Bed Bath & Beyond (BBBY) Q3 2022 Earnings Call Transcript

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Bed Bath & Beyond (BBBY)
Q3 2022 Earnings Call
Jan 10, 2023, 8:15 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the third quarter 2022 Bed Bath & Beyond Inc. earnings conference call. My name is Cheryl, and I will be your operator for today's call. [Operator instructions] I will now turn the call over to Susie Kim, head of investor relations and treasury.

You may begin.

Susie Kim -- Vice President, Investor Relations

Thank you, and good morning, everyone. Welcome to our fiscal 2022 third quarter earnings call. On today's call, you will be hearing from Sue Gove, president and chief executive officer. Before we begin, I'd like to remind you that our fiscal 2022 third quarter earnings release can be found on the investor relations section of our website at bedbathbeyond.com and as exhibits to our related Form 8-K.

This conference call and the press release 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 and our quarterly report on Form 10-Q. The company undertakes no obligation to update or revise any forward-looking statement.

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 a reconciliation to those 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. Lastly, in light of the ongoing review of strategic alternatives that we disclosed last week, we will limit today's call to our prepared remarks. Of course, as always, please feel free to reach out to me with any questions.

I will now turn the call over to Sue.

Sue Gove -- President and Chief Executive Officer

Thanks, Susie, and good morning, everyone. In light of our pre-announcement last week, we recognize the importance and focus on today's call for those who have been with us on our journey to enact significant change in our business over the past few months, especially our customers, our associates, and our business partners. While we reported our fiscal third quarter financial results in a press release earlier today, my remarks will be focused on the strategic pillars of our turnaround and the progress we are making toward our vision for the company. For decades, Bed Bath & Beyond has set the pace across the home goods sector, and we have commanded our position in retail through many different economic cycles and serving a continuously evolving customer.

We believe our concrete advantages in defining categories, offering broad and curated selection, and delivering great service for customers are compelling reasons why we will continue to command a formidable presence in the home and baby categories in the future. We have the talent and team to accomplish our goals. Our business was built around our loyal customers. Listening and responding to their preferences was at the center.

Veering away from that path has led to our recent financial performance. We have taken aggressive action to change the elements of our business that are not aligned to what our customer want. We are rebuilding our assortment to serve our customers' needs by leading with national brands and reducing our own brand merchandise at the Bed Bath banner. We are accomplishing these goals successfully as owned brand inventory penetration has declined 10 percentage points versus peak levels during the first half of the fiscal year.

Furthermore, our closing store and no go-forward inventory has reduced from almost 500 million at cost on hand and on order to just over 130 million at cost in the last six months. We've achieved these results by purposefully utilizing our closing stores as targeted vehicles for clearance as many of you have seen. These locations are signs of progress and effective execution. We are taking intentional action across our chain by allocating resources to achieve our strategic goals on a store-by-store basis.

Despite this progress on owned brand, rebuilding our national brand presence will take time. Following some of the micro and macroeconomic challenges we and the sector face at the beginning of the quarter, we experienced an acceleration in vendor payment terms and credit line constraints. This led to lower receipts and, therefore, lower in-stock levels in the 70% range, which hampered our sales further in an already competitive environment. We have worked diligently with our supplier partners, and our payables remained at healthy levels as demonstrated by the continued sequential decline in accounts payable, as well as accrued expenses and other current liabilities on our balance sheet.

We have already leveraged the liquidity gained from the holiday season to pursue more inventory and higher in-stock levels with support from our key vendors. Additional efforts are also underway to further increase stock levels. We've seen significant sales trend improvements on both a sequential and year-over-year basis, where in-stock levels have improved to a more normalized range above 80%, particularly related to our Bed Bath circular items and at our buybuy BABY business. This underscores our ability to achieve results when we have the supply.

Our customers are still coming to us for their needs. In addition to our merchandise strategy, strengthening our operations and financial performance to better serve our customers continues to drive our decision-making. As part of our turnaround, we are resetting foundational elements to create a stronger and more nimble infrastructure that aligns closely with customer demand and preference. We are delivering on our aggressive second half commitment of 250 million in SG&A optimization, or $500 million annualized, and 150 store rationalization target that we previously outlined.

To more accurately align resources with our focus areas and future, we are enacting an additional $80 million to $100 million in cost reductions across corporate, including expense and headcount. Our organization is more streamlined to enable our priorities across Bed Bath, buybuy BABY, and Harmon. And we have adopted an infrastructure that reflects our current business priorities. We also recognize and embrace that our customer shops differently today.

They visit stores less frequently and have higher expectations when they do visit around service, engagement, and assortment. They want an omni experience that we are committed to deliver. Ease of shopping is critical, and we are committed to delivering such services as BOPIS and same-day shipping. At the same time, we are listening to our customers, and we are swiftly enacting improvements to their experience.

The preliminary results of our supply chain network optimization indicate the ability to improve our cost to serve, as well as our time to deliver for our customers, while driving an additional $80 million to $100 million in efficiency. We are implementing our plan expeditiously while managing our financial position in a changing landscape. As we shared last week, we continue to work with advisors as we consider all strategic alternatives to accomplish our near- and long-term goals. Internally and externally, we have a team with proven experience helping companies successfully navigate difficult situations and become stronger.

Multiple paths are being explored, and we are determining our next steps thoroughly and in a timely manner. We are committed to updating all stakeholders of our plans as they develop and finalize, particularly for our employees and partners, who are the essential catalysts of our business and the cornerstone of our future. Finally, we want our customers to know that we hear them, and we are charging ahead every day to meet their needs. Our entire organization is laser-focused on maximizing the value of our company by reconnecting with our customers and positioning Bed Bath & Beyond, buybuy BABY, and Harmon for a long-term success.

Thank you for joining us today.

Questions & Answers:

Operator

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for participating. You may now disconnect.

Duration: 0 minutes

Call participants:

Susie Kim -- Vice President, Investor Relations

Sue Gove -- President and Chief Executive Officer

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