth, build differentiation, and customer preference in the marketplace. By introducing brands that can only be found at Bed Bath & Beyond, we create a unique reason for customers to shop with us. We plan to introduce at least eight owned brands this fiscal year, including six in the first half, with three in the first quarter alone. Overall, our owned brands assortment will include thousands of new products across bed, bath, kitchen and dining, storage and organization, and home decor available only at Bed Bath & Beyond.

As we drive to win differentiation, preference, and authority, we anticipate owned brands to go from about a 10% penetration rate to approximately 30% within the first three years. As such, we expect to further enhance our gross margin as a result of being able to strategically design to cost, source at scale and provide great everyday value to ensure we create authority and differentiation. We're off to an excellent start with Nestwell, our new line of everyday bedding and bath product essentials. Inspired by the way our customers live, Nestwell features a lineup of nearly 1,200 stylish, high-quality, and solution-oriented bedding and bath products, all at affordable price points.

The Nestwell line includes a variety of sheet sets, pillows, blankets, and comforters, bath towels, and much more. All of our products incorporate high-quality, modern fabrics and colorations designed to blend well with the customers' own design aesthetic. Nestwell will help customers find their perfect sleeping solution with bedding options that cater to an array of sleep styles and bedtime routines. By using the interactive Nestwell to rest well guide, customers can identify their unique style and receive recommendations as well as design tips from our decorative team and sleep wellness advice from renowned sleep and wellness expert, Dr.

Shelby Harris. This launch is being supported by a robust omnichannel marketing program that has already reached millions of customers online and in our stores. The campaign includes content that crosses social media, print, digital, email, registry, and SMS text notifications. Feedback from customers is very positive, and early sales results are very encouraging.

Nestwell is just the start of our amazing brand road map, and I'm so excited to share more with you in the weeks and months ahead. Later this month, we will introduce Haven, a spa-inspired assortment of organic cotton products. And in May, we will introduce Simply Essential, a new value-based brand, including 1,000 home essential products across multiple categories and rooms offered at opening price points. Simply Essential will be a very powerful brand in helping us attract those customers drawn to opening-price-point brands across many categories.

As Mark said, it has been an unprecedented year, and I'm both proud and grateful to our teams who have worked tirelessly in response to the pandemic to ensure we are there when customers need us most. At the same time, our teams are driving significant merchandising and marketing transformational performance improvements aligned to our three-year plan across the company and are fully committed to our business transformation. As part of this commitment, we are rebuilding authority in destination categories such as bed, bath, kitchen, indoor decor, and storage and organization. And our fourth-quarter performance demonstrates the tremendous progress we have made to make it easier for our customers to feel at home at the new Bed Bath & Beyond.

Now, I will turn the call over to John Hartmann, chief operating officer and president of buybuy BABY. John?

John Hartmann -- Chief Operating Officer

Thank you, Joe. Today, I will first provide some perspective on the quarterly performance of our buybuy BABY business and then continue with an update on our enterprise operations. To expand on Joe's commercial update, our buybuy BABY banner showed significant improvement in the fourth quarter, returning to positive growth of low single-digit comp sales, led by strong growth in digital of over 50%. On a full-year basis, baby sales were over $1 billion.

As we discussed on our last call, baby was disproportionately impacted in the third quarter by COVID-related headwinds. We then made key pivots in November and December, including crisper customer communications, collaborative partnerships with our vendors, and targeted digital marketing, which produced positive sales and category trends that sustained throughout the fourth quarter and are continuing into the current quarter. Top-performing categories in the quarter included baby and toddler safety, feeding, toys, educational and playroom, as well as apparel. In 2020, baby gained 2.5 million U.S.

online customers, an increase of 45% versus prior year, including more than 600,000 in the fourth quarter alone. Nearly two-thirds of those customers shopped only online. We had an over-40% increase in visits this quarter to 51 million, including 24 million unique visitors, and an 8% increase in conversion. 19% of U.S.

customers placed more than two orders compared to 15% in the prior-year period, and more than 200,000 customers placed a BOPIS order, including almost 20% from mobile. BOPIS represented 14% of our digital sales in the quarter, and approximately 87% of orders were ready for pickup within two hours. There were 150,000 buybuy BABY mobile app downloads in the quarter, which contributed to significant mobile growth, representing more than 60% of total digital sales. We are excited to begin the transformation of the baby banner this year and unlock the value of this brand.

We previously outlined our six-point strategy to accelerate growth, which includes investments to scale our store footprint nationwide. In fiscal 2021, we expect to open seven baby stores, bringing the total store count to 139 by fiscal year-end. In preparation for this transformation, we have taken a deep dive into understanding who our customer is and how we can exceed their expectations. This work has manifested into a new customer value proposition which states: We build trust with parents by supporting them with what they need next, so families can celebrate every milestone, big and small, together.

We know that parenting looks different for every person, and the journey is unique to every family. But there are experiences that are shared by all. We want buybuy BABY to be the destination of choice for all new parents and young families and to help guide them on their journey and grow with them. We will continue to share our progress in future conference calls.

Pivoting now to an update on our whole enterprise operations. We remain focused on modernizing our operations and optimizing our use of data and analytics to meet our customer and business expectations. The advancements made across our real estate network, supply chain operations, and technology road map during the fourth quarter reflect these strategic objectives. We continue to make substantial progress with our store network optimization program and remain on pace to achieve our targeted closings of approximately 200 stores by the end of fiscal 2021.

Through the end of fiscal 2020, we have closed a total of 144 Bed Bath & Beyond stores, including 118 stores closed during the fourth quarter. The program is tracking to plan and is now about 70% complete. The remaining store closings will occur in fiscal 2021 and be weighted toward the second half. As we move through the year, we will continue to review our plans and assess the evolving real estate market and conduct further negotiations with our landlord partners.

