20230930-DK-Butterfly-1, Inc. - Quarter Report: 2017 November (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

______________________ 

FORM 10-Q

Quarterly Report Pursuant to Section 13 or 15(d)

of the Securities Exchange Act of 1934

For the quarterly period ended November 25, 2017

Commission File Number 0-20214

BED BATH & BEYOND INC.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: 908/688-0888

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.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

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.

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 7(a)(2)(B) of the Securities Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Number of shares outstanding of the issuer’s Common Stock:

BED BATH & BEYOND INC. AND SUBSIDIARIES

INDEX

BED BATH & BEYOND INC. AND SUBSIDIARIES

Consolidated Balance Sheets

(in thousands, except per share data)

(unaudited)

See accompanying Notes to Consolidated Financial Statements.

BED BATH & BEYOND INC. AND SUBSIDIARIES

Consolidated Statements of Earnings

(in thousands, except per share data)

(unaudited)

See accompanying Notes to Consolidated Financial Statements.

BED BATH & BEYOND INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(in thousands, unaudited)

See accompanying Notes to Consolidated Financial Statements.

BED BATH & BEYOND INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(in thousands, unaudited)

See accompanying Notes to Consolidated Financial Statements.

BED BATH & BEYOND INC. AND SUBSIDIARIES

Notes to Consolidated Financial Statements

(unaudited)

14) Subsequent Events

On December 22, 2017, H.R.1 - An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, also known as the Tax Cuts and Jobs Act, (the “Act”) was enacted. The Company is currently reviewing the components of the Act and evaluating its impact, which could be material on the Company’s fiscal year 2017 consolidated financial statements and related disclosures, including a one-time, non-cash expense related to a decrease in the value of the Company’s net deferred tax assets.

On December 27, 2017, the Company terminated its nonqualified deferred compensation plan (“NQDC”). After December 27, 2017, no participant deferrals will be accepted and all balances will be liquidated more than 12 months but less than 24 months after December 27, 2017. Until the final payment date, the NQDC will continue to operate in the ordinary course, except that no new participant deferrals will be credited to participant accounts under the NQDC.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Bed Bath & Beyond Inc. and subsidiaries (the “Company”) is an omnichannel retailer selling a wide assortment of domestics merchandise and home furnishings which operates under the names Bed Bath & Beyond (“BBB”), Christmas Tree Shops, Christmas Tree Shops andThat! or andThat! (collectively, “CTS”), Harmon, Harmon Face Values, or Face Values (collectively, “Harmon”), buybuy BABY (“Baby”) and World Market, Cost Plus World Market, or Cost Plus (collectively, “Cost Plus World Market”). Customers can purchase products either in-store, online, with a mobile device or through a customer contact center. The Company generally has the ability to have customer purchases picked up in-store or shipped direct to the customer from the Company’s distribution facilities, stores or vendors. In addition, the Company operates Of a Kind, an e-commerce website that features specially commissioned, limited edition items from emerging fashion and home designers; One Kings Lane, an authority in home décor and design, offering a unique collection of select home goods, designer and vintage items; PersonalizationMall.com (“PMall”), an industry-leading online retailer of personalized products; Chef Central, a retailer of kitchenware, cookware and homeware items catering to cooking and baking enthusiasts; and Decorist, an online interior design platform that provides personalized home design services. The Company also operates Linen Holdings, a provider of a variety of textile products, amenities and other goods to institutional customers in the hospitality, cruise line, healthcare and other industries. Additionally, the Company is a partner in a joint venture which operates eight retail stores in Mexico under the name Bed Bath & Beyond.

The Company accounts for its operations as two operating segments: North American Retail and Institutional Sales. The Institutional Sales operating segment, which is comprised of Linen Holdings, does not meet the quantitative thresholds under U.S. generally accepted accounting principles and therefore is not a reportable segment.

The Company offers an extensive selection of high quality domestics merchandise and home furnishings across all channels, concepts and countries in which it operates and strives to provide a noticeably better shopping experience through best-in-class services and solutions.

