Bed Bath & Beyond Inc (NASDAQ: BBBY) Q3 2019 Earnings Call Transcript

Bed Bath & Beyond Inc (NASDAQ: BBBY) Q3 2019 Earnings Conference Call
January 08, 2020

Corporate Participants:

Janet M. Barth — Vice President, Investor Relations

Mark J. Tritton — President and Chief Executive Officer

Robyn D’Elia — Chief Financial Officer and Treasurer

Analysts:

Curtis Nagle — Bank of America Merrill Lynch — Analyst

Bobby Griffin — Raymond James — Analyst

Josh Kamboj — Morgan Stanley — Analyst

Atul Maheshwari — UBS — Analyst

Brad Thomas — KeyBanc Capital — Analyst

Seth Sigman — Credit Suisse — Analyst

Oliver Wintermantel — Evercore ISI — Analyst

Steven Forbes — Guggenheim Securities LLC — Analyst

Jonathan Matuszewski — Jefferies — Analyst

Seth Basham — Wedbush Securities — Analyst

Peter Benedict — Robert W. Baird — Analyst

Presentation:

Operator

Welcome to Bed Bath & Beyond’s Third Quarter Fiscal 2019 Earnings Call. [Operator Instructions] Today’s conference call is being recorded. A rebroadcast of the conference call will be available beginning on Wednesday, January 8, 2020 at 8:00 PM Eastern Time through 8:00 PM Eastern Time on Friday, January 10, 2020. To access the rebroadcast, you may dial 1-888-843-7419 with a passcode ID of 49249207.

At this time, I’d like to turn the conference call over to Janet Barth, Vice President, Investor Relations. Please go ahead.

Janet M. Barth — Vice President, Investor Relations

Thank you, Adrian, and good afternoon, everyone. Before we begin, I want to remind you that our fiscal 2019 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 filed just ahead of this call.

Joining me on our call today are Mark Tritton, Bed Bath & Beyond’s President and Chief Executive Officer; and Robyn D’Elia, our Chief Financial Officer and Treasurer.

Let me remind you that 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, our internal models and our long-term objectives. All such statements are subject to risks and uncertainties that could cause actual results to differ materially from what we say during the call today. Please refer to our most recent periodic SEC filings for more detail on these risks and uncertainties, including the Risk Factors section in our annual report on Form 10-K. The Company undertakes no obligation to update or revise any forward-looking statements.

Additionally, the information we will discuss today contain 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 measures 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 at the end of our earnings release available on our website and included as exhibit to our Form 8-K filed today.

I will now turn the call over to Mark.

Mark J. Tritton — President and Chief Executive Officer

Thank you, Janet, and good afternoon, everyone. I am delighted to be here today during my very first earnings call as Bed Bath & Beyond’s President and CEO. For many years, I’ve watched and admired this company as a competitor, as well as a customer, reflecting on my own family’s back to college experiences. I’m excited for the opportunity to reconstruct, renovate and restore this iconic retailer. For almost half a century, Bed Bath & Beyond has helped millions of people make it easy to feel at home, and I firmly believe our company remains uniquely placed to play an essential role in our customers’ lives. To do so, we need to make the business we call home as special as our customers make theirs.

Since arriving in New Jersey just 66 days ago, I have been fully immersed in the business to assess our operations, our portfolio, our capabilities and our culture. My initial enthusiasm for coming to Bed Bath & Beyond has been affirmed. We have a highly recognizable and beloved brand with passionate associates and customers. As a business, we have substantial scale with over 1,000 stores across the US and in Canada, strong brand awareness amongst our customers and a business model that’s supported by a strong balance sheet and significant cash flow generation.

From day one, I received such a warm welcome from our associates across our company and an open invitation from the team to create and lead change. During my store visits, I have witnessed the passion of our associates as they serve our customers and their implicit desire to win. I’ve also seen our customers engaging with the brand and have listened and responded directly to many customer concerns.

Turning to our recent quarterly performance, we reported sales of $2.8 billion, an 8.3% comp sales decline, and an adjusted loss of $0.38 in an adjusted diluted earnings per share. The business was challenged by pre and post of Thanksgiving holiday period, despite favorable results on a shifted basis during the five-day holiday shopping period from Thanksgiving to Cyber Monday.

Let me be clear, these results are unsatisfactory and underscore the imperative for change and strengthen our sense of priorities and purpose. 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. A path to achieving our objective will not be linear as evidenced by our third quarter results, but we will move quickly to course correct and drive the business forward.

