Document/ExhibitDescriptionPagesSize 1: 10-Q Quarterly Report HTML 1.49M
2: EX-4.1 Instrument Defining the Rights of Security Holders HTML 59K
3: EX-10.1 Material Contract HTML 32K
4: EX-10.2 Material Contract HTML 31K
5: EX-10.3 Material Contract HTML 44K
6: EX-10.4 Material Contract HTML 47K
7: EX-10.5 Material Contract HTML 47K
8: EX-31.1 Certification -- §302 - SOA'02 HTML 25K
9: EX-31.2 Certification -- §302 - SOA'02 HTML 25K
10: EX-32 Certification -- §906 - SOA'02 HTML 23K
16: R1 Cover HTML 72K
17: R2 Consolidated Balance Sheets HTML 118K
18: R3 Consolidated Balance Sheets (Parenthetical) HTML 42K
19: R4 Consolidated Statements of Operations HTML 94K
20: R5 Consolidated Statements of Comprehensive Loss HTML 51K
21: R6 Consolidated Statements of Shareholders' (Deficit) HTML 111K
Equity
22: R7 Consolidated Statements of Cash Flows HTML 113K
23: R8 Basis of Presentation HTML 26K
24: R9 Liquidity and Going Concern HTML 27K
25: R10 Impact of the COVID-19 Pandemic HTML 28K
26: R11 Revenue Recognition HTML 31K
27: R12 Fair Value Measurements HTML 30K
28: R13 Cash and Cash Equivalents HTML 25K
29: R14 Investment Securities HTML 25K
30: R15 Impairment of Long-Lived Assets HTML 25K
31: R16 Property and Equipment HTML 24K
32: R17 Leases HTML 169K
33: R18 Income Taxes HTML 31K
34: R19 Indefinite-Lived Intangible Assets HTML 26K
35: R20 Long-Term Debt HTML 36K
36: R21 Shareholders' (Deficit) Equity HTML 36K
37: R22 Stock-Based Compensation HTML 108K
38: R23 Earnings per Share HTML 25K
39: R24 Supplemental Cash Flow Information HTML 25K
40: R25 Restructuring and Transformation Initiative HTML 33K
Expenses
41: R26 Commitments and Contingencies HTML 42K
42: R27 Basis of Presentation (Policies) HTML 54K
43: R28 Leases (Tables) HTML 99K
44: R29 Stock-Based Compensation (Tables) HTML 100K
45: R30 Basis of Presentation (Details Textual) HTML 24K
46: R31 Liquidity and Going Concern (Details) HTML 45K
47: R32 Impact of the COVID-19 Pandemic (Details) HTML 27K
48: R33 Revenue Recognition (Details) HTML 40K
49: R34 Fair Value Measurements (Details Textual) HTML 26K
50: R35 Cash and Cash Equivalents (Details) HTML 31K
51: R36 Investment Securities - Narrative (Details) HTML 30K
52: R37 Impairment of Long-Lived Assets (Details) HTML 24K
53: R38 Property and Equipment (Details) HTML 26K
54: R39 Leases - Narrative (Details) HTML 34K
55: R40 Leases - Schedule of Lease Cost (Details) HTML 38K
56: R41 Leases - Schedule of Lease Assets and Liabilities HTML 46K
(Details)
57: R42 Leases - Schedule of Lease Maturities (Details) HTML 65K
58: R43 Leases - Lease Terms and Discount Rates (Details) HTML 33K
59: R44 Leases - Cash Flow Information (Details) HTML 33K
60: R45 Income Taxes (Details) HTML 40K
61: R46 Indefinite-Lived Intangible Assets (Details) HTML 26K
62: R47 Long Term Debt - Senior Unsecured Notes (Details) HTML 48K
63: R48 Long Term Debt - Asset-Based Credit Agreement HTML 83K
(Details)
64: R49 Shareholders' (Deficit) Equity (Details) HTML 66K
65: R50 Stock-Based Compensation - Stock-based HTML 32K
Compensation Expense and Capitalized Cost
(Details)
66: R51 Stock-Based Compensation - Incentive Compensation HTML 45K
Plans Textual (Details)
67: R52 Stock-Based Compensation - Restricted Stock Awards HTML 37K
Textual (Details)
68: R53 Stock-Based Compensation - Changes in the HTML 59K
Company's Restricted Stock (Details)
69: R54 Stock-Based Compensation - Restricted Stock Units HTML 47K
Textual (Details)
70: R55 Stock-Based Compensation - Performance Stock Units HTML 47K
(Details)
71: R56 Stock-Based Compensation - Monte Carlo Simulation HTML 32K
Assumptions (Details)
72: R57 Stock-Based Compensation - Changes in the HTML 46K
Company's Performance Stock Units (Details)
73: R58 Stock-Based Compensation - Inducement Awards HTML 40K
Textual (Details)
74: R59 Stock-Based Compensation - Changes in RSUs Granted HTML 47K
as Inducement Awards (Details)
75: R60 Earnings per Share (Details Textual) HTML 24K
76: R61 Supplemental Cash Flow Information (Details) HTML 37K
77: R62 Restructuring and Transformation Initiative HTML 65K
Expenses (Details)
78: R63 Commitments and Contingencies (Details) HTML 45K
81: XML IDEA XML File -- Filing Summary XML 140K
79: XML XBRL Instance -- bbby-20220827_htm XML 1.58M
80: EXCEL IDEA Workbook of Financial Reports XLSX 139K
12: EX-101.CAL XBRL Calculations -- bbby-20220827_cal XML 162K
13: EX-101.DEF XBRL Definitions -- bbby-20220827_def XML 568K
14: EX-101.LAB XBRL Labels -- bbby-20220827_lab XML 1.44M
15: EX-101.PRE XBRL Presentations -- bbby-20220827_pre XML 929K
11: EX-101.SCH XBRL Schema -- bbby-20220827 XSD 161K
82: JSON XBRL Instance as JSON Data -- MetaLinks 361± 547K
83: ZIP XBRL Zipped Folder -- 0000886158-22-000150-xbrl Zip 436K
(Exact name of registrant as specified in its charter)
iNew York
i11-2250488
(State
of incorporation)
(IRS Employer Identification No.)
i650 Liberty Avenue, iUnion, iNew
Jerseyi07083
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (i908) i688-0888
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol
Name of each exchange on which registered
iCommon stock, $.01 par value
iBBBY
iThe
Nasdaq Stock Market LLC
(Nasdaq Global Select Market)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYes
☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes ☒ No ☐
Indicate by check mark whether the
registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer,""accelerated filer,""smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
iLarge
accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☐
Smaller reporting company
i☐
Emerging
growth company
i☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the
registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes i☐ No ☒
Number of shares outstanding of the issuer's Common Stock:
The accompanying consolidated financial statements have been prepared without audit. In the opinion of management, the accompanying consolidated financial statements contain all adjustments (consisting of only normal recurring accruals and elimination of intercompany balances and transactions) necessary to present fairly the financial position of Bed Bath & Beyond Inc. and subsidiaries (the "Company") as of August 27,
2022 and February 26, 2022 (audited) and the results of its operations, shareholders' (deficit) equity, and comprehensive loss for the three and six months ended August 27, 2022 and August 28, 2021 and its cash flows for the six months ended August 27, 2022 and August 28, 2021.
The accompanying unaudited consolidated financial statements are presented in accordance with the requirements for Form 10-Q and consequently do not include all the disclosures normally required by U.S. generally accepted accounting principles ("GAAP"). Reference should be made to the
Company’s Annual Report on Form 10-K for the fiscal year ended February 26, 2022 for additional disclosures, including a summary of the Company’s significant accounting policies, and to subsequently filed Form 8-Ks.
We account for our operations as ione North American Retail reporting segment. Net sales outside of
the U.S. for the Company were not material for the three and six months ended August 27, 2022 and August 28, 2021. As the Company operates in the retail industry, its results of operations are affected by general economic conditions and consumer spending habits.
2) iLIQUIDITY
AND GOING CONCERN
The accompanying unaudited consolidated financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business.
The Company had cash, cash equivalents and restricted cash of $i166.7
million as of August 27, 2022 and net cash used in operating activities of $i582.4 million for the six months ended August 27, 2022.As of August 27, 2022, the Company had approximately $i315.0 million
of available borrowing capacity under its ABL Facility.Subsequent to the end of the second quarter of fiscal 2022, the Company entered into an amendment, which expanded its ABL Facility to $i1.130 billion and entered into a new FILO Facility of $i375.0
million (see "Long-Term Debt", Note 13). As of the end of fiscal September 2022, the Company's current available borrowing capacity was approximately $i690.0 million.
The Company is required to perform a two-step analysis of its ability to continue as a going concern. It must first evaluate
whether there are conditions and events that raise substantial doubt about the Company’s ability to continue as a going concern (Step 1). If the Company concludes that substantial doubt is raised, it is also required to consider whether the Company’s plans alleviate that doubt (Step 2).
Management’s assessment included the preparation of cash flow forecasts.Management has implemented or expects to implement various strategic actions including permanently closing stores that are deemed to be performing below expectations, reducing its workforce, deferring or eliminating certain capital expenditures
and reducing other operating expenses to ensure alignment with customer demand and its go-forward strategy.
The Company believes that available cash and cash equivalents, the cash provided by future operating activities, and availability under its recently increased ABL credit facility and its new FILO credit facility should enable the Company to meet presently anticipated cash needs for at least the next 12 months after the date that the financial statements are issued. If the Company encounters unforeseen circumstances that place further constraints on its capital resources, management will be required to take various additional measures to conserve
liquidity, which could include, but not necessarily be limited to, reducing capital expenditures, and controlling overhead expenses. Management cannot provide any assurance that the Company’s efforts will be successful. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of these uncertainties.
In March 2020, the World Health Organization declared the COVID-19 outbreak a global pandemic. During the first quarter of fiscal 2020, the Company temporarily closed all of the Company's retail stores across the U.S. and Canada except for most stand-alone buybuy BABY and Harmon stores, subject to state and local regulations, with nearly all stores reopened by the end of the second quarter of fiscal 2020. During portions
of fiscal 2021, a limited number of stores in Canada either closed temporarily or continued to operate under restrictions in compliance with local governmental orders. During the six months ended August 27, 2022, all of the Company's stores were operating without restriction subject to compliance with applicable mask and vaccine requirements.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) was enacted in the United States, which provided for certain changes to tax laws, which impacted the Company’s results of operations, financial
position and cash flows. The Company implemented certain provisions of the CARES Act, such as deferring employer payroll taxes and utilizing the ability to carry back and deduct losses to offset prior income in previously filed tax returns. The Company deposited the full amount of deferred employer payroll taxes of $i3.1
million by December 2021. During the three and six months ended August 28, 2021, under the CARES Act, the Company recorded income tax benefits of $i0.6 million and $i16.2
million, respectively, as a result of the fiscal 2020 net operating losses that were carried back to prior years during which the federal tax rate was 35%.
During the three and six months ended August 28, 2021, the Company recorded credits of approximately $i2.3 million
and $i4.7 million, respectively, as an offset to selling, general and administrative expenses as a result of the employee retention credits made available under the CARES Act for U.S. employees and under the Canada Emergency Wage Subsidy for Canadian employees.
Numerous uncertainties continue to surround the pandemic and its ultimate impact on the Company.
Further discussion of the risks and uncertainties posed by the COVID-19 pandemic is disclosed in “Risk Factors” under Part II, Item 1A of this Form 10-Q and Part I, Item 1A of the Company’s fiscal 2021 Form 10-K.
4) iREVENUE RECOGNITION
i
Sales
are recognized upon purchase by customers at the Company’s retail stores or upon delivery for products purchased from its websites. The value of point-of-sale coupons and point-of-sale rebates that result in a reduction of the price paid by the customer are recorded as a reduction of sales. Shipping and handling fees that are billed to a customer in a sale transaction are recorded in sales. Taxes, such as sales tax, use tax and value added tax, are not included in sales.
Revenues from gift cards, gift certificates and merchandise credits are recognized when redeemed. Gift cards have no provisions for reduction in the value of unused card balances over defined time periods and have no expiration
dates. For the six months ended August 27, 2022 and August 28, 2021, the Company recognized net sales for gift card and merchandise credit redemptions of approximately $i45.6 million and $i47.8
million, respectively, which were included in merchandise credit and gift card liabilities on the consolidated balance sheet as of February 26, 2022 and February 27, 2021, respectively.
During the second quarter of fiscal 2022, the Company launched its cross-banner customer loyalty program, Welcome Rewards™, which allows members to earn points for each qualifying purchase at its retail banners either online or in its stores. Points earned are then converted to rewards upon reaching certain thresholds. These rewards may then be redeemed on future merchandise purchases at its retail banners. The Company defers a portion
of the revenue related to the points earned at the time of the original transaction and revenue is recognized for these performance obligations upon redemption or expiration of points or rewards earned by the customer. As of August 27, 2022, the Company recorded $i2.9 million of loyalty program liabilities in merchandise credit and gift card liabilities on the consolidated balance sheet.
/
Sales
returns are provided for in the period that the related sales are recorded based on historical experience. Although the estimate for sales returns has not varied materially from historical provisions, actual experience could vary from historical experience in the future if the level of sales return activity changes materially. In the future, if the Company concludes that an adjustment is required due to material changes in the returns activity, the liability for estimated returns and the corresponding right of return asset will be adjusted accordingly. As of August 27, 2022 and February 26, 2022, the Company recorded a liability for estimated returns of $i20.4
million and $i23.6 million, respectively, in accrued expenses and other current liabilities, and the corresponding right of return asset for merchandise of $i12.8 million and $i14.6
million, respectively, in prepaid expenses and other current assets.
The Company sells a wide assortment of domestics merchandise and home furnishings. Domestics merchandise includes categories such as bed linens and related items, bath items and kitchen textiles. Home furnishings include categories such as kitchen and tabletop items, fine tabletop, basic housewares, general home furnishings (including furniture and wall décor), consumables and certain juvenile products. Sales of domestics merchandise and home furnishings accounted for approximately
i37.9% and i62.1% of net sales, respectively, for the three months ended August 27, 2022, and approximately i39.8%
and i60.2% of net sales, respectively, for the three months ended August 28, 2021. Sales of domestics merchandise and home furnishings accounted for approximately i36.6% and i63.4%
of net sales, respectively, for the six months ended August 27, 2022, and approximately i38.9% and i61.1% of net sales, respectively, for the six months ended August
28, 2021.