The Company’s mission is to be trusted by its customers as the expert for the home and heart-felt life events. These include certain life events that evoke strong emotional connections such as getting married, moving to a new home, having a baby, going to college and decorating a room, which the Company supports through its wedding and baby registries, mover and student life programs, and its design consultation services. The Company’s ability to achieve its mission is driven by three broad objectives: first, to present a meaningfully differentiated and complete product assortment for the home, of the right quality product, at the right value; second, to provide services and solutions that enhance the usage and enjoyment of its offerings; and third, to deliver a convenient, engaging, and inspiring shopping experience that is intelligently personalized over time. The Company is undertaking a number of strategic initiatives to support each of these objectives, as well as to drive change across the organization in order to improve operational efficiencies and to create future growth. Through this focused approach, the Company believes it will further strengthen its competitive position to be the customer’s first choice for the home and heart-felt life events.

The integration of retail store and customer facing digital channels allows the Company to provide its customers with a seamless shopping experience. In-store purchases are primarily fulfilled from that store’s inventory, or may also be shipped to a customer from one of the Company’s distribution facilities, from a vendor, or from another store. Online purchases, including web and mobile, can be shipped to a customer from the Company’s distribution facilities, directly from vendors, or from a store. The Company’s customers can also choose to pick up online orders in a store, as well as return online purchases to a store. Customers can also make online purchases through one of the Company’s customer contact centers and in-store through The Beyond Store, the Company’s proprietary, web-based platform. These capabilities allow the Company to better serve customers across various channels.

Operating in the highly competitive retail industry, the Company, along with other retail companies, is influenced by a number of factors including, but not limited to, general economic conditions including the housing market, unemployment levels and commodity prices; the overall macroeconomic environment and related changes in the retailing environment; consumer preferences, spending habits and adoption of new technologies; unusual weather patterns and natural disasters; competition from existing and potential competitors across all channels; potential supply chain disruption; the ability to find suitable locations at acceptable occupancy costs and other terms to support the Company’s plans for new stores; and the ability to assess and implement technologies in support of the Company’s development of its omnichannel capabilities. The Company cannot predict whether, when or the manner in which these factors could affect the Company’s operating results.

The results of operations for the three and nine months ended November 25, 2017 include Decorist since the date of acquisition, March 6, 2017.

The following represents an overview of the Company’s financial performance for the periods indicated:

Comparable sales for the nine months ended November 25, 2017 decreased by approximately 1.7%, as compared to a decrease of approximately 1.1% for the nine months ended November 26, 2016. For the nine months ended November 25, 2017, comparable sales consummated through customer facing digital channels continued to have strong growth over the corresponding period in the prior year, while comparable sales consummated in-store declined in the mid-single-digit percentage range.

Comparable sales include sales consummated through all retail channels which have been operating for twelve full months following the opening period (typically four to six weeks). The Company is an omnichannel 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 the Company’s distribution facilities, stores or vendors.

Sales consummated on a mobile device while physically in a store location are recorded as customer facing digital channel sales. Customer orders taken in-store by an associate through The Beyond Store, the Company’s proprietary, web-based platform are recorded as in-store sales. Customer orders reserved online and picked up in a store are recorded as in-store sales. In-store sales are reduced by sales originally consummated from customer facing digital channels and subsequently returned in-store.

Stores relocated or expanded are excluded from comparable sales if the change in square footage would cause meaningful disparity in sales over the prior period. In the case of a store to be closed, such store’s sales are not considered comparable once the store closing process has commenced. One Kings Lane is excluded from the comparable sales calculation for the three and nine months ended November 25, 2017 and will continue to be excluded until after the currently in process re-platforming of One King Lane’s systems and integration of its support services have been in place for a period of time such that there would be a meaningful comparison in One Kings Lane’s sales over the prior period. PMall, Chef Central and Decorist are also excluded from the comparable sales calculation for the three and nine months ended November 25, 2017 and Chef Central and Decorist will continue to be excluded until after the anniversary of the respective acquisition. PMall will be included in the comparable sales calculation in the fourth quarter of fiscal 2017 as the anniversary of the acquisition passed in November 2017. Linen Holdings is excluded from the comparable sales calculations and will continue to be excluded on an ongoing basis as it represents non-retail activity.