Now, let me discuss our preliminary approach to lead our company into the future. We’ll provide a further detailed plan in the coming months, but today, I want to share some high-level insights into where we are heading. First is a deeper understanding of our customer and our market opportunity. Let’s start with some data here. Based on results of a recent brand health tracker study and NPD consumer tracking data, Bed Bath & Beyond is number one in brand awareness for the housewares and home goods category and is a strong leader in consideration for bedding and bath. Overall, 79% of our customers have a favorable impression of our brand and 75% of customers want to buy from our top categories such as home textiles and housewares. This data demonstrates that Bed Bath & Beyond is still a beloved well-known brand with tremendous opportunity to grow share within a $51 billion US market for the home-related categories we offer. We can and will be more competitive in our categories to win back share, to build stronger authority and performance.

The data also speaks to our challenges, including a lack of clarity around purpose and value and a softer [Phonetic] connection with Gen Z and millennial customers in our product categories. In addition, we know in our industry that 80% of traffic is influenced by digital touch point, reinforcing that our digital business is a gateway to our customer and that we need to drastically improve our digital platform. There are also general market pressures such as increased investment in home categories from mass retailers, new competition from direct consumer brands, increased customer expectations across store, digital and delivery experiences, and the reality that the next generation of customers are not just digitally savvy but shop digital first. As such, we will be leaning into the digital space to make it easier and more convenient for our customers to shop with us, including quickly evolving our strong performing reserve online pickup in-store offering to a full buy online pickup in-store or BOPIS model during the first half of fiscal 2020.

We have a clear mandate to reestablish our authority as the preferred omni-channel home destination. In doing so, we need to clarify the meaning of value to our customers. Our future will be framed by customer and market insights to define our market opportunity and inform the development of a winning customer value proposition, one that we can bring to life for our customers across all our retail channels, customer segments, demographics and occasions. As such, we recently entered into a partnership with the NPD Group to assess their extensive retail market data and customized reporting and other data driven services, which will enable us to more clearly review pricing, share and white space opportunities. Later this year, to build upon this partnership, we will also work with NPD to roll out a vendor collaboration program to further refine our assortments and strategies.

Regarding our go-forward strategy, we’ll be grounded in the following five pillars. First, our product. We’ll refine and amplify an exciting omni-channel assortment that rebuilds authority and preference for Bed Bath & Beyond and creates energy through differentiation and curation. Second, our price. We’ll invest in and clarify compelling value through more choice at opening price points, relevant own brands and clear price communications to sharpen our value for quality proposition and to both acquire and win back customers.

Third is our promise. We will clarify and deepen our relationship with our customers by connecting, engaging and motivating them to strengthen loyalty and lifetime value. Fourth is our place. We will accelerate and optimize connecting with, inspiring and energizing our customer by becoming a truly omni-always retailer to serve their preferred shopping needs. And lastly but critically important is our people who create and sustain a talent engine and culture that attracts, retains and develops high-performing teams who consistently deliver operational excellence and business results.

With these five pillars as our guide, we’re embracing a commitment to reconstruct and modernize our operating model to drive efficiency and effectiveness, charting a new course for our company. We look forward to sharing more details on these five strategic pillars and expectations for future performance over the next few months. We plan to host an investor event in the spring of 2020. And we thank you in advance for your patience and support while we finalize these plans.

In the meantime, our teams remain focused on accelerating our extensive transformation efforts and driving against our near-term priorities to generate savings and reinvest for the future growth. We’ve been reviewing and optimizing the Company’s asset base, including the portfolio of retail banners, as a key source of further funds to potentially redeploy and reinvest. We’ve been reviewing and resetting the cost structure, modernizing for growth and refining our organization, which is expected to result in significant savings in both cost of sales and SG&A, including reducing overhead, improving sourcing, increasing private label penetration and optimizing our supply chain. We also have been more definitively analyzing our sales and share in an effort to improve our sales trend and top line growth in line with our future goals.

While our top line still remains challenged, we’ve made tangible progress on many of these priorities. One action we’ve taken includes the announcement earlier this week of the completion of a real estate sales leaseback transaction which generated net proceeds of over $250 million. This deal includes commercial space including retail stores, a distribution facility and our corporate office in Union, New Jersey, which will be continued to be occupied under the long-term leases. This activity marks the first step towards unlocking valuable capital in our business that can be put to work to amplify our plans to build a stronger and more efficient company to support revenue growth, financial stability and shareholder value.