5) iFAIR VALUE MEASUREMENTS
i
Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability (i.e., "the exit price") in an orderly transaction between market participants at the measurement date. In determining fair value, the Company uses various valuation approaches, including quoted market prices and discounted cash flows. The hierarchy for inputs used in measuring fair value maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from independent sources. Unobservable inputs are inputs that reflect a company’s judgment concerning the assumptions that market participants would use in pricing the asset or liability developed based on
the best information available under the circumstances. In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an asset or liability must be classified in its entirety based on the lowest level of input that is significant to the measurement of fair value. The fair value hierarchy is broken down into three levels based on the reliability of inputs as follows:
•Level 1 - Valuations based on quoted prices in active markets for identical instruments that the Company is able to access. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these products does not entail a significant degree of judgment.
•Level 2 - Valuations
based on quoted prices in active markets for instruments that are similar, or quoted prices in markets that are not active for identical or similar instruments, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets.
•Level 3 - Valuations based on inputs that are unobservable and significant to the overall fair value measurement.
The Company’s financial instruments include cash and cash equivalents, investment securities, accounts payable, short-term and long-term debt and certain other liabilities. The book value of the Company's financial instruments, excluding long-term debt, is representative of their fair values.
As of August 27, 2022 and February 26, 2022, the fair value of the Company’s senior unsecured notes was approximately $i254.3 million and $i956.0
million, respectively, which is based on quoted prices in active markets for identical instruments (i.e., Level 1 valuation), compared with the carrying value of approximately $ii1.184/
billion for both August 27, 2022 and February 26, 2022. As of August 27, 2022, the carrying amount of the asset-based revolving credit facility (the “ABL Facility”) approximates fair value as interest charged is based on the current market rate.
Financial assets utilizing Level 2 inputs included the ABL Facility. Financial assets utilizing Level 3 inputs included long-term investments in auction rate securities consisting of preferred shares of closed end municipal bond funds (see "Investment Securities," Note 7).
6) iCASH
AND CASH EQUIVALENTS
iThe Company considers all highly liquid instruments purchased with original maturities of three months or less to be cash equivalents. Included in cash and cash equivalents are credit and debit card receivables from banks, which typically settle within five business days, of $i41.9
million and $i47.9 million as of August 27, 2022 and February 26, 2022, respectively.
As of both August 27, 2022 and February 26, 2022, the Company did iinot/
have any short-term restricted cash, and had $ii31.4/
million of long-term restricted cash, which was included in other long-term assets on the consolidated balance sheet.
7) iINVESTMENT SECURITIES
As of both August 27,
2022 and February 26, 2022, the Company’s long-term available-for-sale investment securities represented approximately $ii20.3/
million par value of auction rate securities, less temporary valuation adjustments of approximately $i1.0 million and $i1.1
million, respectively. Since these valuation adjustments are deemed to be temporary, they are recorded in accumulated other comprehensive loss, net of a related tax benefit, and did not affect the Company’s net earnings. The Company had iino/
short-term available-for-sale investment securities as of August 27, 2022 and February 26, 2022.
iThe Company reviews long-lived assets for impairment when events or changes in circumstances indicate the carrying value of these assets may exceed their current fair values. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to the estimated undiscounted future cash flows expected to be generated by the asset.
If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized for the amount by which the carrying amount of the asset exceeds the fair value of the asset. For the three and six months ended August 27, 2022, the Company recorded $i55.5 million and $i79.3
million, respectively, of non-cash pre-tax impairment charges in impairments in its consolidated statement of operations for certain store-level assets, including leasehold improvements and operating lease assets. For the three and six months ended August 28, 2021, the Company recorded $i7.0 million and $i14.0 million,
respectively, of non-cash pre-tax impairment charges in impairments in its consolidated statement of operations for certain store-level assets, including leasehold improvements and operating lease assets. In the future, if events or market conditions affect the estimated fair value to the extent that a long-lived asset is impaired, the Company will adjust the carrying value of these long-lived assets in the period in which the impairment occurs.
9) iPROPERTY
AND EQUIPMENT
As of August 27, 2022 and February 26, 2022, included in property and equipment, net is accumulated depreciation of approximately $i1.9 billion and $i1.8
billion, respectively, of which $i0.6 million and $i0.2 million, respectively,
in accumulated depreciation relate to assets held under finance leases.
10) iiLEASES/
The
Company leases retail stores, distribution facilities, offices and equipment under agreements expiring at various dates through 2041. The leases provide for original lease terms that generally range from i10 to i15 years and most leases provide for a series of ifive
year renewal options, often at increased rents, the exercise of which is at the Company’s sole discretion. Certain leases provide for contingent rents (which are based upon store sales exceeding stipulated amounts and are immaterial for the three and six months ended August 27, 2022 and August 28, 2021), scheduled rent increases and renewal options. The Company is obligated under a majority of the leases to pay for taxes, insurance and common area maintenance charges.
The Company subleases certain real estate to unrelated third
parties, which have all been classified as operating leases. The Company recognizes sublease income on a straight-line basis over the sublease term, which generally ranges from i5 to i10 years. Most sublease arrangements provide for
a series of ifive-year renewal options, the exercise of which are at the Company's sole discretion.
i
The components of total lease cost for the three
and six months ended August 27, 2022 and August 28, 2021, were as follows:
At
August 27, 2022, the Company has entered into itwo operating leases that have not yet commenced, one of which is a regional distribution center expected to open in fiscal 2023. The aggregate minimum rental payments over the term of the lease of approximately $i58.8
million are not included in the above table.
Cash
paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
$
i209,532
$
i228,509
Operating
cash flows from finance leases
i1,541
i—
Financing
cash flows from finance leases
i809
i—
Operating
lease assets obtained in exchange for new operating lease liabilities
i229,030
i278,454
Financing
lease assets obtained in exchange for new financing lease liabilities
i17,273
i—
11)
iINCOME TAXES
The effective income tax rate for the three and six months ended August 27, 2022 was (i0.4)%
and (i0.5)%, respectively compared with i27.0% and i34.2%,
respectively, for the three and six months ended August 28, 2021. The effective income tax rate for the three and six months ended August 27, 2022 reflects the impact of a valuation allowance initially recorded in the third quarter of fiscal 2021, discussed below. For the three and six months ended August 28, 2021, the effective tax rate included the impact of charges for restructuring and transformation initiatives, as well as a benefit of $i0.6
million and $i16.2 million, respectively, resulting from an adjustment to the estimated net operating loss incurred in fiscal 2020 which was carried back, under the provisions of the CARES Act, to a year in which the tax rate was 35%.
In assessing the recoverability of its deferred tax assets, the Company evaluates the available objective positive and
negative evidence to estimate whether it is more likely than not that sufficient future taxable income will be generated to permit the use of existing deferred tax assets in each taxpaying jurisdiction. For any deferred tax asset in excess of the amount for which it is more likely than not that the Company will realize a benefit, the Company establishes a valuation allowance. A valuation allowance is a non-cash charge, and does not limit the Company's ability to utilize its deferred tax assets, including its ability to utilize tax loss and credit carryforward amounts, against future taxable income.
During the third quarter of fiscal
2021, the Company concluded that, based on its evaluation of available objective positive and negative evidence, it was no longer more likely than not that its net U.S. federal and state deferred tax assets were recoverable. During the six months ended August 27, 2022, the Company determined that this conclusion continued to be appropriate. In assessing the realizability of deferred tax assets, the key assumptions used to determine positive and negative evidence included the Company’s cumulative loss before income taxes for the past three years, current trends related to actual taxable earnings or losses, and expected future reversals of existing taxable temporary differences,
as well as, timing and the cost of the Company's transformation initiatives and their expected associated benefits. As of both August 27, 2022 and February 26, 2022, the total valuation allowance relative to U.S. federal and state deferred tax assets was $ii224.3/
million.
As of both August 27, 2022 and February 26, 2022, the Company recorded a valuation allowance of $ii25.2/
million relative to the Company's Canadian net deferred tax asset, as the Company did not believe the deferred tax assets in that jurisdiction were more likely than not to be realized.
The amount of the deferred tax assets considered realizable, and the associated valuation allowance, could be adjusted in a future period if estimates of future taxable income change or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence, such as projections for future growth.
During the three and six months ended August 27, 2022, the change in the gross amount of unrecognized tax benefits and accrued interest and penalties was not significant.
As of August 27, 2022, the Company operated in all i50
states, the District of Columbia, Puerto Rico, Canada and Mexico and files income tax returns in the United States and various state, local and international jurisdictions. The Company is currently under examination by the Internal Revenue Service for the tax year 2017. The Company is open to examination for state, foreign and local jurisdictions with varying statutes of limitations, generally ranging from i3 to i5
years.
12) iINDEFINITE-LIVED INTANGIBLE ASSETS
Included in other assets in the accompanying consolidated balance sheets as of August 27, 2022 and February 26, 2022, respectively,
are $i13.4 million and $i16.3 million for indefinite-lived tradenames and trademarks.
The
Company reviews intangibles that have indefinite lives for impairment annually as of the end of the fiscal year or when events or changes in circumstances indicate the carrying value of these assets might exceed their current fair values. Impairment testing is based upon the best information available including estimates of fair value which incorporate assumptions marketplace participants would use in making their estimates of fair value. Significant assumptions and estimates are required, including, but not limited to, projecting future cash flows, determining appropriate discount rates and terminal growth rates, and other assumptions, to estimate the fair value of indefinite-lived intangible assets. Although the Company believes the assumptions and estimates made are reasonable and appropriate, different assumptions and estimates could materially impact its reported financial results.
Indefinite-lived intangible assets were recorded as a result of acquisitions and primarily consist of tradenames. The Company values its tradenames using a relief-from-royalty approach, which assumes the value of the tradename is the discounted cash flows of the amount that would be paid by a hypothetical market participant had they not owned the tradename and instead licensed the tradename from another company. During the three and six months ended August 27, 2022, the Company completed a quantitative impairment analysis for certain of its indefinite lived intangible assets, by comparing the fair value of the tradenames to their carrying value. There were ino
tradename impairment charges recognized during the three months ended August 27, 2022. During the six months ended August 27, 2022, the Company recognized a non-cash pre-tax tradename impairment charge of $i2.9 million in impairments in its consolidated statements of operations. During the three and six months ended
August 28, 2021, the Company recognized non-cash pre-tax tradename impairment charges of $i0.6 million and $i2.7
million, respectively, in impairments in its consolidated statements of operations. As of August 27, 2022, for the remaining indefinite-lived intangible assets, the Company assessed qualitative factors in order to determine whether any events and circumstances existed which indicated that it was more likely than not that the fair value of these indefinite-lived assets did not exceed their carrying values and concluded no such events or circumstances existed which would require an impairment test be performed. In the future, if events or market conditions affect the estimated fair value to the extent that an asset is impaired, the Company will adjust the carrying value of these assets in the period in which the impairment occurs.
13) iLONG-TERM DEBT
Senior Unsecured Notes
On July 17, 2014, the Company issued $i300.0
million aggregate principal amount of i3.749% senior unsecured notes due August 1, 2024, $i300.0 million aggregate principal amount
of i4.915% senior unsecured notes due August 1, 2034 and $i900.0 million aggregate principal amount of i5.165%
senior unsecured notes due August 1, 2044 (collectively, the "Notes"). Interest on the Notes is payable semi-annually on February 1 and August 1 of each year.
The Notes were issued under an indenture (the "Base Indenture"), as supplemented by a first supplemental indenture (together, with the Base Indenture, the "Indenture"), which contains various restrictive covenants, which are subject to important limitations and exceptions
that are described in the Indenture. The Company was in compliance with all covenants related to the Notes as of August 27, 2022.
During the three and six months ended August 27, 2022, the Company did iinot/
purchase any of its outstanding unsecured notes. During the three and six months ended August 28, 2021, the Company purchased approximately $i3.1 million and $i11.0
million, respectively, aggregate principal amount of its outstanding i3.749% senior unsecured notes due August 1, 2024. The total consideration paid for the notes accepted for purchase of $i3.2
million and $i11.4 million during the three and six months ended August 28, 2021, respectively, included accrued and unpaid interest up to, but not including, the early settlement date. The Company recorded losses on extinguishment of debt of $i0.1
million and $i0.4 million in its consolidated statement of operations for the three and six months ended August 28, 2021, respectively, including the write off of unamortized debt financing costs related to the extinguished portion of the notes accepted for purchase and reacquisition costs.
As of August 27,
2022 and February 26, 2022, unamortized deferred financing costs associated with the Company’s Notes were $i4.4 million and $i4.6
million, respectively, and are included in long-term debt in the Company's consolidated balance sheets.
Asset-Based Credit Agreement
In the second quarter of fiscal 2021, the Company amended its asset-based credit agreement (the “Amended Credit Agreement”) among the Company, certain of the Company’s U.S. and Canadian subsidiaries party thereto, JPMorgan
Chase Bank, N.A., as administrative agent and collateral agent (in such capacity, the “Agent”), and the lenders party thereto. The Amended Credit Agreement provides for an asset-based revolving credit facility (the “ABL Facility”) with aggregate revolving commitments established at closing of $i1.0 billion, including a swingline subfacility and a letter of credit subfacility. The Amended Credit Agreement has an uncommitted expansion feature which allows the borrowers to request, at any time following the delivery of an
initial field exam and appraisal, an increase in aggregate revolving commitments under the ABL Facility or elect to enter into a first-in-last-out loan facility ("FILO Facility"), collectively, in an aggregate amount of up to $i375.0 million, subject to certain customary conditions. The Amended Credit Agreement matures on August 9, 2026.
The
ABL Facility is secured on a first priority basis (subject to customary exceptions) on all accounts receivable (including credit card receivables), inventory, certain deposit accounts and securities accounts, and certain related assets, of the Company and its subsidiaries that are borrowers or guarantors under the ABL Facility. Amounts available to be drawn from time to time under the ABL Facility (including, in part, in the form of letters of credit) are equal to the lesser of (i) outstanding revolving commitments under the Amended Credit Agreement and (ii) a borrowing base equal to the sum of (a) i90%
of eligible credit card receivables plus (b) i90% of eligible inventory, valued at the lower of cost or market value, determined on a weighted average cost basis, minus (c) customary reserves.
Subject to customary exceptions and restrictions, the Company may voluntarily repay outstanding amounts under the ABL Facility at any time without premium or penalty. Any
voluntary prepayments made will not reduce commitments under the ABL Facility. If at any time the outstanding amount under the ABL Facility exceeds the lesser of (i) the aggregate revolving commitments and (ii) the borrowing base, the Company will be required to prepay outstanding amounts or cash collateralize letter of credit obligations under the ABL Facility.