We also remain on track with our previously communicated $100 million EBITDA contribution target for this program. And importantly, while still early, transference from these closed stores to other store locations and/or our digital channels is measuring above 20% versus our previously communicated goal of between 15% and 20%. Turning now to our Bed Bath & Beyond store remodel program. We recently completed our proof-of-concept store remodels in the Houston market, which consisted of four Type A, full-store remodels and three Type B remodels, which involved a room reset and updates to about half the store.

This represents the first full designated market area we have addressed in the country. Above and beyond the general store improvements Joe mentioned, including room resets and new signage, we are now beginning the next wave of remodels by applying the learnings from the New Jersey test store and the Houston market to iterate and continuously improve. As we have said previously, we plan to invest approximately $250 million over the next three years to remodel a total of approximately 450 stores, which, together, represent about 60% of our revenue. In fiscal 2021, we are targeting about 130 to 150 stores across the country, covering nearly 30 states, including 26 stores, during our first quarter.

We applied a similar level of focus and execution with our supply chain during the fourth quarter, which included the Christmas holiday sales period. As expected, our comp sales growth in the quarter was led by digital, which nearly doubled in size versus the last year to approximately 40% of our total comparable sales. Throughout this year, we've been moving with agility to optimize our store network to support this rapid growth. Earlier in the year, we converted about 25% of Bed Bath & Beyond and buybuy BABY stores in the United States and Canada into regional fulfillment centers to use our vast inventory resources to assign orders locally and deliver even faster.

In the fourth quarter, our stores fulfilled 41% of total digital sales, including 17% in BOPIS orders. And as we got closer to the holiday, BOPIS accounted for 48% of our Bed Bath & Beyond digital demand during Christmas week as we highlighted the ease and convenience of these services and customers chose to avoid third-party shipping constraints and ensure they would have their gifts in time. More than 80% of BOPIS orders were ready within our two-hour-promise window. We've experienced about a sixfold increase in BOPIS penetration since first launching the service in April 2020, driven by nearly 4 million customers.

In addition, customer feedback is highly positive, and our Net Promoter Score has increased further from 79 to 81. We've had very similar strong customer adoption and satisfaction with our new same-day delivery services. In Q4, over 220,000 same-day delivery orders were placed, with 78% of orders coming directly from our websites and 22% through a combination of Shipt and Instacart marketplaces, which have access to over 80% of American households. We also launched Harmon Face Values on Instacart, enabling same-day delivery for everyday health and beauty care essentials.

In other supply chain activity, we kicked off our search for a third-party logistics partner, as I mentioned last quarter. We plan to establish four regional distribution centers to more efficiently and cost-effectively manage the flow of merchandise to our stores. We believe this is a key first step in vastly improving our store replenishment approach. During the quarter, we conducted a thorough RFP evaluation process, which included many market-leading third-party logistics companies.

Ultimately, our partner selection will be based on what we believe yields the best strategic partner and long-term economic outcome for the business. We are working now through the final stages of selection and anticipate being able to make a public announcement soon once we have signed an agreement. The initial focus of this strategic partnership will be to establish two RDCs, both in key trading areas, one in the Northeast and the other in the West. Once in place, we expect to achieve many operational and business benefits over time, including reducing the store replenishment time from a non-competitive period of 35 days currently to under 10 days, which will yield improved sales based on reduced out-of-stocks, as well as lower store inventory levels.

Turning now to an update on our technology road map. Having the right retail technology in place is fundamental to our business transformation. Over the past year, we've been laying the foundation for this change, including our expanded partnership with Google to leverage their cloud technologies and personalize the shopping experience for our customers, enhance fulfillment capacity, and optimize merchandise planning and demand forecasting. In February, we announced the selection of Oracle as our enterprise resource planning, or ERP, technology provider to replace our legacy suite of technology systems and deliver new data, insights, and planning capabilities.

This ERP deployment is the first key component in our planned $250 million technology investment road map over the next three years to deploy industry-leading solutions that enhance the experience for our customers and drive efficiencies across the enterprise. Last month, we announced another technology partnership, this one to help modernize our inventory management system. We selected RELEX Solutions to deliver automated forecasting, replenishment, and allocation planning in order to improve inventory productivity and our ability to respond to customer demand. Our technology transformation effort is expressly focused on building proficiencies to reconstruct and modernize, stabilize and optimize, invest in and construct, and operation-wise.

This technology transformation is further enabling our business transformation and the building blocks for all of our fulfillment, forecasting, inventory management, and sourcing proficiencies. Alongside these transformations in real estate, stores, supply chain, and technology, there's also a cultural transformation under way. For example, we have put in place a business operating structure to manage all of our transformation initiatives. Having this formalized structure has strengthened our foundation, contributed to our progress to date, and will guide us as we continue on our commitments.

I look forward to sharing our progress on these important investments in the future call. Now, I will turn the call over to Gustavo Arnal, our chief financial officer and treasurer. Gustavo?

Gustavo Arnal -- Chief Financial Officer & Treasurer

Thank you, John, and good morning, everyone. I will provide additional perspective on the strong results of our fourth quarter and will also discuss our outlook for fiscal 2021, including some visibility on the current first quarter. Before I go on, I'd like to highlight a few key messages. First, our strategies are working.

We delivered our third consecutive quarter of comparable sales and adjusted EBITDA growth with positive free cash flow generation. Second, we showed exceptional business agility and financial discipline during a year of unprecedented challenges. We delivered positive comp sales growth, optimized our cost structure, divested non-core assets, reduced debt, invested in the business, and at the same time, returned capital to shareholders while increasing liquidity. And third, in a year of fast-paced transformation, we strengthened our strategic positioning to deliver on our three-year financial plan.

We are reaffirming our fiscal 2021 outlook on sales and EBITDA while further investing in the business. We are improving our projection of gross debt-to-EBITDA ratio to below 3 times this year. And we have increased our three-year share repurchase program to $1 billion, above what we communicated at investors day. Now, looking at the fourth quarter.