While the specifics of our capital allocation strategy remain under review as the Board and management team evaluate future capital investments required to accelerate the Company’s ongoing business transformation, the net proceeds from the sale leaseback transaction and other potential cash generating transactions could be used to reinvest in the Company’s core business operations to drive growth, fund share repurchases, reduce the Company’s outstanding debt or some combination of these.

While we cannot find any specifics at this time, we are still actively pursuing other potential portfolio adjustments and working through the process with our outside advisors. In connection with this process, the Company continues to evaluate certain remaining owned real estate. Whether we engage in any such future action and the associated timing will be based on a careful assessment of each asset and how to best optimize its value for the business on a go-forward basis. I look forward to updating you on our progress in due course.

As we reconstruct and modernize our operating model, we need to embed the right leadership capabilities and accountability measures to ensure the business operates efficiently and effectively. A rethink of the Company’s leadership team was necessary to propel Bed Bath & Beyond forward. Last month, I announced extensive changes to our leadership team, including the departure of six senior members. We’ll be putting a team in place that will not only have the right talent and expertise to execute our new vision and inject new ideas, but also the right organizational structure to facilitate more streamlined decision-making, to accelerate the pace of transformation and to reestablish Bed Bath & Beyond’s authority in the home space.

Balancing our existing expertise with fresh perspectives from new innovative leaders of change will help us to better anticipate and support our customers in their life journeys and shopping needs. During this period of transition, I am grateful to our leaders who have stepped up to provide key interim leadership in merchandising, digital, marketing, own brand and legal. I have been buoyed by the immediate positive change that the engagement of these key leadership teams has provided. I’ll be also leaning in during this transition period and personally overseeing the work of several teams as we solidify our strategy and plans together. In connection with the leadership announcement, I have been active in the recruitment process for these roles already. The volume of inbound interest has been extremely high, and I’m confident that we will recruit top talent for these positions.

In other activity, as part of our strategic focus, we’ve been further evaluating our product assortment. We are taking aggressive steps to rationalize the assortment and better manage inventory as we start a journey in building our offering of own brands, balanced with a powerful arsenal of core national brands. More to come on this soon. These are among [Phonetic] the early accelerated actions we are taking to lay the foundation to create a new vision for our company, one in which we work together to build a better business every day and a place where we make it easy for our millions of customers to feel at home.

With respect to our sales stabilization efforts, we did see some positive signs of growth during the recent Thanksgiving sales period, benefiting from less stores being open on Thanksgiving Day this year, new promotional activities and new pricing models. Comparing these five days from Thanksgiving through Cyber Monday 2019 versus 2018, comp sales actually increased by 7.1%, supported by growth in physical stores of about 5% and strong growth from our digital channels in excess of 13%. These results begin to demonstrate that when we think and act differently, we can create meaningful positive outcomes. While the strong promotional activity during this holiday period is not preferred, we will be sharpening our value for quality proposition in an effort to not only win back customers but also attract new one.

As I said earlier, our third quarter results were unsatisfactory. To some extent, our performance was impacted by self-inflicted issues such as poor inventory management, non-competitive pricing and a lack of convenient shopping options like BOPIS, which I do know can be rectified going forward. In the near term, we will be focused on these issues and our operating model. And while improved performance will not be linear, we will continue to lay the foundation of our transformation as we work to address the internal and external headwinds that are impacting on our business currently.

In short, my mission is to ensure that Bed Bath & Beyond is well positioned for the long-term success. We have a highly recognizable and beloved brand with passionate associates and customers. I truly believe this is one of the last iconic retailer turnarounds in this country, and I’m excited about the future of our business.

I’ll now turn the call over to Robyn to review our quarterly financials, and then afterwards, I will make some closing remarks. Robyn?

Robyn D’Elia — Chief Financial Officer and Treasurer

Thank you, Mark. Let’s start with a review of our GAAP results. We reported a net loss per diluted share of $0.31 for the third quarter of fiscal 2019, compared to net income per diluted share of $0.18 in the prior year period, which included a benefit of $0.16 from a gain on the sale of a building. Our reported net loss this quarter include the net benefit of $0.07 per diluted share for special items, which include a favorable adjustment of $24 million to the Company’s previously-established incremental reserve for future markdowns that was partially offset by a non-cash charge of $12 million for the impairment of certain store level assets.