Outstanding amounts under the Amended Credit Agreement bear interest at a rate per annum equal to, at the applicable borrower’s election: (i) in the case of loans denominated in U.S. dollars, such loans shall be comprised entirely of Alternate Base Rate ("ABR") loans and London Inter-Bank Offered ("LIBO") Rate loans and (ii) in the case of loans denominated in Canadian dollars, such loans shall be comprised entirely of Canadian Prime
Rate loans and Canadian Dollar Offered Rate ("CDOR") loans, in each case as set forth in the Amended Credit Agreement, plus an interest rate margin based on average quarterly availability ranging from (i) in the case of ABR loans and Canadian Prime Rate loans, i0.25% to i0.75%;
provided that if ABR or the Canadian Prime Rate is less than i1.00%, such rate shall be deemed to be i1.00%, as applicable, and (ii) in the case of LIBO Rate loans and CDOR
Loans, i1.25% to i1.75%; provided that if the CDOR or LIBO Rate is less than i0.00%,
such rate shall be deemed to be i0.00%, as applicable.
As of August 27, 2022, the Company had $i550.0
million of borrowings outstanding under the ABL Facility, at a weighted average interest rate of i3.72%, and $i136.4 million of outstanding letters of credit had
been issued under the ABL Facility. The Company's borrowing under the ABL Facility have been and may be used for working capital, including inventory purposes, and other general corporate purposes.
The Amended Credit Agreement contains customary representations and warranties, events of default and financial, affirmative and negative covenants for facilities of this type, including but not limited to a springing financial covenant relating to a fixed charge coverage ratio, and restrictions on indebtedness, liens, investments and acquisitions, asset dispositions, restricted payments and prepayment of certain indebtedness. The Company was in compliance with all covenants related to the Amended Credit Agreement as of August 27,
2022.
On August 31, 2022, subsequent to the end of the second quarter of fiscal 2022, the Company entered into an amendment (the "Amendment") to the Amended Credit Agreement for more than $i500.0 million of new additional financing commitments,
including its newly expanded $i1.130 billion ABL Facility, which provides for an increase of $i130.0
million in aggregate revolving commitments for the time periods set forth in the Amendment, and a new $i375.0 million FILO Facility (together with the ABL Facility, the "Credit Facilities"), with JPMorgan Chase Bank, N.A., as administrative agent and Sixth Street Specialty Lending, Inc., as agent and lender for the FILO Facility. The ABL Facility and FILO Facility mature on August 9, 2026 and August 31, 2027, respectively, unless
required to mature earlier pursuant to the terms of the Amendment. Subsequent to the end of the second quarter of fiscal 2022, the Company borrowed an additional $i175.0 million under the Credit Facilities and, as a result, total borrowings under the Credit Facilities total $i725.0
million.
As of August 27, 2022 and February 26, 2022, deferred financing costs associated with the Company's ABL Facility were $i6.6 million and $i7.4
million, respectively, and were recorded in other assets in the Company's consolidated balance sheets.
The Company amortizes deferred financing costs for the Notes and the ABL Facility over their respective terms and such amortization is included in interest expense, net in the consolidated statements of operations. Interest expense related to the Notes and the revolving credit facilities, including the commitment fee and the amortization of deferred financing costs, was approximately $i17.6
million and $i16.5 million for the three months ended August 27, 2022 and August 28, 2021, respectively and $i34.0
million and $i32.9 million for the six months ended August 27, 2022 and August 28, 2021, respectively.
14) iSHAREHOLDERS'
(DEFICIT) EQUITY
The Company has authorization to make repurchases of shares of the Company’s common stock from time to time in the open market or through other parameters approved by the Board of Directors pursuant to existing rules and regulations.
Between December 2004 and April 2021, the Company’s Board of Directors authorized, through several share repurchase programs, the repurchase of up to $i12.950
billion of the Company’s shares of common stock. The Company also acquires shares of its common stock to cover employee related taxes withheld on vested restricted stock, restricted stock units and performance stock unit awards. Since the initial authorization in December 2004, the aggregate total of common stock repurchased is approximately i264.7 million shares for a total cost of approximately
$i11.729 billion. The Company had approximately $i1.224
billion remaining of authorized share repurchases as of August 27, 2022.
Decisions regarding share repurchases are within the discretion of the Board of Directors, and are influenced by a number of factors, including the price of the Company's common stock, general business and economic conditions, the Company's financial condition and operating results, the emergence of alternative investment or acquisition opportunities, changes in business strategy and other factors. The Company's share repurchase program could change, and could be influenced by several factors, including business
and market conditions, such as the impact of the COVID-19 pandemic. The Company reviews its alternatives with respect to its capital structure on an ongoing basis. Any future share repurchases will be subject to the determination of the Board of Directors, based on an evaluation of the Company's earnings, financial condition and requirements, business conditions and other factors, including the restrictions on share repurchases under the ABL Facility (see “Long-Term Debt,” Note 13).
In connection with its share repurchase program, during the six months ended August 27, 2022, the Company
repurchased approximately i2.3 million shares of its common stock at a total cost of approximately $i40.4 million, including fees. There
were ino share repurchases during the three months ended August 27, 2022 as the share repurchase program was completed in the first quarter of fiscal 2022. During the three and six months ended August 28, 2021, the Company repurchased approximately i3.4
million and i8.3 million shares, respectively, of its common stock, at a total cost of approximately $i100.8 million and $i231.2
million, respectively, including fees. Additionally, during the six months ended August 27, 2022, the Company repurchased approximately i0.2 million shares of its common stock, with less than i0.1 million
shares repurchased during the three months ended August 27, 2022, to cover employee related taxes withheld on vested restricted stock, restricted stock unit awards and performance stock unit awards, at a total cost of approximately $i0.2 million and $i2.8
million, respectively, for the three and six months ended August 27, 2022. During the three and six months ended August 28, 2021, the Company repurchased approximately i0.1 million and i0.4
million shares, respectively, of its common stock, to cover employee related taxes withheld on vested restricted stock, restricted stock unit awards and performance stock unit awards, at a total cost of approximately $i0.5 million and $i8.8
million, respectively.
In January 2021, the Company entered into an accelerated share repurchase agreement to repurchase an aggregate $i150.0 million of its common stock, subject to market conditions. This resulted in the repurchase of i5.0 million
shares in the fourth quarter of fiscal 2020, and an additional i0.2 million shares received upon final settlement in the first quarter of fiscal 2021.
On August
31, 2022, subsequent to the end of the second quarter of fiscal 2022, the Company established an at the market equity distribution program (the "ATM Program") by entering into an Open Market Sale AgreementSM with Jefferies LLC, acting as sales agent for the Company, pursuant to which the Company may issue and sell, from time to time, shares of its common stock, par value $i0.01
per share, in any method permitted by law deemed to be an "at the market offering" as defined in Rule 415(a)(4) under the Securities Act of 1933, as amended. Under the ATM Program, the Company may offer and sell up to a maximum of i12 million shares of common stock. The potential proceeds from the ATM Program are expected to be used for a number of corporate purposes, which may include the repayment, refinancing, redemption or repurchase
of existing indebtedness, working capital or capital expenditures, acquisitions and other investments. Since the end of the fiscal second quarter, the Company has sold approximately i3.0 million shares for approximately $i30.0
million of proceeds under the ATM Program.
During fiscal 2016, the Company’s Board of Directors authorized a quarterly dividend program. In March 2020, the Company suspended its future quarterly declarations of cash dividends as a result of the COVID-19 pandemic. During the three and six months ended August 27, 2022 total cash dividends of less than $i0.1
million and $i0.3 million (consisting of dividends paid on unvested shares), respectively, were paid. During the three and six months ended August 28, 2021, total cash dividends of less than $i0.1
million and $i0.6 million (consisting of dividends paid on restricted shares that vested in fiscal 2021), respectively, were paid. Any future quarterly cash dividend payments on its common stock will be subject to the determination by the Board of Directors, based on evaluation of the Company’s earnings, financial condition and requirements, business conditions and other factors, including the restrictions on the payment of dividends contained in the Amended Credit Agreement (see “Long-Term Debt,”
Note 13).
Cash dividends, if any, are accrued as a liability on the Company’s consolidated balance sheets and recorded as a decrease to retained earnings when declared.
15) iSTOCK-BASED
COMPENSATION
iThe Company measures all stock-based compensation awards for employees and non-employee directors using a fair value method and records such expense, net of estimated forfeitures, in its consolidated financial statements. Currently, the Company’s stock-based compensation relates to restricted stock awards, restricted stock units ("RSUs")
and performance stock units ("PSUs"). The Company’s restricted stock awards are considered nonvested share awards.
In May of 2022, the Company determined that the RSU awards issued under its incentive compensation plans in May of 2022 would be settled in cash, rather than in equity. As a result, the awards issued in May of 2022 will be accounted for as a liability and measured at their fair value through their respective vesting periods. Awards issued in the form of PSUs in May of 2022 will continue to be settled in Company stock and will be considered nonvested share awards.
i
Stock-based
compensation expense and capitalized stock-based compensation cost for the three and six months ended August 27, 2022 and August 28, 2021 were as follows:
The Company may grant awards under the Bed Bath & Beyond 2018 Incentive Compensation Plan (the “2018 Plan”) and the Bed Bath & Beyond 2012 Incentive Compensation Plan (the "2012 Plan"). The 2018 Plan includes an aggregate of i4.6
million shares of common stock authorized for issuance of awards permitted under the 2018 Plan, including stock options, stock appreciation rights, restricted stock awards, performance awards and other stock-based awards. The 2018 Plan supplements the 2012 Plan, which amended and restated the Bed Bath & Beyond 2004 Incentive Compensation Plan (the “2004 Plan”). The 2012 Plan includes an aggregate of i43.2 million common shares authorized
for issuance of awards permitted under the 2012 Plan (similar to the 2018 Plan). Outstanding awards that were covered by the 2004 Plan continue to be in effect under the 2012 Plan.
The terms of the 2012 Plan and the 2018 Plan are substantially similar and enable the Company to offer incentive compensation through stock options (whether nonqualified stock options or incentive stock options), restricted stock awards, stock appreciation rights, performance awards and other stock-based awards, and cash-based awards. Grants are determined by the People, Culture, and Compensation Committee of the Board of Directors of the Company for those awards granted to executive officers and by the Board of Directors of the
Company for awards granted to non-employee directors. Restricted stock awards generally become vested in ifive to iseven
equal annual installments beginning one to ithree years from the date of grant. Restricted stock units generally become vested in ione
to ithree equal annual installments beginning ione
year from the date of grant. Performance stock units generally vest at the end of the performance period dependent on the Company’s achievement of performance-based tests. Vesting of each of these types is subject, in general, to the recipient remaining in the Company’s service on specified vesting dates.
The Company generally issues new shares for restricted stock awards and vesting of restricted stock units settled in Company shares, as well as for vesting of performance stock units. The 2018 Plan expires in May 2028. The 2012 Plan expired in May 2022.
As
described in further detail below, in fiscal 2020 and 2019, the Company granted stock-based awards to certain of the Company’s new executive officers as inducements material to their commencement of employment and entry into an employment agreement with the Company. The inducement awards were made in accordance with Nasdaq Listing Rule 5635(c)(4) and were not made under the 2012 Plan or the 2018 Plan.
Restricted Stock Awards
Restricted stock awards are issued and measured at fair market value on the date of grant and generally become vested in ifive
to iseven equal annual installments beginning one to ithree
years from the date of grant, subject, in general, to the recipient remaining in the Company’s service on specified vesting dates. Vesting of restricted stock is based solely on time vesting. As of August 27, 2022, unrecognized compensation expense related to the unvested portion of the Company’s restricted stock awards was $i7.1
million, which is expected to be recognized over a weighted average period of i1.7 years.
i
Changes
in the Company’s restricted stock awards for the six months ended August 27, 2022 were as follows:
(Shares in thousands)
Number of Restricted Shares
Weighted Average Grant-Date Fair Value
Unvested restricted stock awards, beginning of period
i472
$
i32.38
Granted
i392
i4.90
Vested
(i160)
i39.27
Forfeited
(i98)
i28.98
Unvested
restricted stock awards, end of period
i606
$
i13.34
/
Restricted
Stock Units ("RSUs")
RSUs are issued and measured at fair market value on the date of grant and generally become vested in ione to ithree
equal annual installments beginning ione year from the date of grant, subject, in general, to the recipient remaining in the Company’s service on specified vesting dates. RSUs are converted into shares of common stock upon vesting. RSUs granted in May of 2022 will be settled in cash, rather than in equity, upon vesting. As of August 27, 2022, unrecognized compensation
expense related to the unvested portion of the Company’s share-settled RSUs was $i16.5 million, which is expected to be recognized over a weighted average period of i1.6
years. As of August 27, 2022, unrecognized compensation expense related to the
unvested portion of the Company’s cash-settled RSUs was $i17.4
million, which is expected to be recognized over a weighted average period of i2.3 years.
Unvested restricted stock units, beginning of period
i2,600
$
i17.07
i57
$
i23.44
Granted
i117
i11.79
i2,145
i9.19
Vested
(i1,037)
i14.48
(i28)
i10.54
Forfeited
(i515)
i17.22
(i457)
i10.52
Unvested
restricted stock units, end of period
i1,165
$
i18.78
i1,717
$
i9.29
The
liability for the cash-settled RSUs was approximately $i2.3 million as of August 27, 2022, and is included in accrued expenses and other current liabilities on the consolidated balance sheet.
Performance Stock Units ("PSUs")
PSUs are issued and measured at fair market value on the date
of grant using the following performance periods and performance metrics. The performance metrics generally include one or more of Earnings Before Interest and Taxes ("EBIT"), Total Shareholder Return ("TSR") or Gross Margin Percentage ("GM") compared with the Company's peer groups as determined by the Compensation Committee of the Company's Board of Directors.
i
Fiscal
Year
Performance Period
Performance Metrics
Target Achievement Range (%)
2020
i3 years
TSR
i0%
- i150%
2021
i3
years
TSR and GM
i0% - i200%
2022
i3
years
TSR and GM
i0% - i200%
/
For
the PSUs granted in fiscal 2019, the three-year performance-based tests based on a combination of EBIT margin and TSR were not met in the first quarter of fiscal 2022 and therefore, there was no payment of these awards following vesting.
Vesting of PSUs awarded to certain of the Company’s executives is dependent on the Company’s achievement of a performance-based test from the date of grant, during the performance period and, assuming achievement of the performance-based test, vest at the end of the performance period noted above, subject, in general, to the executive remaining in the Company’s
service on specified vesting dates. PSUs are converted into shares of common stock upon payment following vesting. Upon grant of the PSUs, the Company recognizes compensation expense related to these awards based on the Company’s estimate of the percentage of the award that will be achieved. The Company evaluates the estimate on these awards on a quarterly basis and adjusts compensation expense related to these awards, as appropriate. As of August 27, 2022, there was $i13.8
million of unrecognized compensation expense associated with these awards, which is expected to be recognized over a weighted average period of i2.2 years.
i
The
fair value of the PSUs granted in fiscal 2022 and 2021, for which performance during the three-year period will be based on a relative three-year goal metric relative to a peer group as indicated above, was estimated on the date of the grant using a Monte Carlo simulation that uses the assumptions noted in the following table.