Total enterprise comparable sales grew 4%, led by continued strong digital growth of 86%. Our digital-first, omni-always strategy continues to be a key driver of our results. Sales from our digital channels represented approximately 40% of total net sales for the full year and surpassed $3 billion, almost doubling in size versus the prior year. In our Bed Bath & Beyond banner, comp sales grew 6%, fueled by 99% growth in digital, partially offset by store declines of 20%.

Comp sales were positive each month of the quarter with high-single-digit growth in January and February combined. And this was in spite of the industrywide weather impacts to recovery. Growth was strong and broad-based across key destination categories which grew 12% in total and represented almost two-thirds of revenue. Importantly, our Buy Buy Baby banner returned to delivering positive comp sales growth led by strong digital growth of over 50%.

As previously communicated, our reported net sales will continue to be impacted from our banner portfolio transformation, as well as our fleet optimization program. As expected, total enterprise net sales of $2.6 billion reflected these impacts and declined 16%. This was at the healthier end of the 15% to 20% range of decline we communicated on our earnings call in January. In terms of the bridge from net sales to core banner sales, we saw an approximately 12% unfavorable impact from the non-core banner divestitures.

Therefore, excluding divestitures, core banner net sales were down only 3% on a rounded basis. On these, store closures reduced sales by approximately 8% in line with expectations, thus resulting in comparable sales growth of 4%. On a GAAP basis, we delivered net earnings per diluted share of $0.08, compared to a net loss of $0.53 in the prior year. Reported net income results include approximately $38 million from unfavorable impacts from the special items, which are excluded from adjusted results to provide a better perspective on the underlying performance of our business.

These special items include the net loss of the sale of businesses, non-cash impairment charges related to certain store-level assets, and charges recorded in connection with the restructuring and transformation initiatives. Excluding these impacts, adjusted EPS was $0.40, which was also an increase over last year. As planned, we drove significant adjusted EBITDA margin improvement in the quarter. EBITDA margin expanded approximately 160 basis points to 6.4%.

As we said, we increased adjusted EBITDA in an optimized and healthier revenue base. Adjusted gross margin improved approximately 20 basis points to 32.8% in line with our guidance. Gross margin drivers included 60 basis points of favorable product mix from higher-margin categories, 90 basis points of favorable margin on promotion optimization, 190 basis points of leverage from distribution and fulfillment cost efficiencies, partially offset by 170 basis points from favorable impact from channel mix due to the anticipated larger proportion of digital sales versus the prior year. And lastly as expected, we saw an unfavorable impact of around 150 basis points from higher shipping costs, given industrywide freight rate cost increases.

Adjusted SG&A expense declined $190 million versus the prior year. This was driven by a reduction from the non-core banner divestitures and lower occupancy expense on more efficient stores. As a percent of net sales, SG&A declined approximately 160 basis points to 29.1%. As mentioned, a stronger topline, coupled with gross margin expansion and SG&A reduction, resulted in another quarter of EBITDA growth.

Fourth-quarter adjusted EBITDA increased 13% to $168 million. Turning now to some cash flow and balance sheet highlights. Operating cash flow was $76 million, given working capital improvement from lower inventory balances. Free cash flow was $62 million.

We reduced inventory in our core manners by approximately $110 million versus the prior quarter, primarily from seasonal selling and product transitions in preparation for the introduction of all brands, as well as store closures related to our network optimization program. Capital expenditures were $66 million, nearly double the average in prior quarters as our transformation investments accelerate according to plan. We maintain a strong cash balance of $1.4 billion with an even stronger liquidity of $2.1 billion including our ABL. We're managing cash including our planned investments to fund our growth on our healthier, more focused, and stronger business.

We also returned significant capital to shareholders through accelerated share repurchases. Since Investor Day in October, we have repurchased approximately 16 million shares, 13% of our shares outstanding at an estimated average price of $23. Our first accelerated share repurchase program of $225 million was completed at the end of January, and our second ASR of $150 million will be fully completed next week. We continue to be diligent and agile stewards of cash with our data-driven and balanced approach to capital allocation.

After having fully funded our capital investment for growth. today we're announcing another increase in our three-year share repurchase program to $1 billion versus the previous $825 million plan. Our fiscal 2020 performance reflects our commitment to unlocking shareholder value. We have been and will continue being focused on driving comparable sales growth, expanding margin, and generating cash flow.

We will continue deploying cash to attractive investments for our business and also to our shareholders. Turning now to our fiscal 2021 outlook. On a macro level, our financial performance in fiscal 2021 will continue to be influenced by pandemic-related headwinds, including uncertainty around the vaccine rollout and the subsequent impact of customer demand and shopping patterns, especially relating to store traffic and digital sales. Our financial models assumes that our stores will remain open and that the current environment will continue in the short term with gradual improvement as the year progresses.

We anticipate in-store traffic trends to begin to recover throughout the year. But we continue seeing previously communicated, industrywide headwinds from freight costs. We have strengthened our positioning as we start fiscal '21 and embarked on a three-year transformation plan. Our significant portfolio transformation is leading to fewer yet better performing stores, which we believe will include a healthier core revenue base with a larger proportion of a faster-growing digital business.

And with a consistent execution of our transformation strategy, we remain well-positioned to achieve our long-term financial objectives. Also, we are reaffirming our previously provided fiscal 2021 modeling assumptions. We continue to project net sales to be in the range of between $8 billion and $8.2 billion. Net sales assumptions include the impacts of the recent non-core banner divestitures, as well as ongoing store closures under the previously communicated network optimization program.

On a quarterly basis, in the first quarter, we expect to recapture sales that were lost in the prior year from temporary store closures due to COVID. Because of this, we have said first-quarter sales will not be comparable. In quarters two through four, we expect to sustain comp sales relative to the solid base we experienced in those same three quarters of fiscal 2020. We continue to assume, for financial planning purposes, that total enterprise comparable sales in Q2 through Q4 will be flat versus a strong fiscal 2020 base as we started delivering positive comps out of the second quarter of 2012.

