Categories Consumer, Earnings Call Transcripts, Retail

Bed Bath & Beyond Inc. (BBBY) Q3 2020 Earnings Call Transcript

BBBY Earnings Call – Final Transcript

Bed Bath & Beyond Inc. (NASDAQ: BBBY) Q3 2020 earnings call dated Jan. 07, 2021

Corporate Participants:

Janet M. Barth — Vice President, Investor Relations

Mark J. Tritton — President and Chief Executive Officer

Gustavo Arnal — Executive Vice President, Chief Financial Officer & Treasurer

Rafeh Masood — Executive Vice President, Chief Digital Officer

John Hartmann — Executive Vice President, Chief Operating Officer; President, buybuy BABY

Analysts:

Curtis Nagle — Bank of America Merrill Lynch — Analyst

Simeon Gutman — Morgan Stanley — Analyst

Bobby Griffin — Raymond James & Associates, Inc. — Analyst

Chris Horvers — J.P. Morgan — Analyst

Peter Benedict — Robert W. Baird & Co., Inc. — Analyst

Steven Forbes — Guggenheim Securities LLC — Analyst

Carla Casella — J.P. Morgan — Analyst

Mike Lasser — UBS Securities LLC — Analyst

Seth Basham — Wedbush Securities, Inc. — Analyst

Presentation:

Operator

Welcome to the Bed Bath & Beyond’s Fiscal 2020 Third Quarter Earnings Call. [Operator Instructions] Today’s conference call is being recorded. A rebroadcast of the conference call will be available via webcast found on the company’s Investor Relations website.

At this time, I would now like to turn the conference over to Janet Barth, Vice President of Investor Relations. Please go ahead.

Janet M. Barth — Vice President, Investor Relations

Thank you and good morning everyone. Welcome to our fiscal 2020 third quarter earnings call. On the call with us today is President and CEO, Mark Tritton; Chief Financial Officer and Treasurer, Gustavo Arnal; Chief Operating Officer and President of buybuy BABY, John Hartmann; and Chief Digital Officer, Rafeh Masood. Before we begin, let me remind you that our fiscal 2020 third quarter earnings release and slide presentation can be found in the Investor Relations section of our website at www.bedbathandbeyond.com and as exhibits to the Form 8-K we just filed ahead of this call. This conference call and the slides we refer to may contain forward-looking statements, including statements about or references to, our outlook regarding the company’s performance or internal models and our long-term objectives.

All such statements are subject to risks and uncertainties that could cause actual results to differ materially from what we say during the call today. Please refer to our most recent periodic SEC filings for more detail on these risks and uncertainties, including the Risk Factors section in our Annual Report on Form 10-K. The company undertakes no obligation to update or revise any forward-looking statements. Additionally, the information we will discuss today contains certain financial measures that exclude amounts or are subject to adjustments that have the effect of excluding amounts that are included in the most directly comparable measure prepared in accordance with generally accepted accounting principles. For a reconciliation to the most comparable measures presented in accordance with GAAP, please refer to the table in our earnings press release available on our website and included as an exhibit to our Form 8-K filed today.

It is now my pleasure to turn the call over to Mark.

Mark J. Tritton — President and Chief Executive Officer

Thank you, Janet, and good morning and Happy New Year to you all. It’s hard to believe it’s been a full year since my first earnings call as CEO of Bed Bath & Beyond and what an exceptional year of change it has been. At that time, I clearly stated our fiscal 2019 third quarter results were unsatisfactory and underscore the imperative for change. I declared that we must respond to the challenges we face as a business, including pressured sales and profitability and reconstruct a modern, durable model for long-term profitable growth. Today, we stand in a very different position as a company than we did just a mere 12 months ago. Firstly, we continue to execute on our digital-first, omni-always strategy and have delivered a second consecutive quarter of comparable sales and EBITDA growth through strong margin management.

Secondly, we responded to our customers wherever they needed us, growing our omni capabilities to accelerate profitable digital growth and grow our customer base. Thirdly, we continue to strengthen an already strong balance sheet and remain focused on ensuring liquidity, optimizing costs and significantly reducing debt while driving positive cash flow generation. And while we drove overall business results, we also completed our non-core banner monetization plan with the final transaction set to close in our fiscal 2020 fourth quarter. These efforts will help fund our transformation and put us in a position to start fiscal 2021 with a more cohesive set of core businesses. Our favorable sales results are also starting to be reflected in market share data.

Month-by-month, we have been minimizing our share differentials versus the market. And encouragingly, in the most recent NPD data for October and November, we achieved market share gains in the Bed category with improving trends in both Bath and Kitchen categories. We expect to see continued improvement in market share trends, as our strategy continues to take hold. Additionally, we continue to show strong market share strength in wedding registry, where we believe we are very well positioned as a market leader when we get back to celebrating important life moments, such as getting married. All of this has been achieved this quarter despite the significant headwinds of COVID-19.

During our call today, Gustavo Arnal, Chief Financial Officer and Treasurer, will review our third quarter financial results and then provide some perspective on our fourth quarter and our outlook for fiscal 2021. Then Rafeh Masood, Chief Digital Officer, will speak about the quarter from a digital-first and customer perspective. And then John Hartmann, Chief Operating Officer and President, buybuy BABY, will do the same for our operations, including the progress on our plans to close underperforming stores and invest in our remaining portfolio. We will then take questions.

Gustavo?

Gustavo Arnal — Executive Vice President, Chief Financial Officer & Treasurer

Thank you, Mark, and good morning, everyone. Today, I will cover two key topics. First, I will provide perspective on the performance of our third quarter as well as on December sales trends. And then, I will provide visibility on the current fourth quarter as well as on our outlook for fiscal year 2021. To begin, it is important to note, that our fiscal first quarter runs through September, October and November. And consistent with last year, the Saturday of Thanksgiving weekend was the last date of the period. We delivered strong results despite extensive and widely reported COVID-related headwinds. These included lower food traffic trends, shipping capacity constraints and much higher freight costs. Further, during a challenging holiday period, we strengthened our commercial plans to drive significant digital demand, while remaining focused on delivering gross margin expansion.

Positive comp sales growth was led by our core Bed Bath & Beyond banner, which was up 5%. It was fueled by exponential digital growth of 94%, which more than offset store declines of 14%. Growth was healthy and broad-based across five key destination categories, which grew 11% and represented two-thirds of revenue. Total enterprise comparable sales grew 2%, also driven by strong digital comp growth, up 77%. As you’ll hear from John in a few minutes, COVID-related headwinds disproportionately impacted store sales in our BABY business during the quarter, yet, encouragingly, we saw a return to growth in December following some key interventions. The strength of our digital growth has been powered by the investments we have made in omni capability, including BOPIS, Curbside Pickup and Same Day Delivery, which are all completely new this year.