Unvested performance stock units, beginning of period
i1,298
$
i19.55
Granted
i1,096
i11.31
Vested
(i463)
i15.47
Forfeited
or performance condition adjustments
(i971)
i15.32
Unvested
performance stock units, end of period
i960
$
i16.39
Inducement
Awards
In fiscal 2020 and 2019, the Company granted stock-based awards to certain of the Company’s new executive officers as inducements material to their commencement of employment and entry into an employment agreement with the Company. These inducement awards were approved by the Compensation Committee of the Board of Directors of the Company and did not require shareholder approval in accordance with Nasdaq Listing Rule 5635(c)(4). The Company did not grant any such
awards during six months ended August 27, 2022.
RSUs granted as inducement awards are issued and measured at fair market value on the date of grant and generally become vested in ione to ithree
equal annual installments beginning ione year from the date of grant, subject, in general, to the recipient remaining in the Company’s service on specified vesting dates. Inducement awards are generally subject to substantially the same terms and conditions as awards that are made under the 2018 Plan.
i
Changes
in the RSUs granted as inducement awards for the six months ended August 27, 2022 were as follows:
(Shares in thousands)
Number of Restricted Stock Units
Weighted Average Grant-Date Fair Value
Unvested restricted stock units, beginning of period
i437
$
i6.10
Granted
i—
i—
Vested
(i389)
i6.13
Forfeited
i—
i—
Unvested
restricted stock units, end of period
i48
$
i5.84
/
On
November 4, 2019, in connection with the appointment of the Company’s former President and Chief Executive Officer, the Company also granted inducement awards consisting of i273,735
PSU awards, which are not included above. The PSUs vested over itwo years, based on performance goals requiring the former President and CEO to prepare and deliver to the Board of Directors key objectives and goals for the Company and the strategies and initiatives for the achievement of such objectives and goals, and the former President and CEO's provision of updates to the Board of Directors regarding achievement
of such goals and objectives. Vesting of the PSUs was also subject, in general, to the former President and CEO remaining in the Company’s service through the vesting date of November 4, 2021. On November 2, 2021, the Compensation Committee of the Board of Directors determined that the performance goals established for the awards had been met, and the awards vested in full.
Other than with respect to the vesting terms described above for the inducement awards to the Company's former President and Chief Executive Officer, inducement awards are generally subject to substantially the same terms and conditions as awards that are made
under the 2018 Plan.
As of August 27, 2022, unrecognized compensation expense related to the unvested portion of the Company's inducement awards was $i0.9
million and is expected to be recognized over a weighted average period of i0.7 years. Each inducement award recipient must hold at least ififty
percent (i50%) of the after-tax shares of common stock received pursuant to the inducement awards until they have satisfied the terms of the Company’s stock ownership guidelines.
16) iEARNINGS
PER SHARE
iThe Company presents earnings per share on a basic and diluted basis. Basic earnings per share has been computed by dividing net earnings by the weighted average number of shares outstanding. Diluted earnings per share has been computed by dividing
net earnings by the weighted average number of shares outstanding, including the dilutive effect of stock-based awards as calculated under the treasury stock method.
Stock-based awards for the three and six months ended August 27, 2022 of approximately i2.0 million and i2.2
million shares, respectively, and for the three and six months ended August 28, 2021 of approximately i2.4 million and i2.9
million shares, respectively, were excluded from the computation of diluted earnings per share as the effect would be anti-dilutive.
17) iSUPPLEMENTAL CASH FLOW INFORMATION
The Company paid income taxes
of $i2.8 million and $i3.2 million in the first six months of fiscal 2022 and 2021, respectively. In addition, the Company made
interest payments of approximately $i33.5 million and $i32.9 million in the first six months of fiscal 2022 and 2021, respectively.
In the first six months of fiscal 2022,
the Company acquired property, plant and equipment of approximately $i17.3 million under finance lease arrangements.
18) iRESTRUCTURING AND TRANSFORMATION INITIATIVE EXPENSES
As of August 27, 2022
and February 26, 2022, the remaining accrual for severance and related costs related to these various initiatives was $i42.7 million and $i15.0 million,
respectively.
Fiscal 2022 Restructuring and Transformation Initiative Expenses
The Company recorded $i54.2 million and $i77.3
million in its consolidated statements of operations for the three and six months ended August 27, 2022, respectively, for costs associated with restructuring and other transformation initiatives, of which a benefit of $i1.2 million is included in cost of sales for the six months ended August 27, 2022. There were ino
restructuring and other transformation expenses included in cost of sales for the three months ended August 27, 2022. In addition, for the three and six months ended August 27, 2022, approximately $i54.1 million and $i78.3
million, respectively, was recorded in restructuring and transformation initiative expenses in the consolidated statements of operations, which included approximately $i35.0 million of severance costs related to workforce reduction and leadership changes for both the three and six months ended August 27, 2022. The Company also recorded approximately $i1.6
million and $i6.8 million, respectively, of lease related and other costs and approximately $i17.5 million and $i36.5
million, respectively, of costs for other transformation initiatives, including technology transformation and business strategy and operating model transformation programs across core functions including merchandising, supply chain and finance for the three and six months ended August 27, 2022.
As part of the Company's ongoing business transformation, on August 31, 2022, subsequent to the end of the second quarter of fiscal 2022, the Company announced the planned closure of approximately i150
lower-producing Bed Bath & Beyond banner stores as part of its real estate and store fleet optimization. At this initial stage, a reasonable estimate of the amount or range of amounts expected to be incurred in connection with these restructuring activities, both with respect to each major type of cost associated therewith and with respect to the total cost or estimated range of total cost, cannot be made at this time.
Fiscal 2021 Restructuring and Transformation Initiative Expenses
The Company recorded $i98.2
million and $i179.2 million in its consolidated statements of operations for the three and six months ended August 28, 2021, respectively, for costs associated with restructuring and other transformation initiatives, of which approximately $i73.7
million and $i121.0 million, respectively, is included in cost of sales and was related to the Company’s initiatives to introduce certain new Owned Brand merchandise. In connection with the launch of certain Owned Brands, the Company recorded this cost of sales adjustment to reduce inventory that will be removed from the product assortment as part of these introductions to its estimated realizable value. In addition to this
charge, approximately $i24.5 million and $i58.2 million, respectively, is included in restructuring and transformation initiative expenses in the consolidated statements of operations and related to the following:
•Store Closures. During the three and six months ended August 28, 2021, the Company closed i5
and i21 Bed Bath & Beyond stores, respectively, as part of its store network optimization program and included the closure of i207 mostly Bed Bath &
Beyond through the end of fiscal 2021 (including the i144 stores closed in fiscal 2020). For the three and six months ended August 28, 2021, the Company recorded costs associated with planned store closures for which the store closing process has commenced of approximately $i2.6
million and $i21.4 million, respectively, consisting of lease-related and other costs.
•Other transformation initiatives. $i21.9
million and $i36.8 million, respectively, related to other transformation initiatives, including technology transformation and business strategy and operating model transformation programs across core functions including merchandising, supply chain and finance.
19) iCOMMITMENTS
AND CONTINGENCIES
A putative securities class action was filed on April 14, 2020 against the Company and three of its officers and/or directors (Mark Tritton (the Company's former President and Chief Executive Officer), Mary Winston (the Company’s former Interim Chief Executive Officer) and Robyn D’Elia (the Company’s former Chief Financial Officer and Treasurer)) in the United States District Court for the District of New Jersey (the "New Jersey federal court"). The case, which is captioned
Vitiello v. Bed Bath & Beyond Inc., et al., Case No. 2:20-cv-04240-MCA-MAH, asserts claims under §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") on behalf of a putative class of purchasers of the Company’s securities from October 2, 2019 through February 11, 2020. The Complaint alleges that certain of the Company’s disclosures about financial performance and certain other public statements during the putative class period were materially false or misleading. A similar putative securities class action, asserting the same claims on behalf of the same putative class against the same defendants, was filed on April
30, 2020. That case, captioned Kirkland v. Bed Bath & Beyond Inc., et al., Case No. 1:20-cv-05339-MCA-MAH, is also pending in the United States District Court for the District of New Jersey. On August 14, 2020, the court consolidated the itwo cases and appointed Kavin Bakhda as lead plaintiff pursuant to the Private Securities Litigation Reform Act of 1995 (as consolidated, the "Securities Class Action"). Lead plaintiff and additional named plaintiff
Richard Lipka filed an Amended Class Action Complaint on October 20, 2020, on behalf of a putative class of purchasers of the Company’s securities from September 4, 2019 through February 11, 2020. Defendants moved to dismiss the Amended Complaint on December 21, 2020.
After a mediation held in August 2021, a settlement in principle was reached between the Company and lead plaintiff in the Securities Class Action. The settlement has been executed and was preliminarily approved by the New Jersey Federal Court in February 2022.
The court granted final approval to the settlement and dismissed the Securities Class Action on June 2, 2022. The Company had previously recorded a liability for the Securities Class Action, based on the agreed settlement amount and insurance coverage available and this amount was paid by the insurance company in the second fiscal quarter of 2022.
On July 10, 2020, the first of ithree
related shareholder derivative actions was filed in the New Jersey federal court on behalf of the Company against various present and former directors and officers. The case, which is captioned Salu v. Tritton, et al., Case No. 2:20-cv-08673-MCA-MAH (D.N.J.), asserts claims under §§ 10(b) and 20(a) of the Exchange Act and for breach of fiduciary duty, unjust enrichment, and waste of corporate assets under state law arising from the events underlying the securities class actions described above and from the Company’s repurchases of its own shares during the class period pled in the securities cases. The itwo
other derivative actions, which assert similar claims, are captioned Grooms v. Tritton, et al., Case No. 2:20-cv-09610-SDW-RDW (D.N.J.) (filed July 29, 2020), and Mantia v. Fleming, et al., Case No. 2:20-cv-09763-MCA-MAH (D.N.J.) (filed July 31, 2020). On August 5, 2020, the court signed a stipulation by the parties in the Salu case to stay that action pending disposition of a motion to dismiss in the Securities Class Action, subject to various terms outlined in the stipulation. The parties in all ithree
derivative cases have moved to consolidate them and to apply the Salu stay of proceedings to all ithree actions. The court granted the motion on October 14, 2020, but the stay was subsequently lifted. On January 4, 2022, the defendants filed a motion to dismiss this case.
On August 28,
2020, another related shareholder derivative action, captioned Schneider v. Tritton, et al., Index No 516051/2020, was filed in the Supreme Court of the State of New York, County of Kings. The claims pled in the Schneider case are similar to those pled in the ithree federal derivative cases, except that the Schneider complaint does not plead claims under the Exchange Act. On September 21, 2020, the parties filed a stipulation seeking to stay that action pending
disposition of a motion to dismiss in the securities class action, subject to various terms and conditions.
On June 11, 2021, an additional related derivative action was filed on behalf of the Company against certain present and former directors and officers. This Complaint is entitled Michael Anthony v Mark Tritton et. al., Index No. 514167/2021 and was filed in the Supreme Court of the State of New York, Kings County. The claims are substantially the same as in the other two derivative actions. On October 26, 2021, the court consolidated the Schneider and Anthony
actions, and the plaintiffs subsequently filed a consolidated complaint. On January 10, 2022, the defendants filed a motion to dismiss this case.
The derivative cases were not included in the August 2021 settlement referred to above, but after mediation, a settlement in principle was reached in the first quarter of fiscal 2022. The settlement has been executed and was preliminarily approved by the New York State Court in June 2022. The court granted final approval to the settlement on September 21, 2022.
The
District Attorney's office for the County of Ventura, together with District Attorneys for other counties in California (together, the "District Attorneys"), recently concluded an investigation regarding the management and disposal at the Company’s stores in California of certain materials that may be deemed hazardous or universal waste under California law. On March 19, 2019, the District Attorneys provided the Company with a settlement demand that included a proposed civil penalty, reimbursement of investigation costs, and certain injunctive relief, including modifications to the Company’s existing compliance program, which already includes associate training,
ongoing review of disposal rules applicable to various product categories, and specialized third-party disposal. During fiscal 2020, the Company and the District Attorneys agreed to final terms on a settlement payment of approximately $i1.5 million to resolve the matter. The Company has also agreed to spend $i171,000
over the next i36 months on refinements to its compliance program. The Company and District Attorneys executed a Stipulated Judgment to this effect, which was recently filed with the court. As of February 29, 2020, the Company had recorded an accrual for the estimated probable loss for this matter, and the
Company made the related settlement payment during the fourth quarter of fiscal 2020.
On April 21, 2019, Warren Eisenberg and Leonard Feinstein transitioned to the role of Co-Founders and Co-Chairmen Emeriti of the Board of Directors of the Company. As a result of this transition, Mr. Eisenberg and Mr. Feinstein ceased to be officers of the Company effective as of April 21, 2019, and became entitled to the payments and benefits provided under their employment agreements that apply in the case of a termination without cause, which generally include continued senior status payments until May 2027 and continued participation
for the Co-Founders (and their spouses, if applicable) at the Company’s expense in employee plans and programs. In addition, the Co-Founders remain entitled to supplemental pension payments specified in their employment agreements of $i200,000 per year (as adjusted for a cost of living increase), until the death of the survivor of the applicable Co-Founder and his spouse, reduced by the continued senior status payments referenced above.
Pursuant
to their respective restricted stock and performance stock unit agreements, shares of restricted stock and performance-based stock units granted to Messrs. Eisenberg and Feinstein vested upon their resignation as members of the Board of Directors effective May 1, 2019, subject, however, to attainment of any applicable performance goals and the certification of the applicable performance-based tests by the Compensation Committee, as provided under their award agreements.
The Company’s former Chief Executive Officer (the "Former CEO") departed the Company effective as of May 12, 2019. In accordance with the terms of
the Former CEO's employment and equity award agreements, the Former CEO was entitled to ithree times his then-current salary, payable over ithree
years in normal payroll installments, except that any amount due prior to the six months after his departure, was paid in a lump sum after such six-month period. Such amounts will be reduced by any compensation earned with any subsequent employer or otherwise and will be subject to the Former CEO's compliance with a one-year non-competition and non-solicitation covenant. On October 21, 2019, the Former CEO entered into an agreement (the "Former CEO PSU Settlement Agreement") with the Company to reduce the PSUs held by him by an excess amount of outstanding PSUs granted to the Former CEO in the Company’s 2018 fiscal year as a result of the use of the fiscal 2017 peer group in lieu of the fiscal 2018 peer group. Further, as a result of this
departure, the time-vesting component of the Former CEO's stock-based awards accelerated, including (i) stock options (which were "underwater" and expired without having been exercised by the Former CEO), (ii) PSU awards which had previously met the related performance-based test, had been certified by the Compensation Committee, and remained subject solely to time-vesting, and (iii) PSU awards (assuming target level of performance) which remain subject to attainment of any performance goals and the certification of the applicable performance-based tests by the Compensation Committee, as provided under his award agreements and subject to the terms of the Former CEO PSU Settlement Agreement.