The effective tax rate for the nine months ended November 25, 2017 was 38.4%, as compared with 36.2% for the nine months ended November 26, 2016. For the nine months ended November 25, 2017, the effective tax rate included the effect of the adoption of ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvements to Share-Based Payment Accounting, (“ASU 2016-09, Stock Compensation”), which increased income tax expense by approximately $9.4 million. Also, the tax rates included other discrete tax items resulting in net benefits of approximately $8.5 million and $9.4 million, respectively, for the nine months ended November 25, 2017 and November 26, 2016.

For the nine months ended November 25, 2017, net earnings per diluted share were $1.64 ($230.8 million), as compared with net earnings per diluted share of $2.76 ($416.4 million) for the nine months ended November 26, 2016. The decrease in net earnings per diluted share for the nine months ended November 25, 2017 is the result of the decrease in net earnings due to the items described above, partially offset by the impact of the Company’s repurchases of its common stock. For the nine months ended November 25, 2017, net earnings per diluted share included the unfavorable impacts of the cash restructuring charges associated with the acceleration of the realignment of its store management structure of approximately $0.08, and the adoption of ASU 2016-09, Stock Compensation of approximately $0.07.

Capital expenditures for the nine months ended November 25, 2017 and November 26, 2016 were $264.0 million and $276.4 million, respectively. In the first nine months of fiscal 2017, more than 40% of the capital expenditures were for technology projects, including investments in the Company’s digital capabilities, and the development and deployment of new systems and equipment in its stores. The remaining capital expenditures were primarily related to investments in stores, the Company’s new Las Vegas distribution facility, which began shipping to customers during the third quarter of fiscal 2017, and its new customer contact center in Florida. The Company continues to review and prioritize its capital needs and remains committed to making the required investments in its infrastructure to help position the Company for continued growth and success.

The Company continues to make the investments and add the resources necessary to position itself for long-term success. Key areas of investment include: continuing to improve the presentation and content as well as the functionality, general search and navigation across its customer facing digital channels; improving customer data integration and customer relations management capabilities; continuing to enhance service offerings to its customers; continuing to strengthen and deepen its information technology, analytics, marketing and e-commerce groups; and creating more flexible fulfillment options that will improve the Company’s delivery capabilities and lower the Company’s shipping costs. These and other investments are expected to, among other things, provide a seamless and compelling customer experience across the Company’s omnichannel retail platform.

During the nine months ended November 25, 2017, the Company opened 20 new stores and closed eight stores. The Company plans to continue to actively manage its real estate portfolio in order to permit store sizes, layouts, locations and offerings to evolve over time to optimize market profitability and will renovate or reposition stores within markets when appropriate. Over the past several years, the Company’s pace of its store openings has slowed, and the Company has increased the number of store closings. If the Company cannot reach acceptable terms with its landlords as leases come up for renewal, the Company would expect the pace of store closings to increase as a result of its assumptions regarding bricks and mortar store traffic in future years as well as the continuation of the Company’s market optimization strategy. As of November 25, 2017, the Company has opened 20 new stores, with the potential of two or so more openings before the end of fiscal 2017. Also, the Company plans to close approximately 15 stores, all of which would result in a net reduction of five BBB stores in fiscal 2017. Additionally, the Company expects to continue to invest in technology related projects, including the deployment of new systems and equipment in its stores, enhancements to the Company’s customer facing digital channels, ongoing investment in its data warehouse and data analytics and the continued development and deployment of a new point of sale system.

During fiscal 2016, the Company’s Board of Directors authorized a quarterly dividend program. During the nine months ended November 25, 2017 and November 26, 2016, quarterly dividends totaling $0.45 and $0.375 per share were declared by the Company’s Board of Directors, of which $0.30 and $0.25 per share was paid, respectively. Subsequent to the end of the third quarter of fiscal 2017, on December 20, 2017, the Company’s Board of Directors declared a quarterly dividend of $0.15 per share to be paid on April 17, 2018 to shareholders of record as of the close of business on March 16, 2018. The Company expects to pay quarterly cash dividends on its common stock in the future, subject to the determination by the Board of Directors, based on an evaluation of the Company’s earnings, financial condition and requirements, business conditions and other factors.