We continue to project a full-year adjusted gross margin to be approximately 35%. Our model reflects sequential improvement during the year from several key positive drivers including product sourcing savings from negotiated vendor contracts, higher sales penetration of newly launched owned brands in our product mix, and more effective, data-driven promotion and markdown strategies. We continue to model full-year SG&A to be approximately 31% of total net sales, driven by favorable impacts from store closures under the network optimization program and savings from prior year cost restructuring. And finally, we continue to model adjusted EBITDA to be in the range of between $500 and $525 million.

Turning to some balance sheet and cash flow assumptions. We plan to invest approximately $400 million in capex, including key projects supporting our IP transformation, supply chain reinvention, and store remodels. We now expect to achieve our improved leverage ratios faster than anticipated. In fiscal 2021, we project our gross debt-to-EBITDA ratio to be below three times.

This is significantly better than our previously stated goal of below 3.5 times for this year. We also plan to increase cash return to shareholders. As mentioned, our three-year plan for share repurchases has increased to $1 billion. We're now planning up to $325 million in share repurchases in fiscal 2021.

Together with the two already-completed ASRs totaling $375 million, we will have repurchased $700 million in shares by this fiscal year. Again, we're doing this while generating cash and funding our business transformation. We remain committed to our capital allocation principles, namely investing in our business, maintaining financial resilience, and returning capital to shareholders. I will now provide some visibility on the current first quarter, which includes the month of March, April, and May.

As you may recall, this was the period last year when most of our stores were closed and sales were depressed. In addition to the comparisons, when the majority of our stores were closed, our reported net sales will continue to be impacted by completed divestitures and fleet optimization. To provide further perspective on this portfolio transformation and the quarterly comparisons of our core go-forward banners, we have included a table in our press release and slide presentation with a quarterly summary of fiscal 2019 and 2020 net sales. On both, a reported GAAP in a core go-forward basis.

The latter includes Bed Bath & Beyond, Buy Buy Baby, Harmon Face Values, and Decorist. On this core basis, first-quarter sales last fiscal year were $1.1 billion. Directionally, in Q1 this year, we would expect core banner sales to be significantly higher than last year by approximately 65% to 70%. Core banner sales in March, the first month of the quarter, showed strong growth and the year-on-year growth will accelerate in April and May as we lapped the prior-year period when more stores were closed.

In terms of total net sales, directionally, we expect them to increase by over 40% on a year-on-year basis. This growth is built into the fiscal year guidance mentioned earlier. In terms of gross margin, we expect to show sequential improvement as this year progresses. Directionally, we would expect the adjusted gross margin in the first quarter to be in the 34% range.

In terms of adjusted EBITDA, we expect to deliver between $80 million and $90 million in Q1. In 2021, we will continue to manage the business diligently, leveraging data and analytics to drive performance and deliver on what we say. We remain confident in our future as we embark on the first year of our three-year transformation journey. I will now turn the call over to Mark for some closing remarks.

Thank you.

Mark Tritton -- Chief Executive Officer

Thank you, Gustavo. As we enter our 50th Europe business in our Bed Bath & Beyond banner, our focus remains on being customer-inspired in everything we do as we build authority now called Home, Baby, and Beauty and Wellness markets. With COVID headwinds expected to subside and having our full omni-channel suite of options available to us this year, we will be able to truly compete fairly and openly with our peers unlike during 2020. In addition to our internal strategic growth drivers, we believe we are well-positioned to benefit from the favorable macro environment expected to support continued growth in home-related categories through 2021.

These include high consumer confidence, a strong housing market, continued work-from-home trends, and the newly found appreciation from the comfort, safety, and value of our homes. As you've heard today, we're excited and confident about our business. We've reaffirmed our fiscal 2021 guidance and are well poised to activate and drive our transformation initiatives to fuel our growth. We have the capital, the plan, and the talent to deliver on our three financial objectives.

As our transformation continues to take hold, we will shop differently for our customers with enhanced omni-channel experiences, modern stores, new communications, and differentiated owned-brand, all improved capabilities that will elevate the shopping experience and make it even easier to shop with the new Bed Bath & Beyond. Earlier this week, we launched our new "Home, Happier" brand campaign, which exemplifies our strategic focus on helping our customers realize each other's potential so that they can embrace the possibility in every day, helping them to home, happier. We will deliver the products, values, and experiences to inspire our customers to celebrate the important role their homes play in their lives. We're excited to debut this fully integrated campaign which will be anchored by a 30-second anthem TV spot airing nationally today, April 14, and featuring a suite of creative assets supported by an omni-channel paid media plan, including national broadcast and cable TV, streaming online video, paid social, print, in-store, email, and display.

In 2021, we'll continue to make bold pivots to reconstruct, renovate, and restore our company and deliver on what we said we would do. We look forward to sharing our transformation progress with you in future quarterly calls. We will now take questions.

Questions & Answers:

Operator

Thank you. And now, I'll begin the question-and-answer session. [Operator instructions] And our first question is from Bobby Griffin from Raymond James.

Bobby Griffin -- Raymond James -- Analyst

Good morning, buddy. Thank you for taking my question.

Mark Tritton -- Chief Executive Officer

Hey, Bobby.

Bobby Griffin -- Raymond James -- Analyst

Mark and Gustavo -- hey, guys. A lot of moving parts inside gross margin was shipping and distribution and things like that, but could you maybe unpack what's going on and what you're seeing inside the core merchandise margin and what some of those drivers and expectations are for fiscal-year '21?

Mark Tritton -- Chief Executive Officer

Yeah, I -- I think that some of the core drivers is definitely, you know, we've improved our mix. We've improved our negotiated base costs. We're starting to see the work that we've done on, you know, cost negotiations really start to filter through and we see that moving through 2021. What you didn't see in the quarter was the improvement for our brand because that's a match on good investment and we see that incremental benefit occur in quarter by quarter with the investments we've made with over eight brands for the full year.