In addition, the Company maintains employment agreements with other executives which provide for severance
pay.
In connection with the sale of PMall, the Company agreed to indemnify 1-800-FLOWERS.COM for certain litigation matters then existing at the time of the close of the transaction, including certain matters for which the Company is entitled to indemnification from the former owner of PMall in connection with the Company's purchase of PMall in fiscal 2016. During fiscal 2021, the Company recorded a liability for one such matter and a corresponding asset based on the Company's
assessment of the ability to recover the expected loss under the indemnification provided at the time of its purchase of PMall.
On August 23, 2022, a putative securities class action and shareholder derivative action was filed against the Company, Gustavo Arnal (the Company's former Chief Financial Officer), and certain third parties in the United States District Court for the District of Columbia. The case, which is captioned Si v. Bed Bath & Beyond Corp., et al., Case No. 2:22-cv-02541, asserts claims of breach of fiduciary duty, negligent misrepresentation, and violations of §§ 10(b) and 20(a) of the Exchange Act on behalf of a putative class of purchasers of
our securities from March 25, 2022 through August 18, 2022. The Complaint alleges
that certain of our disclosures about the Company's revenue and proposed divestments, as well as other disclosures made by certain of our investors about their holdings, during the putative class period were materially false or misleading. The Company is in the early stages of evaluating the complaint, but based
on current knowledge the Company believes the claims are without merit.
The Company records an estimated liability related to its various claims and legal actions arising in the ordinary course of business when and to the extent that it concludes a liability is probable and the amount of the loss can be reasonably estimated. Such estimated loss is based on available information and advice from outside counsel, where appropriate. As additional information becomes available, the Company reassesses the potential liability related to claims and legal actions and revises its estimated liabilities, as appropriate. The
Company expects the ultimate disposition of these matters will not have a material adverse effect on the Company’s consolidated financial position, results of operations or liquidity. The Company also cannot predict the nature and validity of claims which could be asserted in the future, and future claims could have a material impact on its earnings.
ITEM
2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
Bed Bath & Beyond Inc. and subsidiaries (the "Company", "we", "our", "us", or "ourselves") is an omni-channel retailer that makes it easy for our customers to feel at home. We sell a wide assortment of merchandise in the Home, Baby, Beauty & Wellness markets and operate under the names Bed Bath & Beyond, buybuy BABY ("BABY"), and Harmon, Harmon Face Values, or Face Values (collectively, "Harmon"). In addition, we are a partner
in a joint venture, which operates retail stores in Mexico under the name Bed Bath & Beyond. We account for our operations as one North American Retail reporting segment.
We are driving a digital-first, omni-always growth strategy and optimizing our digital and physical store channels to provide our customers with a seamless omni-channel shopping experience. Digital purchases, including web and mobile, can be shipped to a customer from our distribution facilities, directly from vendors, or from a store. Store purchases are primarily fulfilled from that store's inventory or may also be shipped to a customer from one of our distribution facilities, from a vendor, or from another store. Customers can also choose to pick up orders using our Buy Online Pickup In Store ("BOPIS") and contactless Curbside Pickup services, as well as return online purchases to
a store. Customers can also make purchases through one of our customer contact centers and in-store through The Beyond Store, our proprietary web-based platform. These capabilities allow us to better serve our customers across various channels.
Across our banners, we carry a wide variety of domestics and home furnishings merchandise. Domestics merchandise includes categories such as bed linens and related items, bath items and kitchen textiles. Home furnishings include categories such as kitchen and tabletop items, fine tabletop, basic housewares, general home furnishings (including furniture and wall décor), consumables and certain juvenile products.
Business Transformation and Restructuring
In the second quarter of
fiscal 2022, we have begun to undertake significant changes to transform our business and adapt to the dynamic retail environment and the evolving needs of our customers in order to position ourselves for long-term success. In 2022, the Company has realigned its management team, which is being led by our Interim Chief Executive Officer, Sue Gove, who was appointed in June 2022, to execute on strategic priorities and changes. These strategic priorities and changes are focused on driving an omni-always, customer-inspired strategy to re-establish our authority in the Home, Baby, Beauty & Wellness markets. We have created a more focused portfolio through the divestiture of non-core assets and continue to focus on key actions such as corporate restructurings and operating expense control to re-set our cost structure and support our ongoing business transformation.
We
are focused on implementing strategic changes to regain our authority in the market as the destination for customers, with the products they want and the experiences they seek across our core banners (Bed Bath & Beyond, buybuy BABY, and Harmon) in an enterprise-wide plan to accelerate our omni-channel transformation. In conjunction with these changes, in the second quarter of fiscal 2022, the Company created Brand President roles for Bed Bath & Beyond and BABY to lead the teams focused on merchandising, planning, brand marketing, site merchandising and stores for each banner. Our strategy is underpinned by five key pillars of strategic focus and investment: product, price, promise, place and people. Through this approach, we are bringing back more of our customers' favorite national brands and products while leveraging value and promotion and will be building stronger relationships
with customers through programs such as Welcome Rewards™.
On August 31, 2022, subsequent to the end of the second quarter of fiscal 2022, we announced that we would be reducing the number of our Owned Brands by discontinuing three of our nine labels (Haven™, Wild Sage™ and Studio 3B™) We expect that the breadth and depth of inventory across our six remaining Owned Brands (Simply Essential™, Nestwell™, Our Table™, Squared Away™, H for Happy™ and Everhome™) will be reduced to approximately 30%, which will allow us to rebalance our inventory and bring back popular national brands and introduce new, emerging direct-to-consumer brands.
In addition, we have begun to implement significant SG&A reductions to right-size our cost structure and our store fleet.Key components of these reductions include:
•Reduction in SG&A by focusing on immediate priorities of merchandising, inventory, and traffic to align with changes in our store footprint, lower Owned Brands development and support, and deferral of longer-term strategic initiatives. Also, we have had a reduction in force, including an approximately 20% reduction across corporate and supply chain.
•Reduction in planned capital expenditures from $400 million to $250 million in fiscal 2022, which is expected to provide sufficient strategic investments in technology, digital capabilities and offerings, and store maintenance.
•The planned closure of approximately 150 lower-producing Bed Bath & Beyond banner
stores.
The Company recorded $54.2 million and $77.3 million in its consolidated statements of operations for the three and six months ended August 27, 2022, respectively, for costs associated with restructuring and other transformation initiatives, of which a benefit of $1.2 million is included in cost of sales for the six months ended August 27, 2022. There were no restructuring and other transformation expenses included in cost of
sales for the three months ended August 27, 2022. In addition, for the three and six months ended August 27, 2022, approximately $54.1 million and $78.3 million, respectively, is recorded in restructuring and transformation initiative expenses, which included $35.0 million of severance costs related to workforce reduction and leadership changes for both the three and six months ended August 27, 2022. The Company also recorded approximately $1.6 million and $6.8 million, respectively, of lease related and other costs and approximately $17.5 million and $36.5 million, respectively, of costs and other transformation initiatives, including technology transformation and business strategy and operating
model transformation programs across core functions including merchandising, supply chain and finance for the three and six months ended August 27, 2022.
Executive Summary
The following represents a summary of key financial results and related business developments for the periods indicated:
•Net sales for the three months ended August 27, 2022 were $1.437 billion, a decrease of approximately 27.6% as compared with the three months ended August 28, 2021. Net sales for the six months ended August
27, 2022 were $2.900 billion, a decrease of approximately 26.4% as compared with the six months ended August 28, 2021.
•Comparable sales* for the three and six months ended August 27, 2022 decreased by approximately 26.0% and 24.0%, respectively.
* See “Results of Operations – Net Sales” in this Management’s Discussion and Analysis for the definition and further information related to Comparable Sales.
•Net loss for the three months ended August 27, 2022 was $366.2 million, or 4.59 per diluted share, compared with net loss of $73.2 million, or
$0.72 per diluted share, for the three months ended August 28, 2021. Net loss for the three months ended August 27, 2022 included a net unfavorable impact of $1.37 per diluted share associated with restructuring and other transformation initiatives and non-cash impairment charges. Net loss for the three months ended August 28, 2021 included a net unfavorable impact of $0.76 per diluted share associated with non-cash impairment charges, charges associated with restructuring program and transformation initiatives, loss on sale of business, and loss on extinguishment of debt, partially offset by a gain on the sale of property, as well as the associated tax effects.
•Net loss for the six months ended August 27,
2022 was $723.8 million, or $9.09 per diluted share, compared with net loss of $124.1 million, or $1.19 per diluted share, for the six months ended August 28, 2021. Net loss for the six months ended August 27, 2022 included a net unfavorable impact of $2.39 per diluted share associated with inventory markdown reserves and supply chain-related port fees, restructuring and other transformation initiatives, and non-cash impairment charges. Net loss for the six months ended August 28, 2021 included a net unfavorable impact of $1.27 per diluted share associated with non-cash impairment charges, charges associated with restructuring program and transformation initiatives, loss on sale of business, and loss on extinguishment of debt, partially offset by a gain on the sale of property, as well as the associated tax effects.
•In
connection with our restructuring and transformation initiatives, during the three and six months ended August 27, 2022, we recorded total expenses of $54.2 million and $77.3 million, respectively, including a benefit of $1.2 million for the six months ended August 27, 2022 in cost of sales. There were no restructuring and other transformation expenses included in cost of sales for the three months ended August 27, 2022. In addition, approximately $54.1 million and $78.3 million, respectively, is recorded in restructuring and transformation initiative expenses in the consolidated statement of operations, as well as $55.5 million and $82.2 million, respectively, of impairments.
•During the six months ended August
27, 2022, we launched certain key initiatives, including:
•Product Initiatives. The following key product initiatives launched in the first quarter of fiscal 2022:
◦Our Bed Bath & Beyond banner kicked off Back-to-College season with its “Decision Day” campaign, helping college-bound students and their parents prepare for the transition to a campus residence with the products and services needed to create a comfortable, functional, personalized, and happy home away from home.
◦Our
buybuy BABY banner expanded its assortment through an exclusive retail partnership with Primary, a leading direct to consumer gender-neutral children’s clothing brand, and expanded its “buzzworthy brands” portfolio of parent-founded brands with the introduction of Ahimsa, Monica + Andy, Gro To, Ready.Set.Food!, Snuggle Me Organic and Waterful Baby Wipes products in select stores and buybuybaby.com. Both of these initiatives build on the “welcome to parenthood” initiative launched in fiscal 2021.
•Strategic Collaboration with The Kroger Co. As part of our strategic collaboration with The Kroger Co. in April 2022, we announced the launch of our e-commerce collaboration with Kroger Co. to directly offer Kroger customers an extensive selection of the most sought-after goods for the Home & Baby products carried by the Bed Bath & Beyond and buybuy BABY banners through
Kroger.com. A small-scale physical store pilot at select Kroger Family of Companies stores commenced in the second quarter of fiscal 2022.
•Welcome Rewards™. The Company plans to leverage its recently introduced, cross-banner loyalty program, Welcome Rewards™ to drive traffic, sales, and customer retention. Welcome Rewards™ brings valuable savings, more benefits, and special perks to customers who shop online and in stores nationwide at Bed Bath & Beyond, buybuy BABY, and Harmon. Customers earn and redeem points across the retail banners with every purchase.
•During fiscal 2021, we announced plans to complete our $1 billion three-year repurchase plan by the end of fiscal 2021, which
was two years ahead of schedule and resulted in the repurchase of $950.0 million of shares under this plan as of February 26, 2022. During the first quarter of fiscal 2022, we completed this program, repurchasing approximately 2.3 million shares of our common stock under the share repurchase plan approved by our Board of Directors, at a total cost of approximately $40.4 million.
Impact of the COVID-19 Pandemic
The COVID-19 pandemic continues to present potential disruptions to our business. As the COVID-19 pandemic evolves, national and local governments in regions in which we operate have enacted various measures, including travel restrictions, restrictions on events and gatherings, temporary closure of non-essential businesses, “social distancing” requirements, vaccine and mask mandates
and various other requirements designed to slow the spread of COVID-19. While many of these measures have been eased, the extent, severity and overall duration of the COVID-19 pandemic, including its phases of resurgence and the introduction of new variants, some of which may be more transmissible or virulent, are unknown, and COVID-19 has had, and may continue to have, a material adverse effect, on our business. The full extent of the impact of the COVID-19 pandemic on our business, financial position, and results of operations will depend on future developments, many of which are outside of our control, including the duration and spread of the COVID-19 pandemic, the emergence of variant strains, the availability, adoption, and effectiveness of the COVID-19 vaccines and COVID-19 testing, and government actions, which are uncertain and cannot be predicted.
Further discussion of the risks and uncertainties
posed by the COVID-19 pandemic is included in “Risk Factors” under Part I, Item 1A of our 2021 Form 10-K.
Net
sales for the three months ended August 27, 2022 were $1.437 billion, a decrease of $547.7 million, or approximately 27.6%, compared with net sales of $1.985 billion for the three months ended August 28, 2021. Net sales for the six months ended August 27, 2022 were $2.900 billion, a decrease of $1.038 billion, or approximately 26.4%, compared with net sales of $3.939 billion for the six months ended August 28, 2021. The decrease in net sales for the three and six months ended August 27, 2022 was primarily due to the decrease in comparable sales, which were negatively impacted by continued downward trends in customer traffic reflective of consumer spending
patterns and demand, lack of inventory availability and assortment in
key product areas, as well as the effect of the closure of certain stores in fiscal 2021 in connection with our store fleet optimization project.
Sales consummated on a mobile device while physically in a store location and BOPIS orders are recorded as customer facing digital channel sales. Customer orders taken in-store by an associate through The Beyond Store, our proprietary, web-based platform, are recorded as in-store sales. Prior to implementation of BOPIS and contactless Curbside Pickup services, customer orders reserved online and picked
up in a store were recorded as in-store sales. Sales originally consummated from customer facing digital channels and subsequently returned in-store are recorded as a reduction of in-store sales. Net sales consummated through digital channels represented approximately 37.0% and 39.0% of our sales for the three and six months ended August 27, 2022, respectively, compared with approximately 34.0% and 36.0% of our sales for the three and six months ended August 28, 2021, respectively.
Comparable sales* for the three and six months ended August 27, 2022 decreased by approximately 26.0% and 24.0%, respectively.
Management attributes a portion of this decline to the impact of lower traffic due to macro-economic factors, such as steep inflation, and fluctuations in purchasing patterns of the consumer. Also contributing to the comparable sales decline was the lack of inventory availability and assortment in key product areas, due in part to supply chain challenges.