During the three and nine months ended November 25, 2017, the Company repurchased approximately 0.9 million and 6.0 million shares, respectively, of its common stock at a total cost of approximately $23.6 million and $207.3 million, respectively. During the three and nine months ended November 26, 2016, the Company repurchased approximately 1.8 million and 8.3 million shares, respectively, of its common stock at a total cost of approximately $76.0 million and $375.5 million, respectively. The Company’s share repurchase program may be influenced by several factors, including business and market conditions. The Company reviews its alternatives with respect to its capital structure on an ongoing basis.

Results of Operations

Net Sales

Net sales for the three months ended November 25, 2017 were $2.955 billion, relatively flat as compared with net sales for the corresponding quarter last year, primarily due to a decrease of approximately 0.3% in comparable sales, offset by an increase in the Company’s non-comparable sales including One Kings Lane, PMall and new stores.

Net sales for the nine months ended November 25, 2017 were $8.633 billion, a decrease of $48.8 million or approximately 0.6% compared with net sales of $8.682 billion for the corresponding nine months last year, due to a decrease of approximately 1.7% in comparable sales, partially offset by an increase of approximately 1.1% in non-comparable sales including One Kings Lane, PMall and new stores.

The decrease in comparable sales for the three and nine months ended November 25, 2017 was approximately 0.3% and 1.7%, respectively, as compared to a decrease of approximately 1.4% and 1.1% for the three and nine months ended November 26, 2016. The decrease in comparable sales for the three and nine months ended November 25, 2017 was due to a decrease in the number of transactions in stores, partially offset by an increase in the average transaction amount.

The Company’s comparable sales metric considers sales consummated through all retail channels – in-store, online, with a mobile device or through a customer contact center. Customers today may take advantage of the Company’s omnichannel environment by using more than one channel when making a purchase. The Company believes in an integrated and seamless customer experience. A few examples are: a customer may be assisted by an in-store associate to create a wedding or baby registry, while the guests may ultimately purchase a gift from the Company’s websites; or a customer may research a particular item, and read other customer reviews on the Company’s websites before visiting a store to consummate the actual purchase; or a customer may reserve an item online for in-store pick up; or while in a store, a customer may make the purchase on a mobile device for in home delivery from either a distribution facility, a store or directly from a vendor. In addition, the Company accepts returns in-store without regard to the channel in which the purchase was consummated, therefore resulting in reducing store sales by sales originally consummated through customer facing digital channels. As the Company’s retail operations are integrated and it cannot reasonably track the channel in which the ultimate sale is initiated, the Company can however provide directional information on where the sale was consummated.

For the three months ended November 25, 2017, comparable sales consummated through customer facing digital channels continued to have strong growth over the corresponding period in the prior year, while comparable sales consummated in-store declined in the low-single-digit percentage range. For the nine months ended November 25, 2017, comparable sales consummated through customer facing digital channels continued to have strong growth over the corresponding period in the prior year, while comparable sales consummated in-store declined in the mid-single-digit percentage range.

For the three and nine months ended November 25, 2017, comparable sales represented $2.825 billion and $8.257 billion of net sales, respectively. For the three and nine months ended November 26, 2016, comparable sales represented $2.843 billion and $8.367 billion of net sales, respectively.

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, consumables and certain juvenile products. Sales of domestics merchandise and home furnishings for the Company accounted for approximately 35.7% and 64.3% of net sales, respectively, for the three months ended November 25, 2017 and approximately 36.4% and 63.6% of net sales for the three months ended November 26, 2016. Sales of domestics merchandise and home furnishings for the Company accounted for approximately 37.0% and 63.0% of net sales, respectively, for the nine months ended November 25, 2017 and approximately 37.3% and 62.7% of net sales for the nine months ended November 26, 2016.