On an adjusted basis, our non-GAAP net loss per diluted share was $0.38. To better represent the year-over-year performance of the business during the comparative quarters and consistent with our disclosures during previous earnings calls in fiscal 2019, my review of our quarterly results will be on a non-GAAP basis, excluding the adjustment to the inventory reserve and the store impairment charge, as well as last year’s gain from the building sale. As a reminder, our third quarter this year consisted of the 13 weeks ending November 30th and included Black Friday and the Saturday after Thanksgiving, while our third quarter last year consisted of the 13 weeks ending December 1st and included Black Friday and Cyber Monday week.

Net sales in the quarter were $2.8 billion, a decrease of 9% from the third quarter of last year. Comp sales for the quarter decreased 8.3% and reflected a decrease in the number of transactions, partially offset by an increase in the average transaction amount. On a directional basis, comp sales from our stores declined in the high-single digit percentage range, while comp sales from our digital channel declined in the mid-single digit percentage range.

Sales for the third quarter were significantly impacted by the calendar shift of the Thanksgiving holiday. This year, there was one less week of holiday sales compared to the prior year period. Adjusting for this calendar shift to include Thanksgiving and Cyber Monday weeks in both periods, our comp sales declined only 3.6% with a decline in store sales of 6.5% and growth in digital sales of 9.4%.

During the like-for-like comparable period covering the five days from Thanksgiving to Cyber Monday, our performance showed comp sales growth of 7.1%, including growth in stores of over 5% and digital growth in excess of 13%. Despite the calendar shift, our business remains challenged with some self-inflicted issues including poor inventory management, non-competitive pricing and a lack of convenient shopping options, and we are working to address these issues.

To create a noticeably different shopping experience for our customers, we executed a rapid refresh of 156 of our highest volume and most profitable Bed Bath & Beyond stores, including basic improvements to store entryways and checkout. We also engaged in new promotional activity during the holiday period, including special in-store and online sales events and the launch of our first-ever national Black Friday advertising campaign. Overall, these are positive steps, but we know we have a lot more work to do to stabilize our top line and margins.

Moving now to the gross margin, our adjusted gross margin for the quarter was 32.3% of net sales as compared to 33.1% in the third quarter of last year. This 80 basis point decline is primarily due to the decrease in merchandise margin, driven by a higher level of promotional activity in the quarter and was partially offset by a decrease in net direct to customer shipping expense. Our Beyond Plus membership program continues to grow and now stands at about 1.4 million members. While the Beyond Plus customer spends more and visits more often, the program continues to unfavorably impact our gross margin, including by about 35 basis points during the fiscal 2019 third quarter, which is similar to the prior-year impact.

Moving to SG&A, adjusted SG&A expense for the quarter was $931.8 million or 33.8% of net sales, as compared to $982.5 million or 32.4% of net sales in the prior year period. This $51 million decrease reflects our progress in resetting our cost structure, including lower payroll and payroll-related expenses from several actions taken this year to reduce overhead costs, and lower occupancy expenses resulting from our ongoing comprehensive real estate optimization effort, partially offset by higher management consulting expenses associated with some of our strategic initiatives. As a percentage of net sales, the 140 basis point increase in SG&A was primarily due to the effect of our fixed costs such as occupancy and technology related expenses including depreciation on a lower sales base, as well as from higher advertising expenses.

On an adjusted basis, our effective tax rate was 20.6% and includes $2.8 million of net after-tax costs due to distinct events occurring during the quarter.

Now, looking to our balance sheet, we ended the quarter with $920 million in cash and investments. Retail inventories of $2.7 billion at cost reflected a reduction of 10% or $289 million at cost during the quarter compared to the end of the prior year period excluding the impact of the incremental reserve for future markdowns. This 10% reduction in inventory is despite our quarterly sales decline of 9%.

Let me now briefly give an update on our inventory reduction initiative and the adjustment to the reserve I referenced earlier. As we disclosed last quarter, we initiated a plan to aggressively reduce up to $1 billion of inventory at retail over the next 18 months as part of our near-term priority to review and optimize our asset base. This included the removal of approximately $350 million of inventory at retail before the holiday. In conjunction with this decision, we took an incremental reserve for future markdowns of $194 million in the second quarter. We have subsequently refined our plan. And as a result, we now estimate our recovery rate will be higher than originally planned, and therefore, we recorded a $24 million favorable adjustment to our reserve for future markdowns in the third quarter. This adjustment is reflected in our reconciliation for adjusted gross profit included in our financial disclosures.