BOPIS orders represented 16% of total digital sales in the quarter. These service offerings provide ease and convince and allow us to further gain trust from our customers, including the approximately 7 million new online customers gained this year. Our digital capabilities are becoming a key driver of results. Net sales were $2.6 billion, an expected reduction of 5%, primarily due to the impact from banner divestitures and the continuation of our Bed Bath & Beyond Store Network Optimization initiative. This has been a holiday season like no other. As outlined by third-party data sources, including Sensormatic and Adobe Analytics, market-wide Black Friday in-store traffic was down by over 50% and online spending was up 22%. Similarly, for the six-week holiday period, market-wide in-store traffic fell between 34% and 36%. We performed strongly against this reported trend.

During the competitively intense five-day holiday sales period, from Thanks Giving through Cyber Monday, overall comp sales demand for our core U.S. Bed Bath & Beyond banner was up double digits versus last year and delivered digital comp sales growth of approximately 69%, more than offsetting store comp sales declines of 24%. And during the six-week holiday sales period from November 16 to December 27, our total enterprise comp sales grew low single digits, led by significant digital growth of more than 90%, which more than offset store comp sales declines of more than 20%. I will now continue with our third quarter financial results. On a GAAP basis, including the non-cash loss from banners divested or held for sale, we reported a net loss per diluted share of $0.61.

Our GAAP results include approximately $86 million from unfavorable impacts, which are excluded from adjusted results to provide better perspective on the underlying performance of our business. These include special items such as losses and the sales of businesses, including Cost Plus World Market, which is held for sale, as well as non-cash charges for the impairment of certain long-lived assets, plus restructuring and transformation expenses. Adjusted gross margin increased 310 basis points to 35.4%. This expansion was driven by 180 basis points of favorable strategic engineering of promotion and markdown expense, including data-driven coupon optimization; 120 basis points of favorable product mix from higher-margin categories, such as bedding and bath; and 210 basis points of leverage from distribution and fulfillment costs.

These benefits were partially offset by a 200 basis points impact from channel mix due to the anticipated larger proportion of total sales from digital channels versus the prior year. This impact also includes around 80 basis points from higher shipping expense associated with industry-wide outbound freight rate increases, particularly in the latter part of the quarter The significant year-over-year improvement in our adjusted gross margin reflects the management team’s focus on driving the components of margin while delivering exponential growth in digital. SG&A expense declined $41 million versus the prior year, driven primarily by lower payroll-related expenses, including savings from our comprehensive restructuring actions earlier in the year. Adjusted EBITDA increased 168% to $121 million, which is almost three times higher than the prior year period.

This was driven by digital sales growth coupled with gross margin expansion. Once again, these results demonstrate that our efforts to transform the business and build a modern, durable business model are working. Turning now to some cash flow and balance sheet item statements; we unlocked $244 million in positive cash flow generation. Cash flow from investments was $200 million positive as it included proceeds from non-core asset monetization, net of capex. Operating cash flow of $44 million was also positive in spite of seasonal dynamics. We continue to carefully manage working capital this quarter with ending inventories of $1.8 billion. On a sequential basis, inventories were 13% lower versus the second quarter and 30% lower than last year. This was primarily due to the impact from banner divestitures, including seasonal inventory purchases for the holiday selling period.

We are tracking at a faster pace to deliver our previously stated 2021 goal of $1 billion in inventory reduction at retail compared to 2019. Our capital expenditures in the quarter were only $38 million. That said, we have plans to significantly ramp-up our capex spending starting in fiscal ’21, in support of our digital-first, omni-always transformation. During the third quarter, we also improved our gross debt balance with a reduction in operating lease liability of about $0.5 billion from non-core banner divestitures and store closures. Taken together with $0.5 billion in debt reductions we achieved in the second quarter, we have reduced total gross debt by about $1 billion so far this year, a reduction of about 25%. We remain in a strong net cash position with an ending cash and investment balance of $1.5 billion. This is in line with the balance at the end of the second quarter even after returning cash to shareholders in the form of accelerated share repurchases.

We have also maintained a strong liquidity of $2.2 billion, including our ABL. So capitalizing on this strong financial position, we launched a $225 million accelerated share repurchase in late October. And in December, in conjunction with the announcement of the definitive agreement to divest Cost Plus World Market, we reported plans for a second ASR in the amount of $150 million. These two programs totaling $375 million are expected to be completed on or before the end of our fiscal fourth quarter next month in February and will result in a reduction of our shares outstanding of approximately 15% at current stock price levels. Our authorized level for share repurchase at this early stage of the planning period is now up to $825 million over the next three years. These actions reflect our balanced capital allocation principles, strong liquidity and confidence in our strategic growth plan.

In summary, our third quarter performance shows consistent execution of our strategy, which drives sales and EBITDA growth, coupled with strong cash flow generation and the re-initiation of capital return to shareholders. Now moving on to our outlook, I will start with some directional color on our expectations for Q4 and then provide perspective on fiscal 2021. It has been widely reported that COVID-19-related headwinds continue to impact the retail industry. In this context, we will not be providing specific sales and earnings guidance for the current fourth quarter. That said, we feel positive about the parts of the business we can control and expect to deliver year-on-year adjusted EBITDA margin improvement in Q4, this despite lower store traffic and shipping constraints, accompanied by higher freight costs. In terms of the top line, comp sales are expected to be approximately in line with last year.

We expect consistent strength in digital to be tampered by COVID-related headwinds impacting stores. December sales showed positive total enterprise comparable growth, including continued strength across key destination categories. Importantly, we’re planning for a double-digit unfavorable impact on Q4 total net sales versus last year, given the divested banners and the ongoing store optimization initiatives. In terms of gross margin, in spite of the anticipated drag from significant freight cost increases in Q4, we’re driving cost optimization actions to manage the impact of these pressures, so we expect gross margin to be about in line with the same period last year. Again, we expect to deliver a year-on-year adjusted EBITDA margin increase in Q4 with absolute EBITDA figures in line with the prior year.

Now, I’ll turn to fiscal 2021. Our initial outlook included fiscal year 2019 as the base year. At the time, our portfolio banner review was still underway. We had already divested four banners, but we did not have a signed deal for Cost Plus World Market yet. Now we do, and we expect this transaction to close imminently. Today, we’re providing additional visibility on the significant reshape of our P&L as a result of these divestitures and the closure of underperforming stores. Our significant portfolio transformation will lead to fewer, better performing stores and will include a healthier core revenue base with a larger proportion of a faster growing digital business. We’re now tightening our projected fiscal ’21 revenue range to approximately $8 billion to $8.2 billion.

Looking at quarters, starting with the first quarter, which will not be on a comp basis, we expect to recapture the lost sales opportunities from the store closures in 2020 due to COVID-19. During quarters two through four, which will be on a comp basis, we expect to sustain comparable sales levels in relation to the solid comp sales base of fiscal 2020. Our sales forecast for financial planning purposes assumes total enterprise comparable sales to be in line with fiscal 2020. We are reiterating our expectation for adjusted gross margin of approximately 35%, which represents a more than 200 basis point improvement versus pro forma 2019. We are enhancing adjusted fiscal year 2021 EBITDA to a range of between $500 million to $525 million.