Gross Profit

Gross profit for the three months ended November 25, 2017 was $1.041 billion, or 35.2% of net sales, compared with $1.093 billion, or 37.0% of net sales, for the three months ended November 26, 2016. The decrease in the gross profit margin as a percentage of net sales for the three months ended November 25, 2017 was primarily attributed to, in order of magnitude: a decrease in merchandise margin; an increase in coupon expense, resulting from increases in redemptions and the average coupon amount; and an increase in net direct to customer shipping expense.

Gross profit for the nine months ended November 25, 2017 was $3.110 billion, or 36.0% of net sales, compared with $3.233 billion, or 37.2% of net sales, for the nine months ended November 26, 2016. The decrease in the gross profit margin as a percentage of net sales for the nine months ended November 25, 2017 was primarily attributed to, in order of magnitude: a decrease in merchandise margin; an increase in net direct to customer shipping expense; and an increase in coupon expense, resulting from increases in redemptions and the average coupon amount.

Selling, General and Administrative Expenses

SG&A for the three months ended November 25, 2017 was $932.7 million, or 31.6% of net sales, compared with $881.5 million, or 29.8% of net sales, for the three months ended November 26, 2016. The increase in SG&A, as a percentage of net sales was primarily attributable to, in order of magnitude: an increase in advertising expenses, due in part to the growth in digital advertising; an increase in technology expenses and related depreciation and an increase in payroll and payroll related items (including medical insurance).

SG&A for the nine months ended November 25, 2017 was $2.686 billion, or 31.1% of net sales, compared with $2.528 billion, or 29.1% of net sales, for the nine months ended November 26, 2016. The increase in SG&A, as a percentage of net sales was primarily attributable to, in order of magnitude: an increase in advertising expenses, due in part to the growth in digital advertising; an increase in payroll and payroll related items (including salaries); an increase in technology expenses and related depreciation; and the store management restructuring charges.

Operating Profit

Operating profit for the three months ended November 25, 2017 was $108.4 million, or 3.7% of net sales, compared with $211.3 million, or 7.1% of net sales, during the comparable period last year. For the nine months ended November 25, 2017, operating profit was $424.2 million, or 4.9% of net sales, compared with $705.3 million, or 8.1% of net sales, during the comparable period last year. The changes in operating profit as a percentage of net sales were the result of the reductions in gross profit margin and the increases in SG&A as a percentage of net sales as described above.

The Company believes operating margin compression is likely to continue in fiscal 2017 as a result of several items, including, as a percentage of net sales, a decrease in merchandise margin and increases in, net direct to customer shipping expense; coupon expense; payroll and payroll-related expense; advertising expense; cash restructuring charges associated with the acceleration of the realignment of its store management structure; and technology expenses, including depreciation related to the Company’s ongoing investments. In addition, operating margin compression is likely to continue due to increases in the overall expense structure for the accelerated spending associated with the Company’s organizational changes and transformational initiatives, as well as the unfavorable impacts of Hurricanes Harvey, Irma and Maria.

Interest Expense, net

Interest expense, net for the three months ended November 25, 2017 was $13.6 million compared to $18.3 million for the three months ended November 26, 2016.  For the three months ended November 25, 2017 and November 26, 2016, interest expense, net primarily related to interest on the senior unsecured notes issued in July 2014. The decrease in interest expense, net was primarily the result of a $4.7 million favorable change in the value of the Company’s nonqualified deferred compensation plan (“NQDC”) investments. This favorable change was fully offset by a corresponding unfavorable change in the NQDC liability recorded in SG&A. These changes resulted in no net impact to the consolidated statement of earnings.

Interest expense, net for the nine months ended November 25, 2017 was $49.4 million compared to $52.8 million for the nine months ended November 26, 2016. For the nine months ended November 25, 2017 and November 26, 2016 interest expense, net primarily related to interest on the senior unsecured notes issued in July 2014. The decrease in interest expense, net was primarily the result of a $2.6 million favorable change in the value of the Company’s NQDC investments. This favorable change was fully offset by a corresponding unfavorable change in the NQDC liability recorded in SG&A. These changes resulted in no net impact to the consolidated statement of earnings.