But, you know, also a big part of that has been John team really reengineering the markdown process and the promotional process and getting more effectiveness out of our marketing dollars, as well as that promotional spend. And that's a really reengineer in this quarter and going forward that margin. And that's despite us, you know, getting ready for the own brands coming in and we'd, you know, take the additional markdowns to do our room resets, as well as absorbing some of those impacts of our freight. So we feel well-poise with the prior work and the ongoing rolling work through 2021 that we'll see incremental benefits to gross margin.

Bobby Griffin -- Raymond James -- Analyst

OK. So is it -- is it fair to say that the -- you know, we saw the sequential slowdown in the year-over-year growth in gross margin but shipping and -- and different things were -- were different headwinds in the fourth quarter. Is it -- is it fair to say that the core performance of the merchandise margin was similar in 4Q as it was an F2Q and F3Q of this year?

Mark Tritton -- Chief Executive Officer

Yeah, I think, you know, the -- the other big differential in that, Bobby, is the mix of digital versus stores and the impact that had in the interim on margin. And so we're continuing to double down there. But as we moved through to Q1 and beyond, clearly, we see a different balance in that margin proposition between increasing our store's velocity and balancing out our digital sales and the associated margin.

Operator

And our next question is from Brad Thomas from KeyBanc Capital Markets.

Brad Thomas -- KeyBanc Capital Markets -- Analyst

Yeah. Hi, good morning. Thanks for all the details and thanks for taking my questions. I just wanted to follow up on -- on some of the margin puts and takes there because that tends to be one of the most important things we find investors asking us about.

And -- and I was hoping that, again, just follow up on what Bobby was asking about and -- and how you're thinking about some of those puts and takes on margins and how much of an opportunity there may be as this category resets take hold and what they may be able to have for you? Thanks.

Gustavo Arnal -- Chief Financial Officer & Treasurer

Brad, Gustavo here. Just -- to give you some perspective, we see sequential improvement in gross margin from Q1 and as the fiscal year progresses. As Mark mentioned before, we expect the penetration of own brand to improve quarter after quarter. So expect the 34% we're guiding for in Q1 to improve as the year progresses.

Also, it's important to keep in mind that we've accounted into our estimates the headwinds that we've continued seeing in terms of cost shipping freight increases, and so we'll continue to manage that. And we're getting better and better on the processes that Joe is leading in terms of optimizing promotion markdowns, doing more of promotions that drive both revenue and margin increase. So you will see that improvement as the fiscal year goes.

Mark Tritton -- Chief Executive Officer

And -- and, Brad, you just mentioned something about resets and just what there, I think that is part of that overall plan, [Inaudible] underperforming product and lower margin products, resetting that with new national brands but definitely featuring our key own brands and their margin-rich potential.

Operator

Our next question is from Jenna Giannelli from Goldman Sachs.

Jenna Giannelli -- Goldman Sachs -- Analyst

Hi there. Thanks for taking the question. I was just curious, when you think about your excess liquidity on hand and -- and some of your bond trading below par, if that might be an opportunity to -- to manage that leverage or get down to that below three times goal if we could see you being opportunistic again with your debt stack? Thank you.

Gustavo Arnal -- Chief Financial Officer & Treasurer

Hi, Jenna, Gustavo here. First, let me reinforce that we will be already in Q1 below the growth set to EBITDA ratio of three without taking any additional action on our capital structure. Now, as you say, we have some tranches trading below par. We also have some of the closer maturities trading above par.

That is all in our mix. We will remain focused on what we said in terms of capital allocation. First thing in that, investing in the business, and we have the capital -- capital spending allocated to that in the business. We're doing the share buybacks as you saw.

We're increasing it this year. And we will continue monitoring during the year on how to optimize our -- our -- our debt structure and, certainly, bond. It's part of that equation.

Jenna Giannelli -- Goldman Sachs -- Analyst

Excellent. Thank you so much.

Operator

Our next question is from Steven Forbes from Guggenheim.

Steven Forbes -- Guggenheim Securities -- Analyst

Good morning. Hey, Mark. I wanted to sort of focus on the new digital customer trends, right? The 11 million customers you called out. Curious if you could sort of just give us a nice review here, right? What -- you know, what categories do they transact, right, understanding their customer journey, transacting, and during 2020? You know, how often are they repeating, right, maybe a time frame? Is it in one month to one quarter? And, you know, just your overall thoughts on how that greater, you know, base of new customers entering 2021, how the evolution of the -- you know, their -- their spending trends will impact the guide, right? As we think about this path to a flat core comp, you know, what -- you know, what is happening in the -- those 11 million customers, and then how did you incorporate that into the -- the guidance here?

Mark Tritton -- Chief Executive Officer

Yeah, it's a great question, Steven. I think we've incorporated it conservatively into the plan, but there's no doubt that we have been acquiring new customers and they have been behaving differently coming to being a digital-first than the normal old ways customer. We're seeing them trade within the quarter and we shared some of those ratios in terms of their increase-- the increase that we've seen in the secondary item purchased within the quarter. Good news is that they're, on average, younger and they are less likely to -- to buy promotionally.

And in category wise, we're really seeing them kind of delve into all our -- our categories, our core categories, in particular, and -- and some growth in the indoor decor area, which for us is really on the rise and it's something we haven't doubled down in the past and we're starting to invest and grow in now, which is terrific. So we're seeing younger, we're seeing stickier. And -- and for us, you know, we see this as a great avenue to connect with a wider customer base. And particularly because it's digital-focused, whatever that kind of use that data and the storytelling to share a plethora of -- of details around the new Bed Bath & Beyond, including the launch of the new own brands to a wider constituency.

So the -- the -- the kind of trouble of COVID has actually generated a new avenue of growth for us. But to your point, we've backed that in conservatively. We want to see things really settle with the back things and the return to the new normal and how that plays into our mix. So some potential upside there.