This represents a 20% increase from the pro forma 2019 EBITDA base of $425 million. The drivers of the adjusted EBITDA range are consistent with the ones we have previously shared, including cost savings from planned store closures, product sourcing and restructuring actions and the impact from reinvestments and channel shift and shipping costs. And as I said earlier, we have assumed comp sales to be in line versus fiscal 2020 for modeling purposes as we’re not requiring sales growth to deliver the higher EBITDA range. But needless to say, we will strive for continued top line growth in a highly competitive environment.

Our performance to date gives us confidence in our longer-term goal of achieving between $850 million and $1 billion in adjusted EBITDA by fiscal 2023. Importantly, our portfolio transformation, coupled with store closures, is driving significant balance sheet improvement through gross debt reduction of $1 billion. This will result in a gross debt-to-EBITDA ratio below 3.5 times, which puts us well on our way to our midterm goal of below three times. We have a strategic and disciplined pathway for driving sales and margin growth, generating cash and investing in our business plan to drive shareholder value creation, and it is working.

I will now turn the call over to Rafeh Masood, Chief Digital Officer. Rafeh?

Rafeh Masood — Executive Vice President, Chief Digital Officer

Thank you, Gustavo. With COVID as a headwind to our store traffic, we have stepped up our strategy as an omni-always retailer, and it is paying off. During the third quarter, we delivered digital growth of 77%, our third consecutive quarter of growth in excess of 75% this year. Our Bed Bath & Beyond banner alone posted digital comp sales up 94%, almost doubling last year’s sales. With this momentum and based on current trends, we are on track to exceed our digital sales goal of $3 billion by the end of fiscal 2020. We have laid out a transformation plan to unlock the potential of our omni-always growth strategy by elevating customer experience, building out our omni capabilities and evolving to a digital-first culture.

The goal of this initiative is to meet customers wherever they are. I am pleased to report that the company is now incredibly equipped to do that. The benefits are coming through not only in digital sales growth but also in customer metrics. During the quarter, we gained 2.2 million new online customers of which the Bed Bath banner alone added 1.8 million. Year-to-date, we have gained approximately 7 million new online customers. And not only are we attracting new customers, we are seeing them return at a higher rate than ever before. In the third quarter, 21% of our Bed Bath & Beyond customers placed more than one online order compared to about 16% versus last year. So what’s driving the sticky customer experience for online customers? We believe the true hero for us is Buy-Online-Pick-Up-In-Store. Since introducing BOPIS and contactless Curbside Pickup services earlier this year, we have seen a rapid rate of adoption by our customers.

In the third quarter, approximately 1.2 million customers placed a BOPIS order, representing 16% of our total digital revenue. In the Bed Bath & Beyond banner, BOPIS orders represented 15% of total digital sales and 17% of total digital orders. And 60% of our BOPIS orders are ready within 30 minutes, surpassing our two-hour promise. This fast and convenient experience has earned Bed Bath & Beyond a Net Promoter Score of 80% for our BOPIS services, up from 49% in May when we first introduced this service. Our stores are now a competitive advantage of our omni strategy, fulfilling a total of 36% of all digital sales in the third quarter. This muscle was not in place last year. Now we’re connecting our stores with our online platforms, and the power of omni is enabling us to better serve our customers however they choose to shop.

We know omni-channel is the future of retail, and we are making the right investments that are resonating with our customers. The fast-paced transformation of our digital offering and elevated customer experience has resulted in a 25% lift in our online conversion rate for the third quarter as compared to the prior year. Key drivers of the increase include: first, the re-launch of our mobile sites and mobile apps. We implemented a new framework with an optimized experience that drove a 33% increase in conversion and mobile sales growth of 107% versus the prior year period. During the five-day holiday shopping period from Thanksgiving to Cyber Monday, our mobile homepage loaded 74% faster than the same period last year. We also re-launched Bed Bath & Beyond and buybuy BABY mobile apps, resulting in over 800,000 downloads this quarter.

Our Bed Bath & Beyond mobile app was launched over 15 million times during this quarter and revenue more than doubled versus last year. We have also seen the rate of app uninstalled continue to improve, further underscoring the stickiness of our customer experience. Second, in order to ensure that we were firing on all cylinders going into the holiday season, we launched Same Day Delivery on bedbathbeyond.com and buybuybaby.com to provide our customers another convenient and cost-effective way to shop. This service was introduced in Q3. Results are preliminary. But we have seen hundreds of thousands of our customers take advantage of this new convenient way to shop. We also began to offer Same Day Delivery service through the launch of Bed Bath & Beyond and buybuy BABY stores on Shipt and Instacart with both marketplaces each reaching more than 80% of U.S. household.

Harmon Face Values was recently added to the Instacart marketplace, and we are pleased with its initial launch and continued positive response from customers on this platform. Third, we implemented over 100 improvements to make our shopping experience more convenient and easier to use, including a faster checkout process and new payment type options. This includes Buy Now Pay Later options like After Pay and PayPal’s Pay in 4 as well as extending Apple pay from store only to our mobile apps. During the quarter, we also focused on optimizing our experiences and speed to place orders on our site, making it even easier, convenient and faster for our customers to shop with us. Again, each of these initiatives were geared to customers with the goal of meeting them where they are and creating multiple options for payment and delivery.

As we look at our digital program holistically, it is a true revolution from where we were a year ago and has become part of the fabric of how we operate at Bed Bath & Beyond. The customer environment is rapidly changing, and we are there to greet them at every turn. Through our enhanced services, speed and focus on engagement, our customer perception continues to improve. Our omni-always strategy is working and was a key driver of our third quarter sales performance. Our strength in digital has more than compensated for the headwind of the pandemic and has fast-tracked our transformation, as we moved into the important holiday season this year and sets us up for success moving forward. We have delivered an elevated customer experience, we launched meaningful capabilities and pivoted to digital from a laggard tactic to a strategic asset and a profitable growth engine that has delivered another strong quarter of growth.

With that, I will turn the call over to John Hartmann, our Chief Operating Officer and President of buybuy BABY. John?

John Hartmann — Executive Vice President, Chief Operating Officer; President, buybuy BABY

Thank you, Rafeh. We made exceptional progress across our operations in the third quarter, specifically as it relates to our supply chain reformation, optimizing our real estate portfolio and advancing our technology road map. Modernizing our business remains a key focus, and we are evolving our store formats, our distribution and fulfillment capabilities, alongside leveraging our unique data and insights to meet the changing needs of our customers and deliver an exceptional shopping experience. I’ll start with supply chain. While we remain focused on mid to long-term capability building, we made very substantial pivots in the third quarter. As Rafeh mentioned, our stores fulfilled 36% of total digital sales in the third quarter. While last year, we didn’t have BOPIS, Curbside Pickup or Same Day Delivery in our offering, not only do these new capabilities provide ease and convenience to our customers, they also help us to partially alleviate current shipping constraints and additional cost pressures in the supply chain.