Income Taxes

The effective tax rate for the three months ended November 25, 2017 was 35.3% compared with 34.5% for the three months ended November 26, 2016. The tax rate for the three months ended November 25, 2017 and November 26, 2016 included net benefits of approximately $3.3 million and $6.0 million, respectively, due to discrete tax events occurring during these quarters.

The effective tax rate for the nine months ended November 25, 2017 was 38.4% compared with 36.2% for the nine months ended November 26, 2016. For the nine months ended November 25, 2017, the effective tax rate included the effect of the adoption of ASU 2016-09, Stock Compensation, which increased income tax expense by approximately $9.4 million. The effect of this adoption in fiscal 2017 is expected to vary by quarter, and as anticipated, was heavily weighted toward the first quarter. The adoption of the standard does not affect the Company’s cash outflows for income taxes. Also, the tax rate for the nine months ended November 25, 2017 and November 26, 2016 included net benefits of approximately $8.5 million and $9.4 million, respectively, due to discrete tax events occurring during the first nine months of fiscal 2017 and 2016.

Potential volatility in the effective tax rate from year to year may occur as the Company is required each year to determine whether new information changes the assessment of both the probability that a tax position will effectively be sustained and the appropriateness of the amount of recognized benefit. 

On December 22, 2017, H.R.1 - An Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018, also known as the Tax Cuts and Jobs Act, (the “Act”) was enacted. The Company is currently reviewing the components of the Act and evaluating its impact, which could be material on the Company’s fiscal year 2017 consolidated financial statements and related disclosures, including a one-time, non-cash expense related to a decrease in the value of the Company’s net deferred tax assets.

Net Earnings

As a result of the factors described above, net earnings for the three and nine months ended November 25, 2017 were $61.3 million and $230.8 million, respectively, compared with $126.4 million and $416.4 million, respectively, for the corresponding period in fiscal 2016.

Growth

In the 24-year period from the beginning of fiscal 1992 to the end of the third quarter of fiscal 2017, the chain has grown from 34 stores to 1,558 stores plus the Company’s interactive platforms, including websites and applications, and distribution facilities. Total store square footage, net of openings and closings, grew from approximately 0.9 million square feet at the beginning of fiscal 1992 to approximately 43.8 million square feet at the end of the third quarter of fiscal 2017.

In addition, as of November 25, 2017, the Company has distribution facilities totaling approximately 7.2 million square feet, supporting the growth of its customer facing digital channels as well as its stores and its institutional sales segment.  During the third quarter of fiscal 2017, the Company’s newest distribution facility in Las Vegas, Nevada began shipping to customers. The new facility will replace a smaller distribution facility in that area, which will close in late 2017, and provide additional capacity to support the growth of the Company’s customer facing digital channels.

The Company plans to continue to invest in its infrastructure and its operations, including its digital, web and mobile capabilities, to reach its long-term objectives, including providing a better omnichannel experience for its customers. As of November 25, 2017, the Company has opened 20 new stores, with the potential of two or so more openings before the end of fiscal 2017. Also, the Company plans to close approximately 15 stores, all of which would result in a net reduction of five BBB stores in fiscal 2017. Also, the Company is committed to the continued growth of its merchandise categories and channels and is growing the number of items it is able to have shipped directly to customers from a vendor. The continued growth of the Company is dependent, in part, upon the Company’s ability to execute these and other key initiatives successfully.

The Company has built its management structure with a view towards its growth and believes that, as a result, it has the necessary management depth.

Liquidity and Capital Resources

The Company has been able to finance its operations, including its growth and acquisitions, substantially through internally generated funds. For fiscal 2017, the Company believes that it can continue to finance its operations, including its growth, cash dividends, planned capital expenditures, debt service obligations and share repurchases, through existing and internally generated funds. The Company believes it will end fiscal 2017 with approximately the same or slightly higher cash and investment balances than fiscal 2016. In addition, if necessary, the Company could borrow under its $250 million revolving credit facility or the available balances under its lines of credit. Capital expenditures for fiscal 2017 are planned to be approximately $350 million to $400 million, subject to the timing and composition of projects, with approximately half for information technology projects in support of the Company’s growing omnichannel capabilities. In addition, the Company reviews its alternatives with respect to its capital structure on an ongoing basis.