Moving to capex, our capital expenditures for the first nine months were $188 million with nearly 50% related to technology projects, primarily focused on logistics, digital capabilities and analytics. The remaining capex was primarily related to investments in stores, including remodels and new store openings.

During the third quarter, we closed 14 stores across all concepts and opened four stores. We now plan to close approximately 40 total stores, including about 20 Bed Bath & Beyond stores. We had previously planned to close 60 total stores, including about 40 Bed Bath & Beyond stores. We’ve decided to delay the closing of 20 of the 40 Bed Bath & Beyond stores that were scheduled to close to utilize these stores during the first half of fiscal 2020 to better facilitate the clearance and sell-through of the merchandise associated with the inventory reduction initiative. We are still on target to open approximately 10 total stores, including about two Bed Bath stores during fiscal 2019.

Regarding share repurchase activity, we had a low level of engagement in the market, repurchasing $1.2 million or 87,000 shares during the quarter. And as Mark stated earlier, our capital allocation strategy remains under review as the Board and management evaluate future capital investments required to accelerate the Company’s ongoing business transformation. Today, our Board of Directors declared a quarterly dividend of $0.17 per share to be paid on April 14, 2020 to shareholders of record as of March 13, 2020.

Similar to our third quarter results, we expect our sales and profitability to remain pressured during the fiscal 2019 fourth quarter. Considering these headwinds and Mark’s ongoing work to assess the business and finalize the details of our go-forward strategic plan, as well as the extensive senior leadership changes within the past month, we believe it is appropriate to withdraw our fiscal 2019 full year financial guidance.

Before I conclude, I’d like to provide a few additional pieces of information. First, our fiscal 2019 fourth quarter pre-tax earnings will include the following items. Approximately $11 million of severance expense associated with the extensive leadership changes announced in December and approximately $33 million of the loss related to the sale leaseback transaction. Second, our fiscal 2019 capital expenditures are now planned to be lower at approximately $275 million to $300 million, compared to our previous estimate of between $350 million to $375 million. This lower estimate is primarily due to the timing of projects. And finally, in connection with the recently-completed sale leaseback transaction, we will incur annual incremental pre-tax net occupancy costs of $11 million, which began with the closing of the transaction in late December. Our balance sheet will include roughly $190 million of incremental lease assets and liabilities from this transaction. The transaction generated net proceeds of more than $250 million and included about 2.1 million of our nearly 4 million square feet of owned real estate and consisted of 12 retail locations, one distribution facility and our corporate campus in New Jersey. And the lease terms on these properties generally range from 12 to 18 years.

I will now turn the call back over to Mark for some closing remarks.

Mark J. Tritton — President and Chief Executive Officer

Thank you, Robyn. It’s clear that we have some heavy lifting to do against the emerging plan and clear goals. I believe that to change the trajectory of our current results, we must first identify and understand where the customer needs and the marketplace are headed and then invest quickly and consistently to ensure our core business can serve those needs competitively. The approach we are taking to set the future strategy is very much aligned to fulfill this vision.

So today, I want to be clear on where we stand and where we are going. We’re experiencing short-term pain, some of which has been self-inflicted. We are making bold and broad-based changes to modernize our business. We have a solid balance sheet. We will have a relentless focus on our customer. We will act as a true omni-channel retailer. We will be agile and take a measured approach. And as such, these results will be accomplished over a period of quarters and years to create a stronger authority in our market and a sustainable durable business model.

One of the advantages of my more than 30 years of experience in different retail environments is seeing other cultures, different structures and different models during turnaround situations and growth recovery. Through the lens of these experiences, I can see our company’s fundamental advantages, challenges and opportunities much more clearly. It’s this perspective that’s helping me to look objectively at the business and make bold pivots to reconstruct, renovate and restore Bed Bath & Beyond. We have plenty of options and a healthy balance sheet, as I said, to get to work and accomplish our goals. As I said before, our path to achieving our objective will not be linear, as evidenced by our third quarter results, but we will move quickly to course correct and drive the business forward.