During the quarter, we also added a secondary national carrier and several regional parcel delivery carriers, which helped to offset an over 20% cost increase from our primary carrier, FedEx. And importantly, we continue to focus intently on the health and safety of our associates working in our fulfillment centers, by instituting daily COVID cleaning procedures in our facilities. Concurrently, we launched an evaluation of a number of potential third-party logistics providers who will partner with us to establish new regional distribution centers and to manage the efficient flow of domestic distribution. We anticipate that using third-party logistics operators will also provide increased financial flexibility and reduced capital expense. This is the cornerstone of the transformation of our supply chain network and will increase our capacity for fast store replenishment, while continuing to leverage the store network for omni fulfillment.

By making the replenishment process more efficient, our store teams will have a more predictable and faster flow of the products we sell most. In turn, this will allow us to meet the increased demand for BOPIS, Curbside and Same Day Delivery services, while also reducing the time our store team spend managing deliveries so they can spend more time with our customers. Also core to our transformation is technology, and we are taking a disciplined approach to our investments in building a technology infrastructure that will enable us to personalize the service for our customers, improve our ability to predict and meet demand, make it easier to collaborate across teams and drive down inefficiencies in our business. Over the next three years, we plan to invest approximately $250 million to modernize the application and technology landscape to a cloud-empowered foundation.

Last quarter, we talked about our expanded multiyear partnership with Google and Deloitte to enhance our omni-channel shopping experience. This quarter, we defined our plans for a new ERP system. We will also be pursuing a product life-cycle management solution in support of our own brand initiative and an inventory management capability to improve inventory productivity. These plans will all start in 2021 and are foundational parts of building out our technology infrastructure. In other activity, we are making significant progress toward the targets we have previously highlighted regarding our real estate portfolio, including our Store Network Optimization and store remodel plans. Let me start with our Network Optimization program, which is designed to not only ensure our stores remain a strategic asset for us, but also to ensure that we have them in the right locations to deliver more sustainable sales growth, improved margins, and greater cash generation.

As part of this work, we are well underway in the process of closing approximately 200 underperforming Bed Bath & Beyond stores by the end of fiscal 2021. Initially, we identified about one-third of these stores to be closed by the end of the fiscal year. We have since accelerated the pace of targeted store closings this year from 70 to about 120 stores with certain stores closing earlier than planned due to having efficiently sold down store inventory during the closing process. In the third quarter, we closed 4 Bed Bath & Beyond stores and in December, we closed another 75, and we are currently liquidating an additional 42 stores. We are very pleased with our progress to-date, and completing the store closure program during fiscal 2021 remains a priority.

Turning to our Bed Bath & Beyond store remodel program. We have advanced from the initial prototype phase to active iteration within 10 stores in our Houston markets. These proof-of-concept stores highlight our destination categories, bed, bath, kitchen, and storage. We expect to complete this phase of the remodel program by the end of February 2021. Additionally, we will take all the visual signage enhancements and immediately apply them to an entire fleet of stores on the same timeline. Next, we will take our learnings from Houston and move into our first expanded wave of renovations in 2021, which includes approximately 150 stores. In total, our store remodel plan involves $250 million of investment over the next three years and touches over 450 stores, representing roughly 60% of our revenue. In addition, we will utilize strategic sourcing methods to procure necessary remodel components at a lower cost and leverage economies of scale with this overall initiative.

Instead of the legacy store-by-store one-off approach of the past, we have established a unified planning process to identify, prioritize, and sequence all aspects of the remodels. These store remodels and our network optimization plans are crucial steps in building an omni-always organization that serves our digital-first customers with an intuitive and modern shopping experience. We look forward to reporting our progress along the way. Before closing, let me provide some perspective on the quarterly performance of buybuy BABY, which represented approximately 10% of total enterprise reported sales in the third quarter. This included strong growth in digital of approximately 40%, which represented more than half of the sales in the quarter.

It remains a challenging environment for our new or soon-to-be parents who are particularly vulnerable to the perceived challenges associated with in-store shopping due to COVID-19. As a result, we saw a disproportionate level of store traffic decline from our BABY customers this quarter than across our other banners. These COVID-related headwinds have also had a short-term impact on the registry component of our business, which is highly correlated to in-store activity. While we have seen overall growth in registry, digital registries created online currently tend to carry a lower average value than those created in-store. Enhancements to the digital registry experience are addressing this opportunity to assist our customers in building a more well-rounded BABY wishlist. COVID headwinds have also constrained inventory levels in certain of our key categories, such as furniture and gear, as a result of disruptions in the global supply chain.

We have made key pivots here, including sharing improved forecasts with our vendor partners well into 2021. So, as consumer behavior shifted, we pivoted and leaned into digital to create an enhanced online experience with a more convenient suite of checkout options, including After Pay, Pay in 4 and Apple Pay. We also upgraded and re-launched our buybuy BABY app in November, strengthening the choices we offer our customers who connect with us digitally. Year-to-date, we have gained nearly 2 million U.S. online customers, an increase of 46% over last year, including more than 0.5 million new online customers in the third quarter. In all, nearly two-thirds of our baby customers only shopped online this quarter. As young parents take safety into consideration this year, our new omni capabilities allowed us to meet them where they are with BOPIS, Curbside and Same Day Delivery services.

Digital orders fulfilled by our BABY stores represented a significant portion of total orders in the quarter, with BOPIS orders representing approximately half of all store fulfilled orders. While the holiday period is traditionally not a big BABY season, except for gift-giving or needs of families getting ready for or just having had a baby, we did see strong digital demand comp growth of 49% year-over-year during the five-day holiday period from Thanksgiving to Cyber Monday. This growth was driven by top-performing BABY categories, including toys, playroom, furniture and apparel. These positive sales and category trends accelerated in December. We believe in this business, and we are now ready to double down on and significantly invest in expanding sales and margin and growing our market share.

We plan to accelerate our growth in BABY over the next several years, including introducing own brands, aging up into toddler and younger children, as well as expanding into categories like toys and educational as well as furniture, enhancing our registry and leading with new partnerships. We will also invest to scale our footprint nationwide with about 50 new stores over the next three years. Fiscal 2021 will mark the true beginning of the transformation of this banner as we execute our three-year plan and unlock the value of this brand. Earlier this week, we announced the appointment of Patty Wu as Senior Vice President and General Manager for buybuy BABY. Patty’s exceptional experience will help accelerate our plans and drive meaningful change. We look forward to sharing our progress in future conference calls.

Mark, I’ll turn it back over to you now for closing remarks.