Fiscal 2017 compared to Fiscal 2016

Net cash provided by operating activities for the nine months ended November 25, 2017 was $491.8 million, compared with $744.2 million in the corresponding period in fiscal 2016. Year over year, the Company experienced a decrease in net earnings, and an increase in cash used by the net components of working capital (primarily accounts payable, partially offset by merchandise inventories and other current assets).

Retail inventory was approximately $3.1 billion as of November 25, 2017, a decrease of approximately 2.2% compared to retail inventory as of November 26, 2016.

Net cash used in investing activities for the nine months ended November 25, 2017 was $270.1 million, compared with $394.0 million in the corresponding period of fiscal 2016. For the nine months ended November 25, 2017, net cash used in investing activities was primarily due to $264.0 million of capital expenditures. For the nine months ended November 26, 2016, net cash used in investing activities was primarily due to $276.4 million of capital expenditures and $200.5 million of payments related to acquisitions, net of acquired cash, partially offset by $86.2 million of redemptions of investment securities.

Net cash used in financing activities for the nine months ended November 25, 2017 was $257.6 million, compared with $392.6 million in the corresponding period of fiscal 2016. The decrease in net cash used in financing activities was primarily due to a decrease in common stock repurchases of $168.3 million, partially offset by an increase in the amount paid for dividends of $22.7 million.

Seasonality

The Company’s business is subject to seasonal influences. Generally, its sales volumes are higher in the calendar months of August, November and December, and lower in February.

Critical Accounting Policies

See “Critical Accounting Policies” under Item 7 of the Company’s Annual Report on Form 10-K for the fiscal year ended February 25, 2017 (“2016 Form 10-K”), filed with the Securities and Exchange Commission (“SEC”) and incorporated by reference herein. There were no changes to the Company’s critical accounting policies during the first nine months of fiscal 2017.

Forward-Looking Statements

This Form 10-Q may contain forward-looking statements. 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, and similar words and phrases. The Company’s 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 housing market, a challenging overall macroeconomic environment and related changes in the retailing environment; consumer preferences, spending habits and adoption of new technologies; demographics and other macroeconomic factors that may impact the level of spending for the types of merchandise sold by the Company; civil disturbances and terrorist acts; unusual weather patterns and natural disasters; competition from existing and potential competitors across all channels; pricing pressures; liquidity; the ability to achieve anticipated cost savings, and to not exceed anticipated costs, associated with organizational changes; the ability to attract and retain qualified employees in all areas of the organization; the cost of labor, merchandise and other costs and expenses; potential supply chain disruption due to trade restrictions, political instability, labor disturbances, product recalls, financial or operational instability of suppliers or carriers, and other items; the ability to find suitable locations at acceptable occupancy costs and other terms to support the Company’s plans for new stores; the ability to establish and profitably maintain the appropriate mix of digital and physical presence in the markets it serves; the ability to assess and implement technologies in support of the Company’s development of its omnichannel capabilities; uncertainty in financial markets; volatility in the price of the Company’s common stock and its effect, and the effect of other factors, on the Company’s capital allocation strategy; disruptions to the Company’s information technology systems including but not limited to security breaches of systems protecting consumer and employee information; reputational risk arising from challenges to the Company’s or a third party supplier’s compliance with various laws, regulations or standards, including those related to labor, health, safety, privacy or the environment; reputational risk arising from third-party merchandise or service vendor performance in direct home delivery or assembly of product for customers; changes to statutory, regulatory and legal requirements, including without limitation proposed changes affecting international trade; changes to, or new, tax laws or interpretation of existing tax laws; new, or developments in existing, litigation, claims or assessments; changes to, or new, accounting standards; foreign currency exchange rate fluctuations; and the integration of acquired businesses. The Company does not undertake any obligation to update its forward-looking statements.

Available Information

The Company makes available as soon as reasonably practicable after filing with the SEC, free of charge, through its website, www.bedbathandbeyond.com, the Company’s annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, electronically filed or furnished pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

The Company’s exposure to market risk for changes in interest rates relates primarily to the Company’s investment securities. The Company’s market risks at November 25, 2017 are similar to those disclosed in Item 7A of the Company’s 2016 Form 10-K.