* Comparable sales normally includes sales consummated through all retail channels that have been operating for twelve full months following the opening period (typically six to eight weeks), excluding the impact of store fleet optimization program. We are an omni-channel retailer with capabilities that allow a customer to use more than one channel when making a purchase, including in-store, online, with a mobile device or through a customer contact center, and have it fulfilled, in most cases, either through in-store customer pickup or by direct shipment
to the customer from one of our distribution facilities, stores or vendors.
Sales of domestics merchandise and home furnishings accounted for approximately 37.9% and 62.1% of net sales, respectively, for the three months ended August 27, 2022, and approximately 39.8% and 60.2% of net sales, respectively, for the three months ended August 28, 2021. Sales of domestics merchandise and home furnishings accounted for approximately 36.6% and 63.4% of net sales, respectively, for the six months ended August 27, 2022, and approximately 38.9% and 61.1% of net sales, respectively, for the six months ended August 28, 2021.
Gross
profit for the three months ended August 27, 2022 was $398.3 million, or 27.7% of net sales, compared with $601.1 million, or 30.3% of net sales, for the three months ended August 28, 2021. Gross profit for the six months ended August 27, 2022 was $747.6 million, or 25.8% of net sales, compared with $1.235 billion, or 31.4% of net sales, for the six months ended August 28, 2021. Gross profit margin as a percentage of net sales for the three months ended August 27, 2022 includes the unfavorable impact of the acceleration of inventory clearance activity resulting from actions taken to rebalance inventory levels
in response to consumer trends and transient supply chain-related port fees, partially offset by higher product margin due to the continuation of greater Owned Brand levels within our assortment.
Gross profit margin as a percentage of net sales for the six months ended August 27, 2022 includes $91.6 million, associated with the markdown of inventory being removed from our assortment in connection with clearance of certain Owned Brands merchandise and the acceleration of inventory clearance activity resulting from actions taken to rebalance inventory levels in response to consumer trends as well as the impact of transient supply chain-related port fees, partially offset by higher product margin due to the continuation of greater Owned Brand levels
within our assortment.
Gross profit for the three and six months ended August 27, 2022 also includes higher freight expenses, both for inbound product shipments and direct-to-customer fulfillment and in part due to industry wide, global supply chain challenges, compared with the prior year.
Selling,
general and administrative expenses ("SG&A")
$
634.9
$
653.0
$
(18.1)
(2.8)
%
$
1,272.4
$
1,311.7
$
(39.3)
(3.0)
%
SG&A
as a percentage of net sales
44.2
%
32.9
%
11.3
%
34.3
%
43.9
%
33.3
%
10.6
%
31.8
%
SG&A
for the three months ended August 27, 2022 was $634.9 million, or 44.2% of net sales, compared with $653.0 million, or 32.9% of net sales, for the three months ended August 28, 2021. SG&A for the six months ended August 27, 2022 was $1.272 billion, or 43.9% of net sales, compared with $1.312 billion, or 33.3% of net sales, for the six months ended August 28, 2021. The decrease in SG&A for the three and six months ended August 27, 2022 compared with the three and six months ended August 28, 2021 was primarily
attributable to the Company's cost reduction initiatives, primarily a decrease in payroll and payroll-related expenses, and lower rent and occupancy expenses due to a lower store base as a result of the Company's fleet optimization program in fiscal 2021. These cost reductions were partially offset by higher marketing spend. The increase in SG&A as a percentage of net sales for the three and six months ended August 27, 2022 was primarily due to the impact of de-leveraging of SG&A due to the declines in net sales noted above.
Impairments
Impairments
for the three and six months ended August 27, 2022 were $55.5 million and $82.2 million, respectively, compared with $7.6 million and $16.7 million, respectively, during the comparable periods last year. Impairment charges for the three months ended August 27, 2022 and August 28, 2021 included $55.5 million and $7.0 million, respectively, relating to certain store-level assets (including leasehold improvements and operating lease assets) and tradename impairments of $0.6 million for three months ended August 28, 2021. There were no tradename impairment charges for three months ended August 27, 2022. Impairment charges for the six months ended August 27, 2022 and August 28,
2021 included $79.3 million and $14.0 million, respectively, relating to certain store-level assets (including leasehold improvements and operating lease assets) and tradename impairments of $2.9 million and $2.7 million, respectively.
Restructuring and Transformation Initiative Expenses
During the three and six months ended August 27, 2022, restructuring and transformation initiative expenses were $54.1 million and $78.3 million, respectively, which included $35.0 million of severance costs for workforce reduction and leadership changes for both the three and six months ended August 27, 2022. The Company also recorded
approximately $1.6 million and $6.8 million, respectively, of lease related and other costs and approximately $17.5 million and $36.5 million, respectively, of costs in connection with our technology transformation and business strategy and operating model transformation programs across core functions, including merchandising, supply chain, and finance for the three and six months ended August 27, 2022. During the three and six months ended August 28, 2021, restructuring and transformation initiative expenses were $24.5 million and $58.2 million, respectively, primarily related to costs recorded in connection with the store network optimization program as well as costs associated with other transformation initiatives (see “Restructuring and Transformation Initiative Expenses,” Note 18 to the accompanying consolidated
financial statements).
Loss on Sale of Businesses
During the three and six months ended August 28, 2021, we recognized a loss of approximately $0.1 million and $4.1 million, respectively, associated with certain working capital and other adjustments related to the divestiture of certain banners in fiscal 2020.
For
the three months ended August 27, 2022, operating loss was $346.2 million, or 24.1% of net sales, compared with an operating loss of $84.1 million, or 4.2% of net sales, for the three months ended August 28, 2021. Operating loss for the three months ended August 27, 2022 included the unfavorable impact of the acceleration of inventory clearance activity resulting from actions taken to rebalance inventory levels in response to consumer trends and transient supply chain-related port fees, $54.1 million associated with restructuring and other transformation initiatives, and $55.5 million for non-cash impairment charges (each as discussed
above or below). The change in operating loss as a percentage of net sales for three months ended August 27, 2022 was primarily due to the decline in gross margin, as discussed above, as well as higher restructuring and transformation initiative expenses and higher impairment charges compared to the three months ended August 28, 2021.
For the six months ended August 27, 2022, operating loss was $685.4 million, or 23.6% of net sales, compared with an operating loss of $156.0 million, or 4.0% of net sales, for the six months ended August 28, 2021. Operating loss for the six months ended August
27, 2022 included the impact of $91.6 million related to inventory markdown reserves, the acceleration of inventory clearance activity resulting from actions taken to rebalance inventory levels in response to consumer trends and transient supply chain-related port fees, $78.3 million associated with restructuring and other transformation initiatives, and $82.2 million for non-cash impairment charges (each as discussed above). The change in operating loss as a percentage of net sales for six months ended August 27, 2022 was primarily due to the decline in gross margin, as discussed above, as well as higher restructuring and transformation initiative expenses and higher impairment charges compared to the six months ended August 28,
2021.
Interest Expense, net
Interest expense, net for the three and six months ended August 27, 2022 was $18.6 million and $35.1 million, respectively, compared with $16.1 million and $32.1 million, respectively, for the three and six months ended August 28, 2021. Interest expense, net includes interest costs attributable to our revolving credit facilities and our senior unsecured notes.
Income Taxes
The effective tax rate for the three and six months ended August 27, 2022 was (0.4)% and (0.5)%,
respectively, compared with 27.0% and 34.2%, respectively, for the three and six months ended August 28, 2021. For the three and six months ended August 27, 2022, the effective tax rate reflects the impact of continuing to record a valuation allowance against the Company’s U.S. federal and state deferred tax assets (discussed below). For the three and six months ended August 28, 2021, the effective tax rate reflects the impact of charges for restructuring and transformation initiatives, as well as a benefit under the provisions of the CARES Act, to a year in which the tax rate was 35%.
In assessing the recoverability of our deferred tax assets, we evaluated
the available objective positive and negative evidence to estimate whether it is more likely than not that sufficient future taxable income will be generated to permit the use of existing deferred tax assets in each taxpaying jurisdiction. For any deferred tax asset in excess of the amount for which it is more likely than not that we will realize a benefit, we established a valuation allowance. A valuation allowance is a non-cash charge, and does not limit our ability to utilize our deferred tax assets, including our ability to utilize tax loss and credit carryforward amounts, against future taxable income.
In the third quarter of fiscal 2021, we concluded that, based on our evaluation of available objective positive and negative evidence, it was no longer more likely than not that our net U.S. federal and state deferred tax assets were recoverable. In assessing the realizability of
deferred tax assets, the key assumptions used to determine positive and negative evidence included our cumulative loss before income taxes for the past three years, current trends related to actual taxable earnings or losses, and expected future reversals of existing taxable temporary differences, as well as timing and the cost of our transformation initiatives and their expected associated benefits. Accordingly, in the third quarter of fiscal 2021, we recorded a valuation allowance against substantially all of our net U.S. federal and state deferred tax assets.
During the three and six months ended August
27, 2022, we concluded that it continues to not be more likely than not that our net U.S. federal and state deferred tax assets are recoverable, and have recorded a valuation allowance against any deferred tax assets generated in the quarter. As of August 27, 2022, the total valuation allowance relative to U.S. federal and state deferred tax assets was $224.3 million.
The amount of the deferred tax assets considered realizable, and the associated valuation allowance, could be adjusted in a future period if estimates of future taxable income change or if objective negative evidence in the form of cumulative losses is no longer present and additional weight is given to subjective evidence such as projections for future growth.
Potential
volatility in the effective tax rate from year to year may occur as we are required each year to determine whether new information changes our assessment of both the probability that a tax position will effectively be sustained and the appropriateness of the amount of recognized benefit.
Net Loss
As a result of the factors described above, net loss for the three months ended August 27, 2022 was $366.2 million, or $4.59 per diluted share, compared with net loss of $73.2 million, or $0.72 per diluted share, for the three months ended August 28, 2021. Net loss for the three months ended August 27, 2022 included a net unfavorable impact of $1.37 per diluted
share associated with charges for restructuring and other transformation initiatives, and non-cash impairment charges (each as discussed above), as well as the associated tax effects. Net loss for the three months ended August 28, 2021 included a net unfavorable impact of $0.76 per diluted share associated with non-cash impairment charges, charges associated with restructuring program and transformation initiatives, loss on sale of business, and loss on extinguishment of debt, partially offset by a gain on the sale of property (each as discussed above), as well as the associated tax effects.
As a result of the factors described above, net loss for the six months ended August 27, 2022 was $723.8 million, or $9.09 per diluted share, compared with net loss of $124.1 million, or $1.19 per diluted
share, for the six months ended August 28, 2021. Net loss for the six months ended August 27, 2022 included a net unfavorable impact of $2.39 per diluted share associated with inventory markdown reserves, the acceleration of inventory clearance activity and transient supply chain-related port fees, restructuring and other transformation initiatives, and non-cash impairment charges (each as discussed above), as well as the associated tax effects. Net loss for the six months ended August 28, 2021 included a net unfavorable impact of $1.27 per diluted share associated with non-cash impairment charges, charges associated with restructuring program and transformation initiatives, loss on sale of business, and loss on extinguishment of debt, partially offset by a gain on the sale of property, (each as discussed above), as well
as the associated tax effects.
Liquidity and Capital Resources
We had cash, cash equivalents and restricted cash of $166.7 million as of August 27, 2022, a decrease of approximately $304.2 million as compared with February 26, 2022, driven by working capital investments in inventory, as well as $226.5 million in capital expenditures and $43.2 million in share repurchases, partially offset by borrowings under our ABL Facility of $550.0 million and net cash used in operating activities of $582.4 million for the six months ended August 27, 2022. As
of August 27, 2022, we had approximately $315.0 million of available borrowing capacity under its ABL Facility.Subsequent to the end of the second quarter of fiscal 2022, we entered into an amendment, which expanded its ABL Facility to $1.130 billion and entered into a new FILO Facility of $375.0 million (see "Long-Term Debt", Note 13). As of the end of fiscal September 2022, our current available borrowing capacity was approximately $690.0 million.
We are required to perform a two-step analysis of our ability to continue as a going concern. It must first evaluate whether there are conditions and events that raise substantial doubt about our ability to continue as a going concern (Step 1). If we conclude that substantial doubt is raised, it is also required to consider whether
our plans alleviate that doubt (Step 2).
Management’s assessment included the preparation of cash flow forecasts.Management has implemented or expects to implement various strategic actions including permanently closing stores that are deemed to be performing below expectations, reducing its workforce, deferring or eliminating certain capital expenditures and reducing other operating expenses to ensure alignment with customer demand and its go-forward strategy.
We believe that available cash and cash equivalents, the cash provided by future operating activities, and availability under its recently increased ABL credit facility and its new FILO credit facility should enable us to meet presently anticipated cash needs for at least the next 12 months after the date that the financial
statements are issued. If we encounter unforeseen circumstances that place further constraints on its capital resources, management will be required to take various additional measures to conserve liquidity, which could include, but not necessarily be limited to, reducing capital expenditures, and controlling
overhead expenses. Management cannot provide any assurance that our efforts will be successful. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of these uncertainties.
We
have the ability to continue to borrow under our ABL Facility, subject to customary conditions, including no default, the accuracy of representations and warranties, and borrowing base availability. The ABL Facility matures on August 9, 2026. Our ability to borrow under the ABL Facility is based upon a specified borrowing base consisting of a percentage of our eligible inventory and credit card receivables as defined in the ABL Facility, net of applicable reserves (see “Long-Term Debt,” Note 13 to the accompanying consolidated financial statements).
In addition, on August 31, 2022, subsequent to the end of the second quarter of fiscal 2022, we established an at the market equity distribution program (the "ATM Program") (see “Shareholders' (Deficit) Equity,” Note 14
to the accompanying consolidated financial statements), under which we may offer and sell up to a maximum of 12 million shares of common stock. The potential proceeds from the ATM Program are expected to be used for a number of corporate purposes, which may include the repayment, refinancing, redemption or repurchase of existing indebtedness, working capital or capital expenditures, acquisitions and other investments. Since the end of the fiscal second quarter, we have sold approximately 3.0 million shares for approximately $30.0 million of proceeds under the ATM Program.
We are considering liability management transactions with particular focus on the 2024 bonds. Transactions could be launched in the third quarter of fiscal 2022 and could include offers to exchange our current debt for new longer tenured debt or equity at exchange ratios related to the then-current value of the current debt. However,
the transactions could take other forms or might not be launched at all.
Capital Expenditures
Capital expenditures for the six months ended August 27, 2022 were $226.5 million, and for fiscal 2022 are projected to be approximately $250 million. Our capital expenditures are related to digital and omni-channel capabilities, store remodels and investments in technology across a number of areas including supply chain, merchandising, and finance.
We continue to review and prioritize our capital needs and remain committed to making the required investments in our infrastructure to help position us for continued growth and success.
