Wednesday, April 9, 2008

Psychology of the Bed Bath & Beyond Inc. (BBBY) Q4 2007 Call

Most notable recent analyst ratings changes:

April 9th (today) before market open, Piper Jaffray downgraded from neutral to sell.
January 18th UBS upgraded from neutral to buy. We will pay special attention to these two analysts Q/A exchange.

Replay link:

The CC started at 5:07 PM ET with Ron Kerwin, senior VP of investor relations. The safe harbor statement was read; he was very confusing in explaining the difference in fiscal quarters and weeks.

Second minute (2nd m): Co Chairman & Co founder Leonard Feinstein read the prepared results.
3rd m: nonrecurring revenue in Q4 2006 of $.07 mentioned, “we are not immune to the challenges in the macro economic environment that persist”. His tone was very mechanical.
5th m: during fiscal 2007 added 66 new BBBY stores, now 881 stores in 49 states, fiscal Q4 added 22 stores. Christmas tree store mentioned. 1,300 domestic store goal, want to open 50-55 locations in U.S & Canada in fiscal 2008, China mentioned as well. Dozen sites planned in Canada. Other international opportunities sought. Expect to open 12 Christmas tree stores in 2008, despite head winds..
7th m: Steven Temares (Steve) CEO, challenging macro economic environment mentioned twice. Times are challenging, but we hope to widen gap between us and competitors. State of the art distribution center opened for Christmas tree shops.
9th m: controlling costs mentioned, long term prospects positive. We felt his delivery was more upbeat and optimistic than the two previous execs, "enthusiastic", although he didn't give specific reasons to believe the macro economic environment will improve. Mentioned the 50-55 store opening goal in 2008.
11th m: Number of BBBY stores will decrease over the past year.
12th m: Canada mentioned, Toronto as an aggressive expansion plan again, mentioned dozen sites purchased in Canada. Steve said "we are not satisfied."
13th m: 52 week year in 2007 mentioned, fiscal year differed from last year’s by 1 week less. 14th m: comparable same store sales decreased by 0.4% in Q4 2007, compared to increase of 5.2% last year.
14th m HOUSING AND MORTGAGE industry down turn mentioned as problematic, states of Arizona, California, Florida, and Nevada, sales noticeably weaker.
16th m: SG&A will continue to deleverage, due to slower growth and net sales, remain cautious.
17th m: "prudence" mentioned in exercising cost management going forward.
19th m: Ron back, 50-55 new stores planned for 2008, Ron's rushed delivery left us scratching our heads.
20th m: flat to negative due to housing crisis, continued pressures on gross margins due to costs and a continuation in the mix of a trend in hard line goods. Low interest rate income from a year ago.
23rd m: low double digit declines in eps in '08, to mid teen percentage. 1st Q estimate of $.26-$.30
24th m: balance sheet cash addressed, as of 3-1-'08.
25th m: failed auction rate securities liquidity problem "temporary", this will be reviewed quarterly. Failed auctions in securities. Of $550M cash, $327M par value are auction rate securities.
27th m: next CC Wednesday, June 25th. Please call Lisa, Ken or I for any questions in their corporate offices; his delivery sounded like a 40 meter NFL sprint. CC ended with no Question and Answer session.

Bed Beth & Beyond (BBBY) did not have a question and answer session with analysts, and we feel that is a huge transparency problem for shareholders. Although management said that analysts could call Lisa, Ken and Ron after the CC, we found that ridiculous. Many shareholders today are very concerned with BBBY's results and demand a more open forum. Our question to BBBY management is: Why such a hurried CC, 27 minutes TOTAL? And why dodge live questions?

Even though BBBY is in a difficult operating environment with the housing slump, we feel management is NOT Wall Street friendly or transparent. These are two negatives that could hurt share valuation. Management addressed the liquidity problem in their auction rate securities in the final minute of the CC; we found that to be under handed at best and not answering a single question regarding such a pressing issue on the live CC is troubling.

Note to readers: follow analyst Neely J.N Tamminga from Piper Jaffray, as that analyst correctly down graded BBBY this morning. And be careful with UBS analysts Colin McGranahan and Uta Werner, who upgraded BBBY from neutral to buy January 18th, not a peep out of them. We urge our readers to listen to the CCs. You should become aware of management's delivery/tone and get to know your analysts better.

Thanks for supporting our efforts for greater Corporate accountability and CC transparency. The Psychology of the Call team.

1 comment:

Anonymous said...

What a great review and commentary !