As of November 25, 2017, the Company’s investments include cash and cash equivalents of approximately $453.1 million and long term investments in auction rate securities of approximately $19.5 million at weighted average interest rates of 0.54% and 0.15%, respectively. The book value of these investments is representative of their fair values.

The Company’s senior unsecured notes have fixed interest rates and are not subject to interest rate risk. As of November 25, 2017, the fair value of the senior unsecured notes was $1.380 billion, which is based on quoted prices in active markets for identical instruments compared to the carrying value of approximately $1.500 billion.

Item 4. Controls and Procedures

The Company’s management, with the participation of its Principal Executive Officer and Principal Financial Officer, have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Exchange Act Rules 240.13a-15(e) and 15d-15(e)) as of November 25, 2017 (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 the Company’s current disclosure controls and procedures are effective to ensure that information required to be disclosed by the Company in the reports that it files or submits 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.

There were no changes in the Company’s internal controls over financial reporting that occurred during the Company’s most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The Company is party to various legal proceedings arising in the ordinary course of business, which the Company does not believe to be material to the Company’s business or financial condition.

Item 1A. Risk Factors

In addition to the other information set forth in this Form 10-Q, carefully consider the factors discussed under “Risk Factors” in the Company’s 2016 Form 10-K as filed with the Securities and Exchange Commission. These risks could materially adversely affect the Company’s business, financial condition and results of operations. These risks are not the only risks the Company faces. The Company’s operations could also be affected by additional factors that are not presently known to the Company or by factors that the Company currently considers immaterial to its business.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

The Company’s purchases of its common stock during the third quarter of fiscal 2017 were as follows:

(1) Between December 2004 and September 2015, the Company's Board of Directors authorized, through several share repurchase programs, the repurchase of $11.950 billion of its shares of common stock. The Company has 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, also include shares withheld to cover employee related taxes on vested restricted shares and performance stock unit awards.

(2) Excludes brokerage commissions paid by the Company.         

Item 5. Other Information.

On December 27, 2017, in accordance with Treasury Regulation Section 1.409A-3(j)(4)(ix)(C), the Company terminated the Bed Bath & Beyond Inc. Nonqualified Deferred Compensation Plan 2016 Restatement, effective January 1, 2016 (see Exhibit 10.1 to the Company’s Form 10-Q filed with the Commission on July 6, 2016), and its predecessor plan, the Bed Bath & Beyond Inc. Nonqualified Deferred Compensation Plan, adopted December 23, 2008 and frozen effective January 1, 2016 (see Exhibit 10.2 to the Company’s Form 10-Q filed with the Commission on July 6, 2016) and all similar arrangements (together, the “Nonqualified Deferred Compensation Plans”).

After December 27, 2017, no participant deferrals will be accepted and all balances will be liquidated more than 12 months but less than 24 months after December 27, 2017. Until the final payment date, the Nonqualified Deferred Compensation Plans will continue to operate in the ordinary course, except that no new participant deferrals will be credited to participant accounts under the Nonqualified Deferred Compensation Plans. All of the Company’s named executive officers have accounts under the Nonqualified Deferred Compensation Plans.

On December 27, 2017, the Board of Directors of Bed Bath & Beyond Inc. (the “Company”) amended Article II, Section 11B(1) of its Amended By-Laws (the “Amendment”). The Amendment clarifies that, for purposes of calculating the Required Ownership Percentage (as defined in Article II, Section 11B(2) of the Amended By-Laws) for proxy access purposes, a shareholder is not deemed to own shares with respect to which the shareholder’s economic interest has been reduced or otherwise hedged as a result of any transaction, including a short sale. The Amendment became effective on December 27, 2017. The foregoing is qualified in its entirety by reference to the text of the Company’s Amended By-Laws, a copy of which is attached as Exhibit 3.1.

Item 6. Exhibits

The exhibits to this Report are listed in the Exhibit Index included elsewhere herein.

SIGNATURES

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.

EXHIBIT INDEX

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