In closing, I want to say once again how delighted I am to have the opportunity to lead this iconic company. Our entire team of more than 60,000 associates and I recognize that we have work to do to get Bed Bath & Beyond to master the fundamentals and strengthen our execution. We will work together to finalize the details of our strategy and will share these plans with you over the coming months. We appreciate your patience as we embark and pursue on this journey to position Bed Bath & Beyond to deliver long-term sustainable growth. We are all dedicated to advancing our company for the benefit of our customers, our vendor partners and our shareholders.

With that, I’d like to open the call to your questions.

Questions and Answers:

Operator

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

Curtis Nagle — Bank of America Merrill Lynch — Analyst

All right. Good morning. Thanks — or I should say, good evening. Thanks very much for taking the — my question. So, I guess the first one — both for you, Mark, would be, look, I know it’s very early on but — and there’s a lot of work to do, but what would be perhaps a reasonable time frame for you, I guess, to start seeing comp stabilization? And then as a follow-up to that, I guess any more thoughts you could share in terms of the extent and maybe the timeline of, I guess, putting forward the new or refreshed Bed Bath in terms of what operating segments you think you’ll hold on to?

Mark J. Tritton — President and Chief Executive Officer

Yeah, thanks, Curt. So in terms of the time frame, again, we’re still in the process of evaluation, and I want to be really clear here, continuing to accelerate the existing transformation work that was put in place, which was really solid and we’ve been able to double down on that since we coming on board, and just looking to get a clarity on our priorities, our investments and our capex. And we still have a few balls in the air there that we’re looking to solidify so we can help prioritize and build that plan. That’s why I’m sharing that I’ll come back in the spring to be really clear on the 2020 plans and the pagination of those goals.

So it’s more work to be done but work in flight, so stay tuned on that. So the timeline on the operating model will be commensurate with that. But there is some individual efforts that are already taking shape, and we see us of doubling down on those. Today, they’re mostly focused on operational strength and excellence and reconciliation. I’m looking to drive more of the growth initiatives against those same pyramids of transformation and opportunity. And so again, that’s going to be built into our plan.

Operator

And your next question comes from Bobby Griffin from Raymond James, your line is open.

Bobby Griffin — Raymond James — Analyst

Good evening, everybody. I appreciate you taking my questions. And Mark, welcome to Bed Bath & Beyond.

Mark J. Tritton — President and Chief Executive Officer

Thanks, Bobby.

Bobby Griffin — Raymond James — Analyst

My first question is to you, Mark, and I appreciate some of the early details on kind of the five pillars, but can you maybe talk about your view of couponing and how that fits into those pillars and your customers? And then my follow-up question is, just on the remaining real estate that’s left, can you give a little color on what type of properties those are? Is it distribution centers, stores, other types of properties that we might not [Phonetic] be thinking of?

Mark J. Tritton — President and Chief Executive Officer

Yeah. So, let’s start with couponing. So I think what — the key word that comes to mind here is really balance. So we know that the coupon is part of our heritage and our DNA, and we want to maintain that in our mix as part of our tools that we can reach out to customers with. But we do see that there is an opportunity to readjust our value proposition directly with the customer. And our research shows that we can sometimes be ambiguous or unclear about what that first price is when they are searching online, which is a primary vehicle for research. So really rebalancing our opening price points, price right daily, as well as meaningful promotions and coupon usage is going to be our structure going forward. We are already analyzing where our coupon has strength and where it has opportunities to be morphed into other opportunities such as promos or through regular price well-priced business, and that work is currently in flight.

Regarding the real estate, we continue to look at all our options on the table, equivalent to what we’ve seen now; stores, warehousing and other assets. But again, we’re still in the process of valuing that with outside support. We’ve made a bold first move with that. We’ll see if there’s other opportunities, and I look forward to sharing more as we evaluate.

Operator

And our next question comes from Simeon Gutman from Morgan Stanley. Your line is open.

Josh Kamboj — Morgan Stanley — Analyst

Hi. This is Josh Kamboj on for Simeon. Thanks for taking our questions. Mark, improving the digital offering is clearly in focus. Can you share some examples of what functions you think need the most work, as well as some of the time frames and level of investments involved in making those fixes?