Operator

Our next question is from Curt Nagle from Bank of America.

Curt Nagle -- Bank of America -- Analyst

Good morning, guys. Thanks very much. So just a quick one for you, Gustavo. Just curious what -- what's driving -- give some specificity I guess to what's driving the faster deleverage in 2021? The EBITDA guidance is the same.

Is this primarily I guess on working capital and I guess just what should we expect for working capital, you know, gains for this year?

Gustavo Arnal -- Chief Financial Officer & Treasurer

Yeah. Couple of comments there, Curt. Thanks for the question. Look, we -- a couple of things improved.

First is we completed -- versus Q4, we completed and signed the divestiture of Cost Plus World Market, that has an impact on the operating lease liabilities and it's a reaffirmation for us saying now, as we start the fiscal year and look at the debt and the balance of the year and look at the EBITDA and adjusted EBITDA on the balance of the year, to reaffirm. That's why we're below 3x already. Well, we'll look at the math in Q1. Your question on working capital.

You saw sequential improvement in the fourth quarter relative to the third quarter, a $110 million of inventory improvement on the core banners. We expect to continue even improving inventory as we go along. Recall, a few months ago, we said we will reduce inventory by a billion dollars of retail versus the closing position of 2019. That would take us to about $1.6 billion of the inventory.

We're now at $1.7 billion. So we're well on track with what we've said in terms of working capital improvements. It would vary quarter to quarter, but our objective remains, driving working capital improvements and on our way to 3.5 times inventory returns.

Operator

Our next question is from Seth Basham from Wedbush Securities.

Seth Basham -- Wedbush Securities -- Analyst

Thanks a lot and good morning. My question is around market share performance. You gauged in comments last quarter on your performance, your core categories. If you talk about the trends this category -- this quarter? In addition, if we think about the noncore categories in your business, they seem to decline pretty materially this quarter, that one-third of your business that's not core.

What are you doing to improve performance in those categories? Thank you.

Mark Tritton -- Chief Executive Officer

Yes. Thanks for the question. Look, I -- I think in some of those, you know, they -- they pertain to category like personal care for -- which for us is really dependent on store base traffic. And we know that the digital is returning stronger than stores.

We're still in the entry point of 2021, the COVID new normal. So we have plans to see that stabilize and contribute more, but that is going to be dependent on store traffic. So, you know, again, great compensation and strength to -- to reduce the share declines that we've seen. We do know that we're up against, you know, with the store closures a more compact market that we're going to be working in.

So we continue to focus on that mix of store and digital throughout the year and -- and focus on share increases.

Seth Basham -- Wedbush Securities -- Analyst

But just to follow up on that if I may. How did your core categories perform market share-wise this quarter and compared to last quarter? It doesn't seem like you made as much improvement and might have slipped backwards a little bit.

Mark Tritton -- Chief Executive Officer

Yeah, I think that there was definitely -- what we're excited about that this is that we had positive comps consistently while we were really readjusting in the -- the fourth quarter in getting readiness for our 2021 plan and focusing on those, you know, all important room and assortment reset, reducing overall inventory, curating them down so that we can be more powerful in key categories. So we knew that we would take a dip in a couple of spaces as we readjusted our assortment, taking markdowns, and having some out of stocks in some key areas to get back in to completely new set that you mentioned now. So I think a quarter of, you know, reestablishment and -- and foundation, getting ready for 2021, yet still creating growth so we would feel comfortable about that. But definitely more work to be done with share growth throughout 2021.

Operator

Our next question is from Michael Lasser from UBS.

Atul Maheswari -- UBS Investment Bank -- Analyst

Good morning. This is Atul Maheswari on for Michael Lasser. Thanks a lot for taking the questions. Gustavo, on the -- on the private brand penetration going from 13 -- going to 30% from 10%, how much gross margin expansion can that contribute over time? Are you to decide that depending which way?

Gustavo Arnal -- Chief Financial Officer & Treasurer

Yes, good morning. We've said and we're looking at about 10-percentage margin point improvement in our own brand assortment. So think about a thousand basis point. And that is part of our gross margin on the results.

This is very important. It's part of our gross margin. So 35% in fiscal '21 and 38% in fiscal '23. We look at continue driving own brand penetration to improved gross margin with that and while continue optimizing pricing and promotion and continued driving cost savings.

It's a crucial element of our strategy, a crucial element -- element of differentiation, and it's a crucial element of underlying gross margin expansion.

Atul Maheswari -- UBS Investment Bank -- Analyst

Understood. Thank you. And as my follow-up, you've guided to -- at least on the core -- at core banner business 65% to 70% comp for -- or percentage growth for the -- for the first quarter. Where are you tracking relative to that expectation right now?

Gustavo Arnal -- Chief Financial Officer & Treasurer

We're just tracking very well relative to that expectation. Keep in mind, we're not going to give revenue performance month by month. Keep in mind, this is versus the base last year, March, April, and June. In March, we close our stores, the majority of our stores, as of March 13th.

May -- April and May, all right, March, April, May. In April and May, the revenues are much much more depressed. That's what we said in the prepared -- prepared remarks. We have a growth rate in March, the growth that will be much higher in April, much higher in May.

Overall in the quarter, 65% to 70%. And I'm very glad you're picking up on core performance. That's what we're focused on in the quarter. And I may say that Q1 -- that Q1 core growth, it's a low single-digit growth rate on a two-year stock basis.

So when we compare Q1 versus Q1 '19, it's positive comp sales growth versus 2019.

Operator

And our next question is from Anthony Chukumba from Loop Capital.

Anthony Chukumba -- Loop Capital Markets -- Analyst

Good morning and thanks for taking my question. You know, you talked to a fair amount about the change in -- in private label penetration that you're projecting over the next few years. But I was wondering about the other merchandising changes that you had talked about, you know, particularly in terms of rationalizing SKUs count. I was just wondering, you know, kind of where you are there in terms of what ending we are with the other merchandising changes aside from increasing private label penetration.