Mark J. Tritton — President and Chief Executive Officer

Thank you, John. Our strong performance this quarter across several key performance metrics, including positive comp sales growth, gross margin expansion, positive cash flow generation and gross debt reduction is evidence of our transformation taking hold even despite the significant headwinds of a global pandemic. Yet, what I saw beyond the numbers was even more impressive. Our team was planning, modifying and executing in an aligned and disciplined way like never before. They were learning and improving in real-time as the customer conditions changed, showing true agility in motion. These newly acquired muscles extended from product and price through messaging and digital expression to sales floor and distribution center.

I’m truly grateful to all our associates that rallied around this call to action to demonstrate our strengths and opportunities as the new Bed Bath & Beyond team. In what has been an exceptional year of change so far, we still continue to make bold pivots to reconstruct, renovate and restore our company. Simply put, we’re delivering on what we said we would do. We said we would put a team in place that would have the right talent and expertise to execute our new vision and inject new ideas and that we will create the right organizational structure to facilitate more streamlined decision-making, and we’ve done that. We said we would lean into the digital space and make it easier and more convenient for our customers to shop with us, and we are doing that. We said we will reset our cost structure, modernize for growth and refine our organization, and we’ve done that and continue to focus on gross margin improvement.

We said we had a clear mandate to reestablish our authority as the preferred omni-channel Home destination and that we would use customer-inspired and market insights to develop our new customer value proposition, and we are doing that. We said we would evaluate our asset base and how best to optimize its value to the business on a go-forward basis, and we have done that. And finally, we said our mission is to ensure that Bed Bath & Beyond is well-positioned for long-term success, and we’re doing just that. I’m proud of what our teams have achieved, and I thank them for their continued dedication and commitment to the long-term success of our company. Our results this quarter set a firm base from which we will continue to drive our bold transformation and seek to deliver on our three-year strategic and financial goals shared at our 2020 Investor Day.

We have many bold and exciting plans for fiscal 2021, such as launching new own brands that will help differentiate us in our key destination category, remodeling approximately 150 stores under our Store Network Optimization program, introducing new and unique digital services designed to enhance our omni-always experience, modernizing our technology and operations and reinventing our supply chain for the future, investing to further strengthen our buybuy BABY and Harmon banners and continuing to unlock and deliver shareholder value. In a year like no other, we are embracing and driving transformative change, staying curious and bold and so much more. I’m proud of the commitment our teams have shown and what we have achieved together.

With that, we will now take your questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] And our first question is from Curt Nagle from Bank of America.

Curtis Nagle — Bank of America Merrill Lynch — Analyst

Good morning. Thanks very much for taking my questions. Yeah, so the first one is, I understand how very constrained shipping and our freight was an issue for holiday margins. But how long do you think this pressure carries into ’21? It sounds like at least for the full year. You don’t think it’s an issue since you’re still targeting ’20 — I’m sorry, 35% gross margins in 2021? And then I just have a follow-up after that.

Mark J. Tritton — President and Chief Executive Officer

Good morning, Curt. Thanks. Look, we know that the freight pressure across retail is here to stay, and we’ve built that into our future plans. So we see that our margin stability and the offsets that we’ve created currently in the proof-of-concept of those over both Q2 and Q3 of this year really stands us in good stead to deliver that 35% margin. So we feel very comfortable around that.

Curtis Nagle — Bank of America Merrill Lynch — Analyst

Okay. And maybe just again, for you, Mark. Maybe give us a quick update on some of the big merchandising initiatives you guys have outlined in October Analyst Day, such as lower sourcing and vendor costs and then starting to roll-out improved and more merchandise — more exclusive product and how much of an impact that will make in ’21 or, at least, how to think about the cadence of those things in 2021?

Mark J. Tritton — President and Chief Executive Officer

Yeah, I mean the good news is that we’ve already built a firm foundation with these results. The actions and trends we have here in terms of margin across the board are really substantial and sustainable. And then we’re going to add into those the rolling benefits as you outlined Curt. So the sourcing benefits that we’ve undertaken throughout 2020 are really going to be evidenced in first quarter onwards in 2021. And then we begin in March with the rollout of our own brands, and we’re going to be sharing more close-in the pagination of that flow throughout the year. Several brands will be launched.

But the key news is that in the first half of 2021, we’ll be addressing the majority of our big key categories. We’re already seeing strength in growth in reinventing those with own brands and also the introduction of opening price point items and a range there, which has been a huge missing part of our equation in terms of being truly competitive in the marketplace to build our authority. So the step changes, the consistent management of promotions, the mix management, now we’re going to lay in the incremental benefits of sourcing and own brand, so we’re excited about that progression in 2021.

Operator

Our next question is from Simeon Gutman from Morgan Stanley.

Simeon Gutman — Morgan Stanley — Analyst

Good morning. Thanks for taking my question. Can you talk about where your expectations were a couple of months ago for the fourth quarter in sales and now? And I know the outlook for next year embeds flattish. Does that change now that you’re going to be lapping something that may be potentially weaker in this year’s fourth quarter?

Mark J. Tritton — President and Chief Executive Officer

Yeah, I think, Simeon, again, we have robust plans for Q4 of this year. We feel good about how we’re executing on those, but there’s no doubt that the COVID headwinds and the impact of that has had on foot traffic and overall consumer confidence is something that we’ve had to factor into our plans. Hence, why we talked about the agility of our team through Q3 and now Q4 to respond to those challenges. And so we think we’ve met those in what has been a turbulent time, and we really look forward to lapping those next year in a very different way.

Simeon Gutman — Morgan Stanley — Analyst

Okay. Thanks for that. And then my follow-up. Can you talk about Q4? You mentioned the freight headwinds, but offset by some optimization on, I think, the gross margin in terms of promotion and pricing. Can you talk about the promotional environment? And then thinking about how much margin opportunity there still is, I think for next year’s guidance revision that is, it looks like it’s more of a function of the margin changing as opposed to the top line, just to confirm.

Mark J. Tritton — President and Chief Executive Officer

Yeah. I think that we would stress that we did not become more promotional during the quarter in Q3 or in Q4. We’ve actually reshaped and reengineered our promotional activity. We had opportunity to do so. But that’s really paying dividends in terms of generating gross margin and helping to create that balance and exceeding equation on the margin differentials from shipping and freight. So we’re less promotional. We’re more focused on rate price. We’re winning customers. And we see that progressing forward. And as Gustavo had outlined, we’re not putting pressure on the working sales plan to generate our EBITDA. We believe that we can do that through a number of the different initiatives we have, through cost control and definitely margin growth in 2021 as we outlined in our three-day plan — three-year plan, sorry.

Operator

And our next question is from Bobby Griffin from Raymond James.

Bobby Griffin — Raymond James & Associates, Inc. — Analyst

Good morning, everybody. Thanks for taking my questions. I guess Gustavo, Mark, the first thing I want to talk about was, looking at the range for next year, it’s a fairly tight range of $500 million to $525 million EBITDA. There’s still a lot of uncertainty out there. So can you maybe talk a little bit more about what you see in the business now that really gives you confidence in tightening that range up? And as a second part of that, where — what could be the driver that would cause that range to underperform? Is it sales? Is it margin? What gives you the most concern there?