Mark J. Tritton — President and Chief Executive Officer

Yeah, I think that it’s one of the areas we can be the most agile because of the rapid change and the cost associated. So I think everything from the speed and accuracy that our customer can move through our website compared to our competition is being reviewed, how we tell stories to our customer and involve them for consideration as well as purchase. Thinking about digital being a Trojan Horse of the total experience and the true digital touch point as opposed to an independent silo, so enterprise thinking really here as — digital as gateway. So everything from how we feature on our website, how we represent value, how we celebrate key moment and missions and occasions for our customer, as well as the key brands and categories they want to look at is really up for grabs. And we started that work and we’ve got support in analyzing that and looking at considerations like speed, agility and how we profile brands, price points and storytelling and key promotions. So all of that is being looked at and we’re deep in that at the moment. So we hope to get some traction on that very quickly in half one and be established and ready for the all-important second half.

Josh Kamboj — Morgan Stanley — Analyst

That’s very helpful. Thank you. And then just one for Robyn to follow-up, you mentioned the shifted comp of negative 3.6% versus the reported one. What was the gross margin for the quarter on a shifted calendar basis?

Robyn D’Elia — Chief Financial Officer and Treasurer

We haven’t quantified or shared that information at this point.

Josh Kamboj — Morgan Stanley — Analyst

Okay, thank you.

Operator

And our next question comes from Michael Lasser from UBS. Your line is open.

Atul Maheshwari — UBS — Analyst

This is Atul Maheshwari on for Michael Lasser. Thanks a lot for taking our questions. So Mark, based on your initial assessment of the Company’s cost structure, where do you think are the key opportunities to cut costs, what are the biggest buckets and how much do you think of the cost savings realized that you will have to reinvest back into the business? And then along those lines, can you provide your initial assessment of which areas of the business need the most investments? Thank you.

Mark J. Tritton — President and Chief Executive Officer

Right. So I think that as we look at the buckets, we definitely see improvement in our COGS and we’re deep in negotiation process to revise our costs and work with our vendor base, as well as we look to the more long-term proposition of how we build out our own brand capabilities and invest in better price points and therefore better margins, so COGS is going to be one of those considerations. I think the across the board, we’ve seen and then pre-identified through the transformation programs opportunities to create efficiency and effectiveness in how we work. And when we think more than enterprise and work more — with more agility, we can actually reduce some of these costs.

We’ve looked at all the buckets and I’m not going to specify which ones at this point because we’re still work in flight [Phonetic]. Where we see investing is really going to be, where I talked about in those five pillars. We invest in our experience through our place, in our people through our team and our product and our promise. And so, we’re going to reach out value. And clearly from what I’ve stated, digital will be one of the key areas, but the physical touch point of the stores and the digital touch point in tandem being reconstructed and renovated is going to be a key focus.

Operator

And your next question comes from Brad Thomas from KeyBanc Capital. Your line is open.

Brad Thomas — KeyBanc Capital — Analyst

Yes, hi. Thanks for taking my question. And welcome to Bed Bath & Beyond, Mark.

Mark J. Tritton — President and Chief Executive Officer

Hi, Brad.

Brad Thomas — KeyBanc Capital — Analyst

I wanted to first ask kind of a high-level question with the fourth quarter. I guess at a high level, Mark, I was hoping you could help us think about the near-term opportunities to improve merchandising and sourcing and costs that do seem to be pretty tremendous as we look at the Company from the outside, and just your willingness to try to harvest them and flow them through to the bottom line in the shorter term versus that opportunity, maybe reinvest in the business for the longer term, and just how you’re thinking about balancing those two. And then just as it relates to the fourth quarter, I was hoping you could give us a little more color around how December played out and if we should be thinking of that versus the negative 8% comp that you reported or the negative 3.6% adjusted, just as we try to calibrate our models for the fourth quarter. Any more color you can provide would be helpful.

Mark J. Tritton — President and Chief Executive Officer

Yes. So, Brad, let me take the first piece, which is harvesting the merchandising benefit. As I expressed little earlier, we’re knee-deep in that at the moment. I’m really pleased with the pace and what change looks like there in terms of harvesting better COGS and really looking to curate our assortment. I think one of the real strengths of the season when we’re under pressure is that we’re able to maintain our inventories and always look at that mix of sales growth versus inventory growth, and the team has done a great job in terms of keeping the lid on inventory and really culling through that aged and excess inventory side of the business. So, that’s a real strength. It help set us up for 2020 in a really positive way.