Thank you.

Joe Hartsig -- Chief Merchandising Officer

Anthony, hi. It's Joe Hartsig. A few things, yeah. You saw the growth in our destination categories, which was really great for us to seek, it has been a focus.

I think we've been pretty clear in our Investor Day that we didn't have a category of five years so we're well on our way and using data both internal and external to drive better decisions. We had -- we've done the bed, bad, kitchen reset and we're taking that capability across other categories now. We're coupling us up with a lot of the room resets that you're starting to see. So if you look at the introduction of Nestwell, our new own brand, that was part of that category line of work.

We've removed a lot of unproductive SKUs that were cluttering up our assortment at common price points that were helping the customer shop and we're bringing that to the newly remodeled stores both in Houston that John talked about. But across the banner and across the chain, where we're really working on a new reset program. So very excited about coupling all this together -- product and proposition using our new go-to-market integrated planning process that we call blueprint to deliver a unified centralized plan to our stores and our digital channels at the same time. So if you can see, to really see things are coming together from a common view, our customer diet proposition that Mark talked about that's launching today, is really emblematic of the kind of the new Bed Bath.

So very excited about the progress. More work to be done but very very, very happy about the new muscle that we're -- we're building.

Operator

Our next question is from Carla Casella from J.P. Morgan.

Carla Casella -- JP Morgan -- Analyst

Hi. I'm wondering if you could give us the same-store sales for the stores only or the digital percentage of sales in the fourth quarter? I think you said the 40% was for the full year.

Gustavo Arnal -- Chief Financial Officer & Treasurer

Hi, Carla. It was 40% for the full year. It was also 40% for the fourth quarter. And the store comp was minus 20%.

We saw minus 20% on stores, 86% digital, 4% total comp growth.

Carla Casella -- JP Morgan -- Analyst

That's great. And then, just given the cost cuts that you've made to date, are you done implementing costs and the remainder is just a flow-through? And have you given the amount that's remaining on the program? And then I'm also wondering what the additional asset sales if you will -- if you're relooking at a new cost-cutting program for going forward?

Gustavo Arnal -- Chief Financial Officer & Treasurer

Yes. So in terms of cost-cutting, we constantly look at optimizing our cost structure. So we're looking at a zero-base approach to optimize costs. We're working on rent reduction.

We'll continue working with our vendors on reducing our input costs. That is going all as -- as planned in terms of additional restructuring, etc. We're capitalizing on all the savings of the restructuring done last year. Yeah.

Operator

And our next question is from Alex Arnold from Odeon Capital Group.

Alex Arnold -- Odeon Capital Group -- Analyst

Hey, guys. Thanks for taking my question. Mine's a pretty easy one. If -- could you give us any sort of granularity or update on the relative performance of remerchandised remodeled stores.

Mark Tritton -- Chief Executive Officer

No. I -- I think what we would say to you is that that really backing on the moment and we're very pleased, as John said with the initial response we've seen. On the quality store closures, the transparency ahead -- ahead of our plan, and on the remodel, we -- we were really happy with the results we're seeing in a preliminary wide. The reason why I was saying no, Alex, is that it's -- it's really going to be quarter by quarter from here on in that we come and share that because we're in the very early stages and we need the stores to get remodeled and settled.

So we're going to be looking forward to sharing the progress of those results. Early indications are very strong and in line with our plans or a little bit above. So we feel good about that but stay tuned for Q1 and would some -- we look forward to sharing more on that arise and we're very positive.

Alex Arnold -- Odeon Capital Group -- Analyst

OK. Great. And could -- how about an update on just recent track -- very recent traffic trends are you seeing any sort of shift as vaccinations start to roll out, you know, more aggressively into the marketplace?

Mark Tritton -- Chief Executive Officer

You know, overall, we would say that it's generating a higher level of consumer confidence. I think about spending total as people can see maybe, you know, our new horizon and it's definitely affecting our -- our traffic trends. But you know, we look at areas like Michigan and we know that there's still work to be done. So overall, I think in the context, the stronger we see the positivity in the market.

The home trend continuing, I think here, and we see that as, you know, multi-year, multiple moments. And you know, so I think that overall positive trend.

Operator

And our next question is from Simeon Gutman from Morgan Stanley.

Simeon Gutman -- Morgan Stanley -- Analyst

Hey, everyone. Good morning. A couple of questions on sales. First, the core BBB comp in the fourth quarter is 4%.

I assume it's being held or lifted by store closures and the transfer of power. And I don't know if there's an assumption that it's reasonable to make there, is that a fair way to look at it? And then second of all, if you look at your business sequentially, and adjusted on a core basis, can you -- can you comment or help us think about -- is the business underlyingly, from the fourth quarter for the first quarter, sequentially accelerating? Again, looking at it -- I'm trying to -- on a core basis and it looks like, well, I guess I -- I don't know the answer.

Mark Tritton -- Chief Executive Officer

Yeah. So, Simeon, thanks for the question. I -- I think it's not -- the transference in stores is not a key generator, all right. I just want to clarify with you that the core Bed Bath and Beyond banner -- Beyond banner grew 6% not 4%, 4% was our enterprise growth.

So 6% growth, really we believe generated by our core strategic effort. So we don't see any one-time event including stimulus checks, which for us really focus and we've done the math and we got past that. They've really been more about an essential bill-paying some investments in technology. They're not buying into the wider market and the subsequent checks that are focusing more on savings.

So our growth is actually predicated on our strategic intent and how we treat the customer. With marketing connecting with the customer in -- in the life moments into to provide that's truly paying dividends. And so we see the growth as really strategic against our efforts as opposed to any transference or one-time moment. That means that we are seeing velocity in that growth and an ongoing increment of linear growth where we think we'll express that clearly by quarter going through 2021.