Key areas of investment include: continuing to improve the presentation and content as well as the functionality, general search and navigation across our customer facing digital channels; improving customer data integration and customer relations management capabilities; continuing to enhance service offerings to our customers; continuing to strengthen and deepen our information technology, analytics, marketing, e-commerce, merchandising and finance capabilities; and creating more flexible fulfillment options designed to improve our delivery capabilities and lower our shipping costs. These and other investments are expected to, among other things, provide a seamless and compelling customer experience across our omni-channel retail platform.
Stock Repurchases
During the three
and six months ended August 27, 2022, we repurchased less than 0.1 million and approximately 2.5 million shares, respectively, of our common stock, at a total cost of approximately $0.2 million and $43.2 million, respectively. For the six months ended August 27, 2022, the stock repurchases included approximately 2.3 million shares at a total cost of approximately $40.4 million, repurchased under our share repurchase programs as authorized by our Board of Directors, which was completed in the first quarter of fiscal 2022.
During the three and six months ended August 28, 2021, we repurchased approximately 3.5 million and 8.7 million shares, respectively, of our common stock, at a total cost of
approximately $101.3 million and $240.0 million, respectively, which included approximately 3.4 million and 8.3 million shares, respectively, at a total cost of approximately $100.8 million and $231.2 million, respectively, repurchased under our share repurchase programs as authorized by our Board of Directors.
Additionally, during the three and six months ended August 27, 2022, we repurchased less than 0.1 million and approximately 0.2 million shares, respectively, of our common stock, to cover employee related taxes withheld on vested restricted stock, restricted stock unit awards, and performance stock unit awards at a total cost of approximately $0.2 million and $2.8 million, respectively. During the three and six months ended August 28, 2021,
we repurchased approximately 0.1 million and 0.4 million shares, respectively, of our common stock, to cover employee related taxes withheld on vested restricted stock, restricted stock unit awards, and performance stock unit awards at a total cost of approximately $0.5 million and $8.8 million, respectively.
During fiscal 2021, we announced that we intended to complete our $1 billion three-year share repurchase plan by the end of fiscal 2021, two years ahead of schedule. During the first quarter of fiscal 2022, we completed this program, repurchasing approximately 2.3 million shares of our common stock.
In
January 2021, we entered into an accelerated share repurchase agreement to repurchase an aggregate $150.0 million of our common stock, subject to market conditions. This resulted in the repurchase of 5.0 million shares in the fourth quarter of fiscal 2020, and an additional 0.2 million shares received upon final settlement in the first quarter of fiscal 2021.
Between December 2004 and April 2021, our Board of Directors authorized, through several share repurchase programs, the repurchase of up to $12.950 billion of our shares of common stock. We also acquire shares of our common stock to cover employee related taxes withheld on vested restricted stock, restricted stock units and performance stock unit awards. Since the initial authorization in December 2004, the aggregate total of common stock repurchased is approximately 264.7 million shares for a total cost of approximately $11.7 billion.
We had approximately $1.2 billion remaining of authorized share repurchases as of August 27, 2022.
Decisions regarding share repurchases are within the discretion of the Board of Directors, and are influenced by a number of factors, including the price of our common stock, general business and economic conditions, our financial condition and operating results, the emergence of alternative investment or acquisition opportunities, changes in business strategy and other factors. Our share repurchase program could change, and could be influenced by several factors, including business and market conditions, such as the impact of the COVID-19 pandemic on our business operations or stock price. We review our alternatives with respect to its capital structure on an ongoing basis. Any future share repurchases will be subject to the determination
of the Board of Directors, based on an evaluation of our earnings, financial condition and requirements, business conditions and other factors, including the restrictions on share repurchases under the ABL Facility (see “Long-Term Debt,” Note 13 to the accompanying consolidated financial statements). We do not currently have plans to engage in stock repurchases as this time.
Debt Repurchases
There were no debt repurchases made during the three and six months ended August 27, 2022. During the three and six months ended August 28, 2021, we purchased approximately $3.1 million and $11.0 million, respectively, aggregate principal amount of our outstanding 3.749% senior unsecured notes due August 1,
2024.
Cash Flow
Fiscal 2022 compared with Fiscal 2021
Net cash used in operating activities for the six months ended August 27, 2022 was $582.4 million, compared with net cash provided by operating activities of $46.0 million in the corresponding period in fiscal 2021. The year-over-year change in operating cash flow was primarily due to higher net loss, adjusted for non-cash expense, which included the impact of higher impairments in fiscal 2022, as well as investments in inventory as a result of lower than anticipated sales, partially offset by a decrease in accrued expenses and other current liabilities.
Retail
inventory, which includes inventory in our distribution facilities for direct to customer shipments, was approximately $1.576 billion at August 27, 2022, a decrease of 8.6% compared with retail inventory at February 26, 2022. We continue to focus on our inventory optimization strategies.
Net cash used in investing activities for the six months ended August 27, 2022 was $226.5 million, compared with net cash used in investing activities of $174.5 million in the corresponding period of fiscal 2021. For the six months ended August 27, 2022, net cash used in investing activities included $226.5 million of capital expenditures. For the six months ended August
28, 2021, net cash used in investing activities was comprised of $149.5 million of capital expenditures and $30.0 million of purchases of held-to-maturity investment securities, partially offset by $5.0 million in proceeds from the sale of property.
Net cash provided by financing activities for the six months ended August 27, 2022 was $505.6 million, compared with net cash used in financing activities of $255.4 million in the corresponding period of fiscal 2021. Net cash provided by financing activities in the six months ended August 27, 2022 was comprised of $550.0 million of borrowings under the ABL Facility, offset by repurchases of common stock of $43.2 million, of which $40.4 million is related to our share repurchase program, repayments of finance leases of $0.8 million and dividend
payments of $0.3 million. Net cash used in financing activities in the six months ended August 28, 2021 was comprised of repurchases of our common stock of $240.0 million, of which $231.2
million is related to the Company's share repurchase program, repayments of long-term debt of $11.4 million, payments of deferred financing costs of $3.4 million and dividend payments of $0.6 million.
Seasonality
Our
business is subject to seasonal influences. Generally, our sales volumes are higher in the calendar months of August, November and December, and lower in September and October.
Critical Accounting Policies
See "Critical Accounting Policies" under Item 7 of our Annual Report on Form 10-K for the fiscal year ended February 26, 2022 ("2021 Form 10-K"), filed with the Securities and Exchange Commission ("SEC").
Forward-Looking Statements
This
Form 10-Q and Management’s Discussion and Analysis of Financial Condition and Results of Operations contain forward-looking statements within the meaning of Section 21 E of the Securities Exchange Act of 1934 including, but not limited to, our progress and anticipated progress towards our long-term objectives, as well as more generally the status of our future liquidity and financial condition and our outlook for our 2022 fiscal year. Many of these forward-looking statements can be identified by use of words such as may, will, expect, anticipate, approximate, estimate, assume, continue, model, project, plan, goal, preliminary, and similar words and phrases, although the absence of those words does not necessarily mean that statements are not forward-looking. Our actual results and future financial condition may differ materially from those expressed in any such forward-looking statements as a result of many factors. Such factors include, without limitation: general economic
conditions including the recent supply chain disruptions, labor shortages, wage pressures, rising inflation and the ongoing military conflict between Russia and Ukraine; challenges related to our relationships with our suppliers, including the failure of our suppliers to supply us with the necessary volume and type of products; the impact of cost-saving measures; our inability to generate sufficient cash to service all of our indebtedness or our ability to access additional capital; our inability to complete our expected credit financings; changes to our credit rating or the terms on which vendors or others will provide us credit; the impact of strategic changes, including the reaction of customers to such changes; a challenging overall macroeconomic environment and a highly competitive retailing environment; risks associated with the ongoing COVID-19 pandemic and the governmental responses to it, including its impacts across our businesses on demand and operations,
as well as on the operations of our suppliers and other business partners, and the effectiveness of our and governmental actions taken in response to these risks; changing consumer preferences, spending habits and demographics; demographics and other macroeconomic factors that may impact the level of spending for the types of merchandise sold by us; challenges in executing our omni-channel and transformation strategy, including our ability to establish and profitably maintain the appropriate mix of digital and physical presence in the markets we serve; our ability to successfully execute our store fleet optimization strategies, including our ability to achieve anticipated cost savings and to not exceed anticipated costs; our ability to execute on any additional strategic transactions and realize the benefits of any acquisitions, partnerships, investments or divestitures; disruptions to our information technology systems, including but not limited to security breaches
of systems protecting consumer and employee information or other types of cybercrimes or cybersecurity attacks; damage to our reputation in any aspect of our operations; the cost of labor, merchandise, logistical costs and other costs and expenses; potential supply chain disruption due to trade restrictions or otherwise, and other factors such as natural disasters, pandemics, including the COVID-19 pandemic, political instability, labor disturbances, product recalls, financial or operational instability of suppliers or carriers, and other items; inflation and the related increases in costs of materials, labor and other costs; inefficient management of relationships and dependencies on third-party service providers; our ability to attract and retain qualified employees in all areas of the organization; unusual weather patterns and natural disasters, including the impact of climate change; uncertainty and disruptions in financial markets; volatility in the price of our
common stock and its effect, and the effect of other factors, including the COVID-19 pandemic, on our capital allocation strategy; changes to statutory, regulatory and other legal requirements or deemed noncompliance with such requirements; changes to accounting rules, regulations and tax laws, or new interpretations of existing accounting standards or tax laws; new, or developments in existing, litigation, claims or assessments; and a failure of our business partners to adhere to appropriate laws, regulations or standards. Except as required by law, we do not undertake any obligation to update our forward-looking statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our
exposure to market risk for changes in interest rates relates primarily to our investment securities and the ABL Facility. Our market risks at August 27, 2022 are similar to those disclosed in Item 7A of our 2021 Form 10-K.
As of August 27, 2022, our investments include cash and cash equivalents of approximately $135.3 million, restricted cash of $31.4 million, and long-term investments in auction rate securities of approximately $19.3 million at weighted average interest rates of 1.42%, 0.05%, and 1.31%, respectively. The book value of these investments is representative of their fair values.
Our senior unsecured notes have fixed interest rates and are not subject to interest rate risk. As of August 27, 2022, the fair value of the senior unsecured notes was $254.3 million, which is based on quoted prices in active markets, compared with the carrying value of approximately $1.184 billion. As of August 27, 2022, the carrying amount of the ABL Facility approximates fair value as interest charged is based on the current market rate.
ITEM 4. CONTROLS AND PROCEDURES
(a)Disclosure Controls
and Procedures
Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, have reviewed and evaluated the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 240.13a-15(e) and 15d-15(e)) as of August 27, 2022 (the end of the period covered by this quarterly report on Form 10-Q). Based on that evaluation, the Principal Executive Officer and the Principal Financial Officer have concluded that our current disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (ii) accumulated and communicated to our management,
including our Principal Executive Officer and Principal Financial Officer, to allow timely decisions regarding required disclosure.
(b)Changes in Internal Control over Financial Reporting
In the ordinary course of business, management reviews its system of internal control over financial reporting and makes changes to its systems and processes to improve controls and increase efficiency, while ensuring that we maintain an effective internal control environment. Changes may include activities such as implementing new, more efficient systems and automating manual processes.
During the first quarter of fiscal 2022, we implemented new general ledger, sales audit, accounts payable, and
consolidation and reporting systems as part of our multi-year effort to upgrade and/or replace certain of our information systems. The implementation resulted in certain changes to the Registrant's processes and procedures related to general accounting, sales audit, and accounts payable, and financial reporting that have required the Registrant to effect certain modifications to its internal control over financial reporting. These changes to the Registrant's processes and procedures have been and will continue to be subjected to the Registrant's processes for evaluating the design and operating effectiveness of internal control over
financial reporting. Other than the system implementation noted above, the Registrant's principal executive officer and principal financial officer have determined that there have been no other changes in the Registrant's internal control over financial reporting during the most recently completed fiscal quarter covered by this report identified in connection with the evaluation described above that have materially affected, or are reasonably likely to materially affect, the Registrant's internal control over financial reporting.
A putative securities class action was filed on April 14, 2020 against our Company and three of our officers and/or directors (Mark Tritton (the Company's former President and Chief Executive Officer), Mary Winston (the Company’s former
Interim Chief Executive Officer) and Robyn D’Elia (the Company’s former Chief Financial Officer and Treasurer)) in the United States District Court for the District of New Jersey (the "New Jersey federal court"). The case, which is captioned Vitiello v. Bed Bath & Beyond Inc., et al., Case No. 2:20-cv-04240-MCA-MAH, asserts claims under §§ 10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act") on behalf of a putative class of purchasers of our securities from October 2, 2019 through February 11, 2020. The Complaint alleges that certain of our disclosures about financial performance and certain other public statements during the putative class period were materially false or misleading. A similar putative
securities class action, asserting the same claims on behalf of the same putative class against the same defendants, was filed on April 30, 2020. That case, captioned Kirkland v. Bed Bath & Beyond Inc., et al., Case No. 1:20-cv-05339-MCA-MAH, is also pending in the United States District Court for the District of New Jersey. On August 14, 2020, the court consolidated the two cases and appointed Kavin Bakhda as lead plaintiff pursuant to the Private Securities Litigation Reform Act of 1995 (as consolidated, the "Securities Class Action"). Lead plaintiff and additional named plaintiff Richard Lipka filed an Amended Class Action Complaint on October 20, 2020, on behalf of a putative class of purchasers of the
Company’s securities from September 4, 2019 through February 11, 2020. Defendants moved to dismiss the Amended Complaint on December 21, 2020.
After a mediation held in August 2021, a settlement in principle was reached between the Company and lead plaintiff in the Securities Class Action. The settlement has been executed and was preliminarily approved by the New Jersey Federal Court in February 2022. The court granted final approval to the settlement and dismissed the Securities Class Action on June 2, 2022. The Company
had previously recorded a liability for the Securities Class Action, based on the agreed settlement amount and insurance coverage available and this amount was paid by the insurance company in the second fiscal quarter of 2022.
On July 10, 2020, the first of three related shareholder derivative actions was filed in the New Jersey federal court on behalf of our Company against various present and former directors and officers. The case, which is captioned Salu v. Tritton, et al., Case No. 2:20-cv-08673-MCA-MAH (D.N.J.), asserts claims under §§ 10(b) and 20(a) of the Exchange Act and for breach of fiduciary duty, unjust enrichment, and waste of corporate assets under state law arising from the events underlying
the securities class actions described above and from our repurchases of our own shares during the class period pled in the securities cases. The two other derivative actions, which assert similar claims, are captioned Grooms v. Tritton, et al., Case No. 2:20-cv-09610-SDW-RDW (D.N.J.) (filed July 29, 2020), and Mantia v. Fleming, et al., Case No. 2:20-cv-09763-MCA-MAH (D.N.J.) (filed July 31, 2020). On August 5, 2020, the court signed a stipulation by the parties in the Salu case to stay that action pending disposition of a motion to dismiss in the Securities Class Action, subject to various terms outlined in the stipulation. The parties in all three derivative cases have moved to
consolidate them and to apply the Salu stay of proceedings to all three actions. The court granted the motion on October 14, 2020, but the stay was subsequently lifted. On January 4, 2022, the defendants filed a motion to dismiss this case.