Gustavo Arnal — Executive Vice President, Chief Financial Officer & Treasurer

Hi, Bobby, Gustavo here. So definitely, there’s still a lot of uncertainties as we look forward, but we feel very confident in our plans. We have clarity on the drivers of gross margin expansion, which is why we are reiterating a gross margin of 35% next year. In spite of the recent headwinds that we’re seeing on freight costs, as Mark mentioned, we’re being more data-driven in managing our promotion and our mix. And with that, we will offset it. It is a tighter range than the why — the one we provided at Investors Day. But we said that as we completed the portfolio work, the monetization of non-core assets, we would tighten that, and that’s where we’re coming more to you right now. On your question of what can throw us off, it’s not sales. We are prudently assuming for financial planning purposes that we would have sales, comp sales in line with prior year. And by — with that, we would deliver significant EBITDA growth.

Mark J. Tritton — President and Chief Executive Officer

Yeah. Bobby, I would just add that, I think that the plan we’re placing is a responsible plan based on changing circumstances in the market. Any threat or concern would really be a macro market issue, not an internally caused issue. And again, I think 2020 has exemplified how everyone gets affected by those things. So we are monitoring things very carefully by week and by quarter. We feel our plan is responsible and achievable, and we’re looking forward to delivering that.

Bobby Griffin — Raymond James & Associates, Inc. — Analyst

All right. Thank you. And I guess my second question would be, for the December commentary, you mentioned that the enterprise did show some growth for comparable sales. But then, I guess, for the entire quarter, you’re kind of calling for flattish versus last year or in line, I believe, still rewarding. Can you maybe just talk a little bit about what is going in there? Has something popped up in the last couple of weeks just given you concern or is that just a little bit of a function of being conservative, given the level of uncertainty that’s still out there in the world?

Mark J. Tritton — President and Chief Executive Officer

Yeah, bang on there. It’s definitely around. We’ve seen positive signs in December. Remembering that our fourth quarter is December, January, February, we still have two full months to complete this process. There’s a lot going on in the world, and we want to make sure that we’re being responsible in our planning, and we look forward to kind of sharing more in the fourth quarter.

Bobby Griffin — Raymond James & Associates, Inc. — Analyst

Thank you very much. Best of luck.

Operator

[Operator Instructions] And our next question is from Chris Horvers from J.P. Morgan.

Chris Horvers — J.P. Morgan — Analyst

Thanks. Good morning guys. So my first question is a follow-up. As you think about — you talked about things evolving and changing as you thought about your ’21 plan. Is it fair to say that COVID changed in terms of the recent surge? Are you assuming that this sort of lasts longer until we actually get to a vaccine? So was the change there? And also was the other change the freight costs. I mean presumably, as the holiday — the volume surcharges should come down as you get into a more normalized sort of shipping environment here. So is there something structural within that freight that you’re assuming sticks around?

Mark J. Tritton — President and Chief Executive Officer

Yeah, I think that — I think it’s prudent to think about an environment. I mean we saw an acceleration of change in behavior between our Q2 and September-October results and versus our November results based on COVID. And based on foot traffic to stores, customers being concerned around what the future held and real uncertainty in the market really began around the election period. So we are being prudent in thinking through with the vaccine rollout, it’s still underway. It’s still very early. We want to be able to monitor that and its impacts. We haven’t factored anything in terms of stimulus checks and their impact on the business because, again, that’s been so uncertain. It’s only just new news.

So just ensuring that the level of uncertainty and volatility that that has or could bring is built conservatively into our plans and that we can balance out any of those headwinds. I think it’s been interesting that there’s been a lot of discussion around the home category experiencing this great tailwinds from the COVID moment. All of a sudden retail have been facing incredible headwinds and confusion and concern from the customer that we’ve had to face. So I feel really positive that we’re delivering positive comps, profit, EBITDA in the face of that uncertainty and want to ensure that we’ve got a balanced plan going into 2021.

Chris Horvers — J.P. Morgan — Analyst

Got it. So understood. And then in terms of the fourth quarter, I mean, just relative to history, for gross margin rate to be worse in the fourth quarter than it was in the third quarter, just trying to really understand that, you mentioned not being more promotional in December. Is it — you get about, our math, about 140 bps from the accounting shift between cost of goods and SG&A. So is the shipping surcharge going to be — charge going to be much larger than the 80 basis points that you saw in 3Q? You lapped 180 basis points of markdown pressure. And obviously, it seems like you have very clean inventory. So just trying to understand the dynamic on a sort of year-over-year and sequential basis in gross margin such that it would be flat in the fourth quarter year-over-year?

Gustavo Arnal — Executive Vice President, Chief Financial Officer & Treasurer

Sure, Chris. It’s right on what you said about the shipping cost. Part of the reason in the prepared remarks, we talked about 80 basis points impact in Q3, that was just the latter part of the quarter. What we’re estimating in Q4 is over 150 basis points impact. And we’re committed to offsetting that again through disciplined promotion management and mix, and that’s what we will do. But the incidence on the shipping cost, it’s much larger in Q4, and that’s why we’re being prudent on that.

Chris Horvers — J.P. Morgan — Analyst

Go ahead.

Mark J. Tritton — President and Chief Executive Officer

Sorry, because I’ll just also add. If you’re looking at Q4 versus Q4 last year, the thing you just recognize in that is the consumer behavior and the impact of digital purchasing versus store purchasing. It is not like-for-like, and it’s definitely accelerated. And that’s brought with it natural pressures to margin and mix, as we’ve shared. But we’re offsetting that and mitigating that to be stable, I think, is a real achievement. So, it is Q4 like no other. And the consumer behavior, the digital EBIT and therefore what that’s meant for margin, inclusive of shipping, is part of what we’re balancing, again, one month into our three-month quarter, but we want to make sure that we’re being prudent there.

Chris Horvers — J.P. Morgan — Analyst

Understood. Thanks so much, guys.

Operator

And our next question is from Peter Benedict from Baird.

Peter Benedict — Robert W. Baird & Co., Inc. — Analyst

Hey, guys, thanks. Thanks for taking the question. First, just curious on the adoption of BOPIS, and I know it’s been around six months and the Curbside. But, I mean, how is that trending relative to your expectations? And kind of what are your plans or goals to drive continued adoption of that in the months ahead? That’s my first question.

Mark J. Tritton — President and Chief Executive Officer

Yeah, Peter, great question. I think what we’ve seen — we showed an overall statistic for Q3, but unpacking that, you see an escalation and a movement into the new muscle. Remember, we only introduced this in May. So what we’re seeing now is we have an NPS score of 80%. We’re able to provide about a two-hour assurance on our order fulfillment at store level. And it’s actually, in real terms, around 30 minutes. Customers are loving it. I think in a total industry level, BOPIS as a muscle and a new methodology is very accepted by the customer, and we’re benefiting from that as well. We saw our rates in the December period escalate week-in, week-out as customers became more concerned around delivery shipping times and really ensuring that they had a joyous holiday period that they could secure the present under the tree.