Simeon Gutman -- Morgan Stanley -- Analyst

OK. And then just a quick follow-up. With the launch of some of the new private brands, is it too soon to have already seen an impact there? What's the reception like? Anything you can share.

Mark Tritton -- Chief Executive Officer

Yeah. Look, I mean, it's similar to the previous question. We will kind of come back with a more robust detail. By the end of Q1, we will have launched three brands in substantial categories as well as across -- across the company, across the banner, opening price point brand, which is going to focus on I think incremental customer and incremental sales.

But what we would say so far is sales are, you know, exceeding our expectations and the customer acceptance of this brand has been terrific. I think the way that we approached it in terms of product and messaging and storytelling and engagement is something you'll see with every one of the brands going forward and has really worked incredibly well. So online in-store, you know, in social, the brand is resonating really clearly, it's being accepted and, you know, the run rate is a little higher than we expected.So good news so far but, again, we're only beginning our journey and we really look forward to sharing more about the growth rates, penetration, and acceptance as we complete our Q1 period.

Operator

Our next question is from William Reuter from Bank of America.

William Reuter -- Bank of America -- Analyst

Good morning. Can you remind us what percentage of your products come from Asia? And then, if you're seeing any impacts of out of stocks to the port disruption on the West Coast, particularly in light of some of the category resets and if some of those new private brands that you're bringing in whether any of those have had such challenges?

Mark Tritton -- Chief Executive Officer

Yeah. So thanks, William. We -- we won't -- we kind of sharing percentage of Asian production. Right? I think that's a little too specific.

What I would say to you is that the -- the port issues have been well -- well-factored into our plans. And I think they're obviously affecting the auto industry as it relates to our own brand. The team did a really good job of thinking through the demand and upside potential of these brands. And so we got them in earlier.

We got them in which room to set up, you know, key learning from past experience to make sure we have it early and we're ready to set. And then, we can manage that accordingly. And they've also built capacity for upside. So at this point, we feel really comfortable about our preplanned set and protected our own brand launches.

Look we're working really closely without any device to restore a large chunk of our -- our business is in the national brand and in the replenishment of key items and, you know, they are getting back in that stock and therefore we've been getting in the back of stock throughout the end of performing the Q1 really, really well. We want to maintain that communication and partnership but the end of it is really critical.

Operator

And our last question comes from Jonathan Matuszewski from Jefferies.

Jonathan Matuszewski -- Jefferies -- Analyst

Hey, guys. Thanks for taking my questions. First one, Mark, I think you mentioned recently, acquired customers are less likely to use discounts and buy-on promotions. I'm curious about the degree to which you think the backdrop is maybe influencing that dynamic.

Do you think this newly acquired customer will be predisposed to -- to shop more full price without coupons as the backdrop normalizes a bit? And if you could just refresh us on your latest view of where you think that fits their newly acquired customers is coming from? Thanks.

Mark Tritton -- Chief Executive Officer

Yeah. Look, I -- I think for us, we focused a lot on our value -- everyday value here, Jonathan. And we had some work to do when I first joined. The good news is that we're showing incredible parity on everyday prices that are pre-coupons, everyday prices to the general market.

And I think that's really important. All customers but particularly young customers are very adept at looking online first. And so then, they will look at your first true price and then they will compete with your competition. And for us, we're seeing that coming and seeing that price comparing and knowing that we are strong and that's where they're investing.

So I think there's a lot of recognition of what is this everyday price in the marketplace and people shopping accordingly. So we think that sticking to what -- what level that penetrates promotional activity with this younger customer or newly acquired customer. We have to continue to see that play out, but we feel positive about the metrics indicators we're seeing so far, In terms of where we're acquiring the new customer from, it's a great question that we're just happy to be cooperating with them. And I think we're doubling down on who they are and how to see it from within.

We also see that there's an opportunity for us to fan out across banner shopping and therefore cultivate a customer from wherever they shop within the Bed Bath banner. So what you'll see online now is we've just launched on our Bed Bath & Beyond a website that there's direct connectivity of the top to Buy Buy Baby, and reverse so from Buy Buy Baby to Bed Bath & Beyond and it starting to create a link. So where those customers may have been separate, we're providing more of an ecosystem. So growth in that we know metric wise generates really positive return and higher average unit sales.

So we're going to continue to cultivate the customers that we're reaching out to. And I think that the -- our -- our marketing effort, the process has been incredibly strong and we're really tapping into social and new avenues. I think that helping to bring a new customer in Bed Bath & Beyond.

Operator

And so that is all the time we have today for questions. I will not turn the call back over to Janet Barth for closing remarks.

Janet Barth -- Investor Relations

Thank you, John. And thank you all for participating in our call today. Please feel free to contact me or Felix with any additional questions. Have a great day.

Stay safe. Bye, bye.

Operator

[Operator signoff]

Duration: 76 minutes

Call participants:

Janet Barth -- Investor Relations

Mark Tritton -- Chief Executive Officer

Joe Hartsig -- Chief Merchandising Officer

John Hartmann -- Chief Operating Officer

Gustavo Arnal -- Chief Financial Officer & Treasurer

Bobby Griffin -- Raymond James -- Analyst

Brad Thomas -- KeyBanc Capital Markets -- Analyst

Jenna Giannelli -- Goldman Sachs -- Analyst

Steven Forbes -- Guggenheim Securities -- Analyst

Curt Nagle -- Bank of America -- Analyst

Seth Basham -- Wedbush Securities -- Analyst

Atul Maheswari -- UBS Investment Bank -- Analyst

Anthony Chukumba -- Loop Capital Markets -- Analyst

Carla Casella -- JP Morgan -- Analyst

Alex Arnold -- Odeon Capital Group -- Analyst

Simeon Gutman -- Morgan Stanley -- Analyst

William Reuter -- Bank of America -- Analyst

Jonathan Matuszewski -- Jefferies -- Analyst

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