On August 28, 2020, another related shareholder derivative action, captioned Schneider v. Tritton, et al., Index No. 516051/2020, was filed in the Supreme Court of the State of New York, County of Kings. The claims pled in the Schneider case are similar to those pled in the three federal derivative cases, except that the Schneider
complaint does not plead claims under the Exchange Act. On September 21, 2020, the parties filed a stipulation seeking to stay that action pending disposition of a motion to dismiss in the securities class action, subject to various terms and conditions.
On June 11, 2021, an additional related derivative action was filed on behalf of the Company against certain present and former directors and officers. This Complaint is entitled Michael Anthony v Mark Tritton et. al., Index No. 514167/2021 and was filed in the Supreme Court of the State of New York, Kings County. The claims are essentially the same as in the other two derivative actions. On October
26, 2021, the court consolidated the Schneider and Anthony actions, and the plaintiffs subsequently filed a consolidated complaint. On January 10, 2022, the defendants filed a motion to dismiss this case.
The derivative cases were not included in the August 2021 settlement referred to above, but after mediation, a settlement in principle was reached in the first quarter of fiscal 2022. The settlement has been executed and was preliminarily approved by the New York State Court in June 2022. The court granted final approval to the settlement on September 21, 2022.
On August 23, 2022, a putative securities class action and shareholder derivative action
was filed against the Company, Gustavo Arnal (the Company's former Chief Financial Officer), and certain third parties in the United States District Court for the District of Columbia. The case, which is captioned Si v. Bed Bath & Beyond Corp., et al., Case No. 2:22-cv-02541, asserts claims of breach of fiduciary duty, negligent misrepresentation, and violations of §§ 10(b) and 20(a) of the Exchange Act on behalf of a putative class of purchasers of our securities from March 25, 2022 through August 18, 2022. The Complaint alleges that certain of our disclosures about the Company's revenue and proposed divestments,
as well as other disclosures made by
certain of our investors about their holdings, during the putative class period were materially false or misleading. The Company is in the early stages of evaluating the complaint, but based on current knowledge the Company believes the claims are without merit
While no assurance can be given as to the ultimate outcome of these matters, we do not believe that the final
resolution will have a material adverse effect on the Company’s consolidated financial position, results or liquidity. We are also a party to various legal proceedings arising in the ordinary course of business, which we do not believe to be material to the Company’s consolidated financial position, results of operations or liquidity.
ITEM1A. RISK FACTORS
Our reliance on international suppliers increases our risk of supply chain disruption,
which could materially increase the cost and reduce or delay the supply of our products, which could adversely affect our business, financial condition, operating results and prospects.
Our reliance on international suppliers increases our risk of supply chain disruption. Events that could cause disruptions to our supply chain include but are not limited to:
•
the imposition of additional trade laws or regulations;
•
the imposition
of additional duties, tariffs and other charges on imports and exports;
•
foreign currency fluctuations;
•
theft; and
•
restrictions on the transfer of funds.
The occurrence of any of the foregoing or other similar events could materially increase the cost and reduce or delay the supply of our products, which could adversely affect our business, financial condition, operating results and prospects.
Changes
in our credit ratings have limited, and may continue to limit, our access to capital markets and adversely affect our liquidity.
The credit rating agencies periodically review our capital structure and the quality and stability of our earnings. Downgrades to our long-term credit ratings have resulted in, and could continue to result in, reduced access to the credit and capital markets and higher interest costs on future financings, if any. For example, S&P Global Ratings recently downgraded our long-term credit rating to B- with a negative outlook. The future availability of financing will depend on a variety of factors such as economic and market conditions, the availability of credit and our credit ratings, as well as the possibility that lenders could develop a negative perception of us. There is no assurance that we will be able to obtain additional financing or be able to refinance existing
debt on favorable terms or at all, which could have a material adverse effect on our business, financial condition, results of operations and liquidity.
Our arrangements with our suppliers and vendors may be impacted by our financial results or financial position.
Substantially all of our merchandise suppliers and vendors sell to us on open account purchase terms. In the fiscal year ending February 26, 2022, we purchased our merchandise from approximately 4,600 suppliers with our largest supplier accounting for approximately 5% of our merchandise purchases and the ten largest suppliers accounting for approximately 23% of such purchases. We have no long-term contracts for the purchases of merchandise.
There is a risk that our key suppliers and vendors could respond to any actual, apparent or perceived decrease in or any concern with our financial results or liquidity by requiring or conditioning their sale of merchandise to us on more stringent or more costly payment terms, such as by requiring standby letters of credit, earlier or advance payment of invoices, payment upon delivery, payment ahead of delivery or other assurances or credit support or by choosing not to sell merchandise to us on a timely basis or at all. For example, as of August 30, 2022 certain of our vendors and suppliers have requested and/or been granted more stringent payment terms, stand-by letters of credit and/or earlier or advanced payment of invoices. Our arrangements with our suppliers and vendors may also be impacted by media reports or rumors, regardless of accuracy, regarding our financial position. Our need for additional liquidity could
significantly increase and our supply of merchandise could be materially disrupted if a significant portion of our key suppliers and vendors took one or more of the actions described above, which could have a material adverse effect on our sales, customer satisfaction, cash flows, liquidity and financial position.
Since fiscal 2019, we have incurred net losses and we expect to continue to incur additional losses in the near term.
We incurred net losses in our most recently completed three fiscal years, including a net loss of $559.6 million for the fiscal year ended February 26, 2022. We may continue to incur net losses in future periods, which would adversely affect our
business and financial condition and could have material negative effects on the trading price of our common stock. Additionally, due to the risks inherent in our operations, our future net losses may be greater than our past net losses.
Our credit agreement limits our borrowing capacity to the value of certain of our assets and is secured by certain of our personal property, and lenders may exercise remedies against the collateral if an event of default has occurred and is continuing.
Our Amended Credit Agreement provides for a $1.135 billion asset-based revolving credit facility and a $375 million first-in-last-out term loan credit facility. Our borrowing capacity under our revolving credit facility varies according to the
Company’s inventory levels and credit card receivables, net of certain reserves, and our term loan credit facility is subject to a borrowing base consisting of eligible credit card receivables, eligible inventory and eligible intellectual property. In the event of any material decrease in the amount of or appraised value of these assets or upon the disposition of certain material assets, our borrowing capacity under either the ABL Facility or the FILO Facility, would similarly decrease, which could adversely impact our business and liquidity.
The ABL Facility and FILO Facility contain customary affirmative and negative covenants and certain restrictions on operations become applicable if our availability falls below certain thresholds. These covenants could impose significant operating and financial limitations and restrictions on us, including restrictions on our ability to enter
into particular transactions such as asset sales and acquisitions, and to engage in other actions that we may believe are advisable or necessary for our business.
Our obligations under the ABL Facility and the FILO Facility are secured by first priority liens on substantially all assets of the Company and certain of its subsidiaries, subject to customary exceptions. In the event of a default that is not cured or waived within any applicable cure periods, the lenders’ commitment to extend further credit under our revolving credit facility could be terminated, our outstanding obligations under the revolving credit facility and FILO Facility could become immediately due and payable, outstanding letters of credit may
be required to be cash collateralized and remedies may be exercised against the collateral. If we are unable to borrow under our revolving credit facility, we may not have the necessary cash resources for our operations and, if any event of default occurs under either credit facility, there is no assurance that we would have the cash resources available to repay such accelerated obligations, refinance such indebtedness on commercially reasonable terms, or at all, or cash collateralize our letters of credit, which would have a material adverse effect on our business, financial condition, results of operations and liquidity.
Our business would be adversely affected if we are unable to service our debt obligations.
We have incurred indebtedness under senior unsecured notes, have entered into the ABL Facility and anticipate entering into
the Amended Credit Agreement. Our ability to pay interest and principal when due, comply with debt covenants or repurchase the senior unsecured notes if a change of control occurs, will depend upon, among other things, sales and cash flow levels and other factors that affect our future financial and operating performance, including prevailing economic conditions and financial and business factors, many of which are beyond our control. Given the current economic environment, and ongoing challenges to our business, we may be unable to maintain compliance with the minimum fixed charge coverage ratio covenant under the ABL Facility (or, if entered into, the Amended Credit Agreement) in future periods, to the extent the covenant is applicable under the terms of the ABL Facility (or the Amended Credit Agreement, as applicable), which would among other things, result in an event of default under the ABL Facility (or the Amended Credit Agreement, as applicable).
The
principal sources of our liquidity are funds generated from operating activities, available cash and cash equivalents, borrowings under our credit facilities and supplier and vendor financing. Our ability to achieve our business and cash flow plans is based on a number of assumptions which involve significant judgments and estimates of future performance, borrowing capacity and credit availability, which cannot at all times be assured. Accordingly, there is no assurance that cash flows from operations and other internal and external sources of liquidity will at all times be sufficient for our cash requirements. If necessary, we may need to consider actions and steps to improve our cash position and mitigate any potential liquidity shortfall, such as modifying our business plan, pursuing additional financing to the extent available, reducing capital expenditures, pursuing and evaluating other alternatives and opportunities to obtain additional sources of liquidity and
other potential actions to reduce costs. There can be no assurance that any of these actions would be successful, sufficient or available on favorable terms. Any inability to generate or obtain sufficient levels of liquidity to meet our cash requirements at the level and times needed would have a material adverse impact on our business and financial position.
If we become unable in the future to generate sufficient cash flow to meet our debt service requirements, we may be forced to take remedial actions such as restructuring or refinancing our debt; seeking additional debt or equity capital; reducing or delaying our business activities, or selling assets. There can be no assurance that any such measures would be successful.
Our ability to obtain any additional financing or any refinancing of our debt,
if needed at any time, depends upon many factors, including our existing level of indebtedness and restrictions in our debt facilities, historical business performance, financial projections, the value and sufficiency of collateral, prospects and creditworthiness, external economic conditions and general liquidity in the credit and capital markets. Any additional debt, equity or equity-linked financing may require modification of
our existing debt agreements, which there is no assurance would be obtainable. Any additional financing or refinancing could also be extended only at higher costs and require us to satisfy more restrictive covenants, which could
further limit or restrict our business and results of operations, or be dilutive to our stockholders.
Information available in public media that is published by third parties, including blogs, articles, online forums, message boards and social and other media may include statements not attributable to the Company and may not be reliable or accurate.
We have received, and may continue to receive, a high degree of media coverage that is published or otherwise disseminated by third parties, including blogs, articles, online forums, message boards and social and other media. This includes coverage that is not attributable to statements made by our directors, officers or employees.
We
have experienced significant turnover in our senior management team and across our organization, and our failure to attract and retain qualified personnel, skilled workers and key officers could have an adverse effect on us.
We have recently experienced significant turnover in our senior management team and reductions in our workforce and have promoted employees to fill certain key roles and are conducting searches for additional key roles, including those of a permanent chief executive officer and chief financial officer. Our business may be adversely affected by the transitions in our senior management team and reduction in workforce, and turnover at the senior management level may create instability within the Company, which could disrupt and impede our day-to-day operations, internal controls and our ability
to fully implement our business plan and growth strategy. In addition, management transition inherently causes some loss of institutional knowledge, which can negatively affect strategy and execution, and our results of operations and financial condition could be negatively impacted as a result. Competition for key management personnel is intense. If we fail to successfully attract and appoint permanent replacements with the appropriate expertise, we could experience increased employee turnover and harm to our business, results of operations, cash flow and financial condition. The search for permanent replacements could also result in significant recruiting and relocation costs, as well as increased salary and benefit costs. Like most businesses, our employees are important to our success and we are dependent in part on our ability to retain the services of our key management, operational, compliance, finance, administrative and store associate personnel. In order
to compete and implement our growth strategy, we must attract, retain, and motivate employees, and turnover of senior management, store closures and reductions in workforce may make it difficult to retain qualified and skilled employees.
Refer to Part I, Item 1A, “Risk Factors,” of our 2021 Form 10-K, filed on April 21, 2022 with the SEC, and the information contained in this Quarterly Report on Form 10-Q and our other reports and registration statements filed with the SEC.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Our
purchases of our common stock during the second quarter of fiscal 2022 were as follows:
Period
Total Number of Shares Purchased (1)
Average Price Paid per Share
Total Number of Shares Purchased as Part of Publicly or Announced Plans Programs (1)
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (1) (2)
(1)
Between December 2004 and April 2021, our Board of Directors authorized, through several share repurchase programs, the repurchase of $12.950 billion of our shares of common stock. We have authorization to make repurchases from time to time in the open market or through other parameters approved by the Board of Directors pursuant to existing rules and regulations. Shares purchased, as indicated in this table, include shares withheld to cover employee related taxes on vested restricted shares, restricted stock units and performance stock unit awards, as well as shares purchased pursuant to accelerated share repurchase agreements. Our share repurchase program could change, and any future share repurchases will be subject to the determination of the Board of Directors, based on an evaluation of our earnings, financial condition and requirements, business and market conditions and other factors, including the restrictions on share repurchases under
our secured asset-based revolving credit facility.
(2) Excludes brokerage commissions paid by the Company, if any.
As previously disclosed, the Company is party to an asset-based credit agreement,
as amended (the “Amended Credit Agreement”), which provides for a $1.0 billion asset-based revolving credit facility (the “ABL Facility”). As of August 27, 2022, the Company had $550.0 million of borrowings outstanding under the ABL Facility and $136.4 million of outstanding letters of credit had been issued under the ABL Facility. Subsequent to the end of the second quarter of fiscal 2022, the Company entered into an amendment to the Credit Agreement (the "Amendment"). The Amendment increased the aggregate revolving commitments by $130.0 million to $1.130 billion for the time periods set forth in the Amendment. The Amendment also provides for a first-in-last-out term loan facility of $375.0 million, which term loans were drawn September
2, 2022 (such date, the “Funding Date”) (such facility, the “FILO Facility” and together with the ABL Facility, the “Credit Facilities”). The ABL Facility matures on August 9, 2026, unless required to mature earlier pursuant to the terms of the Amended Credit Agreement. The FILO Facility matures on August 31, 2027, unless required to mature earlier pursuant to the terms of the Amended Credit Agreement. The Company's borrowings have been and may be used for working capital, including inventory purchases, and other general corporate purposes.
XBRL Instance Document - the instance document does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline XBRL document
The cover page of Bed Bath & Beyond Inc.’s Quarterly Report on Form 10-Q for the quarter ended August 27, 2022, formatted in Inline XBRL (included within Exhibit 101 attachments)
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