And so, we really lent into creating ease and convenience for our customers that they really responded to and we’re very grateful for. We believe these are constants now and they’re muscles in the business that we want to maintain. And for us, we know that a BOPIS or a fulfilled by store is almost equivalent to a store-based challenge to profitability. So the differential helps us and has helped us through Q3 and will help us in Q4 in terms of our shipping and profitability costs. So, we think it’s here to stay. It is one of the sticky outcomes of not just the progression in BOPIS, but how COVID has fortified this is a new muscle for most retailers.

Peter Benedict — Robert W. Baird & Co., Inc. — Analyst

Okay. Thanks for that Mark. And then I guess shifting, you guys brought registry a couple of times during your prepared remarks. And I’m not sure how much you’re willing to share quantitatively on the size of those businesses but maybe just more qualitative comments, BABY versus wedding. And I mean you talked a little bit about basket size, but just curious kind of how you see those two businesses or that business across the two segments as part of your outlook over the next couple of years, any opportunities? Thanks.

Mark J. Tritton — President and Chief Executive Officer

Yeah. It’s a great point. I would actually differentiate between the moment-in-time experience versus the go-forward experience. And the moment-in-time experience, as John outlined, BABY registry is very strong for us. But it has been more reliant on an in-store experience. And when we do that, we build a bigger basket. It’s more sticky and higher customer engagement. And so we’ve been pivoting to strengthen our digital registry. And we’ll invest there further. But for us, we see complete upside in 2021 with the return to a more normalized shopping environment in stores and digital into the true omni. When we turn to Bed Bath & Beyond, the story is even better.

We are consistently in the top of the ranking and have held market share in most recent data in terms of registries. Now we haven’t had the benefit of that in our 2020 or current numbers because of the COVID moment and people are just not having wedding ceremony. In 2021, there’s going to be pent-up demand and transfer into that year for weddings to occur. And because we are number one in those spaces and well placed, we held market share and the stats are good. We feel like that as a runway for growth over the next couple of years is one of our solid strengths that hasn’t existed in our 2020 or current numbers, and we’re going to be doubling down and investing there even further.

Operator

Our next question is from Steven Forbes from Guggenheim.

Steven Forbes — Guggenheim Securities LLC — Analyst

Good morning. So I wanted to focus on the trends within the categories, maybe outside of the top five that you noted in the release. So Mark, just curious how these categories are performing. I know it’s early, but performing in within some of the new concept stores or remodels? And/or, if you could just speak to some of the initiatives, right, that are centered around addressing the performance here, because although it’s a lower percentage of sales, it’s still one-third here. So I’d love to see how you’re thinking about improving those specific categories and the share trajectory within them.

Mark J. Tritton — President and Chief Executive Officer

Yeah, thanks, Steven. It’s a great question. I think that there’s been some natural headwinds there just based on some of these businesses being more relevant to store-based traffic than digital traffic for us. And one of them is personal care. Again, we — in our remodel stores that we’ve been testing, our Personal Care business is booming and actually showing a huge differential to our control. And when we get the traffic, we get the trade. And I think what we saw in the end of Q3 and somewhat in Q4 is this sort of suppression of foot traffic in stores that had a direct correlation. And that’s a business that either is a great basket build business or is just part of a trip to store that’s just not occurring at this moment as frequently it has in the past.

I think there’s a couple of key areas too where we have had some softness. I think cleaning is a really good example for us, an area that’s normally been strong. I think getting supply of product has been an issue. It’s constrained across the globe. And we just haven’t been firing in that space. But at the same time, we also cleared out of smaller categories like food to kind of clean up our assortment that we built into that impact. So we’re really focused on doubling down on our strength categories. You see that coming through and consistent through Q3, Q4 and our efforts strategically in 2021. But we are definitely focusing on a couple of key categories where we can really ramp up our inventory and our focus, and we’re already starting to see positive signs of that in January.

Steven Forbes — Guggenheim Securities LLC — Analyst

Thanks, Mark. And then maybe just a quick follow-up for you or Gustavo. Obviously, we know the minimum wage rate increases that are transpiring this year and potentially some pressure, right, from other retailers announcing [Indecipherable]. So curious how you guys think about that as a pressure point, right, on the business and what’s incorporated, right, in the financial guidance as it relates to wage investments for 2021?

Mark J. Tritton — President and Chief Executive Officer

Yeah, we definitely see the emerging trends and the evolution. We’re looking at change of leadership and how that can impact on that. No news on that today, other than that we’re looking at it very, very carefully, want to be competitive in the marketplace, and we’ll be absorbing that into our overall cost and financial plans going forward.

Steven Forbes — Guggenheim Securities LLC — Analyst

Thank you. Best of luck.

Operator

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

Carla Casella — J.P. Morgan — Analyst

Hi. Could you just give us an update on what — how much of your cost savings have you achieved in the quarter — from your overall goal?

Gustavo Arnal — Executive Vice President, Chief Financial Officer & Treasurer

Yeah, we’re on track with the path that the objective we have of $200 million to $250 million growing. Next year, we expect about $125 million at least. In the current quarter, we saw savings, as you saw in the building blocks, right, 180 basis points from product margin and savings, including leverage and distribution costs of 210 basis points.

Carla Casella — J.P. Morgan — Analyst

Okay. So we should count those towards the cost-savings program. Okay. That’s great.

Gustavo Arnal — Executive Vice President, Chief Financial Officer & Treasurer

Yeah.

Carla Casella — J.P. Morgan — Analyst

And also, did you provide overall same-store sales at buybuy BABY or Harmon? I know you gave some details, but I don’t think I heard the same-store sales number overall.

Gustavo Arnal — Executive Vice President, Chief Financial Officer & Treasurer

No, we did not provide that Carla.

Carla Casella — J.P. Morgan — Analyst

I mean historically for the third quarter?

Gustavo Arnal — Executive Vice President, Chief Financial Officer & Treasurer

No. We’ve had in the prepared remarks that in the third quarter, same-store sales were down in buybuy BABY and then recovered in December. The reason why they were down temporarily in the quarter, some of the dynamics that John spoke about. Just keep in mind, store sales, store traffic, particularly in buybuy BABY, slowed down significantly in November, and it partly compensated by the strength in digital, but still, that recovery will start happening in December.

Carla Casella — J.P. Morgan — Analyst

Okay, great. And if you’re — how much of your — if you look at the Bed Bath & Beyond business alone, how much of that business was done by digital? I know you talked about digital growth there. But I’m wondering — you gave it for the overall company, but how is that trending in Bed Bath & Beyond versus last year?

Mark J. Tritton — President and Chief Executive Officer

We did share that the digital growth there is 94% for the quarter, Carla, so exceptionally strong.

Carla Casella — J.P. Morgan — Analyst

I guess, I was wondering what percentage is the digital sales, not the growth. 31% of the overall company.

Mark J. Tritton — President and Chief Executive Officer

About one-third.

Carla Casella — J.P. Morgan — Analyst

Okay, one-third.

Mark J. Tritton — President and Chief Executive Officer

It’s about a third. Similar.

John Hartmann — Executive Vice President, Chief Operating Officer; President, buybuy BABY

Yeah. I think that the reference point to that, Carla [Indecipherable] last year. So — and that was a growth in growth of the prior year at 16%. So you can see that exponential growth and remembering that only includes the November portion of the holiday periods, so.

Operator

And our next question is from Mike Lasser from UBS.

Mike Lasser — UBS Securities LLC — Analyst

Good morning. Thanks a lot for taking my question. Mark, you mentioned several times about the importance of driving in-store traffic to the Bed Bath model, whether it’s through the wedding registry or some of the personal care products. And one of the long-lasting outcomes of the situation, is that there’s just going to be a higher penetration of e-commerce in retail, and some of the initiatives that you’re rolling out like Curbside Pickup and Ship to Home, are going to drive less traffic to your stores. So how are you going to balance that over the long run and generate some of your sales productivity initiatives?

Mark J. Tritton — President and Chief Executive Officer

Well, we saw — Michael, thanks for your question. We saw when things started normalizing in the middle of the year before the second wave that came through, we saw really great comps in stores. And the omni-channel benefit of stores and digital really came together in a positive way. For us, in our forward planning that we provided for the three-year plan, we’ve actually shown — we’ve actually factored in a very high digital rate into that, so that our financials remain stable. But we see that the driving digital piece really does come from an omni-channel environment. I think there’s a number of great retailers that are exemplifying this at the moment.

And a trip to the store, whether it be for BOPIS or for a true trip, both generate a sense of sort of in community as part of your network and part of your need lifestyle. So we look forward to a more normalized base. We think our stores will be ready when they come through with new visual merchandising, new assortment, new planning and in 150 doors plus a completely new environment. And what we’ve seen in those new environments is that, when we provide that, the differential to our control is very, very strong and that we see sales growth. So we are a firm believer in stores. We’re investing in stores. And then we think that our assortment, our presentation and our remodels will really help us even further there.

Mike Lasser — UBS Securities LLC — Analyst

Okay. My follow-up question is, in the bridge that you provided for your gross margin for 2019 to 2021, you talk about the positive drivers of sourcing own brands, better promotions and markdowns and coupons, offset by some channel shift and freight cost. In that, there’s no real discussion around reinvestment in price or other traffic-driving initiatives. And this is going to be at a time where arguably, I mean, those debatable that some of the tailwinds at the home-related category are going to fade in a reopening environment?

Mark J. Tritton — President and Chief Executive Officer

Yeah. I think, the reason why that’s not in there is that work has been done. I mean we’re already showing that the indices and the KPIs for our key categories that we’re showing great everyday parity to our key comp set. Our promotions that we’re using now are taking hold. And actually, we’re using them more effectively. So we’re seeing cost savings in the promotions, but getting much more effectiveness. We believe that these muscles, which we’ve displayed in the last two quarters that have really driven great gross margin growth, are sustainable are inside the mix. Michael, I think that the promotional expectation of 2021, I feel, are overstated. I think we see great data that shows that the home trend will be sticky. This is part of people’s lives now and their expectation of creating joy and comfort at home. And we don’t believe that there’s going to be an exceptional chase into a promotional activity. But our financials and our promotional cadence that we have and the balance we’ve created this year is ready for that in 2021.

Operator

And our last question is from Seth Basham from Wedbush Securities.

Seth Basham — Wedbush Securities, Inc. — Analyst

Thanks a lot and good morning. My first question is just on your EBITDA guidance for 2021. Could you give us some color as to what the impact from the banner sales is, specifically Cost Plus and Christmas Tree Shops in that forecast?

Gustavo Arnal — Executive Vice President, Chief Financial Officer & Treasurer

Yeah, so the guidance we’re providing in 2021 is already on a core banner basis. It basis. It only includes Bed Bath, buybuy BABY, Decorist and Harmon. We showed in the bridge what would be the pro forma 2019 post those banner divestitures. And that’s a starting point of $425 million.

Seth Basham — Wedbush Securities, Inc. — Analyst

Okay. That’s helpful. Thank you.

Gustavo Arnal — Executive Vice President, Chief Financial Officer & Treasurer

That’s on an ongoing basis.

Mark J. Tritton — President and Chief Executive Officer

Yeah. Seth, one of the things that we weren’t able to do at the Investor Day and we shared with many of you after was that we had to include in full our Cost Plus World Market business in terms of the EBITDA projection, but we didn’t include in the sales projection. So what you’re seeing now with that sale is that firmer range being presented based on the true pro forma of 2019, again, still with that responsible attitude to EBITDA for the full year based on some of the early changes in half one that can occur. But it was a secondary pivot that we can provide to be even more definitive on the way to further growth.

Gustavo Arnal — Executive Vice President, Chief Financial Officer & Treasurer

Yeah. And importantly there’s that — and I know you know this, but it’s a tighter range on revenue. Now when you compare net sales 2021 versus reported sales in 2020 or 2019, it’s not comparable. That’s why we want to provide the guidance on a comparable basis. And we’re going to see some of that dynamic in Q4 already. While we’ve mentioned that Q4 net sales are going to be down double-digits on a reported basis, between 15% up to 20% is simply the impact of the banner divestitures. It’s a significant transformation going on. It’s a totally different shape of the P&L next year on concepts, on sales, on stores.

Seth Basham — Wedbush Securities, Inc. — Analyst

Understood. My follow-up question is related to the mix of online versus in-store sales that you’re expecting in 2021. Would you expect that mix of in-store sales to increase from 2020? And if so, why do you expect so much channel shift headwinds just because of freight rate increases?

Mark J. Tritton — President and Chief Executive Officer

Yeah. I mean we do — I mean there’s a natural pivot back to stores. There just will be — and again, it’s been such an exceptional year. We think that the digital penetration will continue to be strong, and we’ve got great offsets to that, including where we’re sharing that 36% of all our digital orders were actually fulfilled by stores in the quarter was just an incredible agility there. So we’re going to be offsetting some of the costs. We see some freight permeating in 2021, but we are factoring in the high digital penetration rate.

Seth Basham — Wedbush Securities, Inc. — Analyst

Thank you very much.

Operator

And that’s all the time today we have for questions. I will now turn the call back over to Janet Barth for closing remarks.

Janet M. Barth — Vice President, Investor Relations

Thank you, and thank you all for participating in our call today. Please feel free to contact me or Felix [Phonetic] with any additional questions. Have a great day, and stay safe.

Operator

[Operator Closing Remarks]

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