As I mentioned earlier, the ideas around harvesting our own brand opportunities is one that needs a deep portfolio review and I’ve already conducted that, and we’ve begun the process of that, but that’s not an overnight sensation, and we want to get it right. But we will reconstruct our offer with a definitive mix of own brand curated with national brand to create an unique and differentiated home authority. And so that’s clearly on the agenda. Time of harvest, size of harvest, stay tuned, I’m going to come back when we — in spring, outline our overall plan and that’s what we’re very actively working on at the moment.

In terms of Q4, we’re still in the middle of that and we’re not going to be declaring any numbers there, but we have said that we continue to remain under pressure, and we’re working through how we’re performing there and we have a number of balls in the air on what our options are and how we are going to come out.

So again, not offering that at the moment, but thanks for your question.

Operator

And your next question comes from Seth Sigman from Credit Suisse. Your line is open.

Seth Sigman — Credit Suisse — Analyst

Hey guys, thanks for taking the question. So I’m curious on the holiday performance, you talked about that 7.1% comp over the five-day holiday period. You also mentioned that this was the first Black Friday campaign you’ve had. So I assume that helped. Anything else you would highlight that drove that positive comp? And if you could give us some perspective on how that exact period performed in prior years, maybe just last year to put it in context, that would be helpful.

Mark J. Tritton — President and Chief Executive Officer

Yeah. So, I can give you an overview and Robyn can add some color to the actual numbers. You know, I think, Seth, the issue for us was in the — sum [Phonetic] of the quarter, the Thanksgiving came in the closing days and it came with a bang, but our lead-in was relatively soft and we did — we did lack great traffic, enough to compensate and balance out our full quarter and that’s a huge learning for us and we won’t repeat that in 2020.

But what we did see is, not only being open [Phonetic] an extra day, but we started entering into the Thanksgiving period and we saw real pressure on sales and we realized that some of our activity in digital by trying to remain independently profitable in that space and not thinking about the gateway experience on the Thanksgiving period was distorting our true price of value equation and what we could mean to the customer at that time.

We made really sharp pivot and I was really proud of the team, and we instantly saw key items were winning share back. We were watching it hour by hour. And we’re able to do that digital first, of course, because of our agility, they are having a stronger presence in store, signage and offers and we think that’s something we can still move more assertively on next year and combining that 360 experience. They all lend itself to a much stronger period.

Again, late in the quarter and only a small part of our overall performance, but they did give us green shoots of opportunity to say when we act and think differently, we can win and our customers loves us and trust us. We’ve just got to let them in the door.

Robyn D’Elia — Chief Financial Officer and Treasurer

And just regarding — regarding the numbers, we were pleased that when we made those changes we were able to deliver positive results, although in that window in that five-day window between Thanksgiving and Cyber Monday, having a positive over 5% comp in stores and a positive over 13% in digital is a very different trajectory than what we thought.

Operator

And our next question comes from Oliver Wintermantel from Evercore. Your line is open.

Oliver Wintermantel — Evercore ISI — Analyst

Yeah, thanks. I had a — Mark, you mentioned five pillars. So I just want to focus on two of those. One, you mentioned omni-channel and multi-channel investments and the other one was price investments in your prepared remarks. So I don’t want to put words in your mouth, but is it fair to assume that in this transition period are you focusing more on top line growth than on margins to get — get the top line going and maybe invest in margins. Is that the fair assumption?

Mark J. Tritton — President and Chief Executive Officer

I think that’s a little too general. I mean I think we’re looking in a very balanced way between sales and gross margin. What we are recognizing now Oliver is the need to ensure that in this new digital world and new retail environment that we are ensuring that traffic flows in the right way, and that we’re in the consideration pool appropriately for our customer. So competitively priced, and realistically priced in the market becomes the investment that we need to make. I am not a stranger of this, I’ve been through it before, converting promotional sales or clearance sales to regular price sales and it can be meaningful to our business in terms of our overall sales and stabilize gross margin.

So we’re looking at the balance of those two. It’s a word that I’m using frequently here, and it’s quite deliberate. We’re not just driving top line sales at the sacrifice of.

Oliver Wintermantel — Evercore ISI — Analyst

Got it, thanks. And for — just as a follow-up, you mentioned that the real estate strategy and that’s under review. Have you — have you talked about the different — the different brands that you own what the strategy is there?

Mark J. Tritton — President and Chief Executive Officer

Yes. We’ve taken an external partner to assist our overall concepts and we’re continuing to look at opportunities to maximize our portfolio and I don’t have anything to share at this point, but I look for coming back and sharing more ideas on where we are heading with our overall concepts and portfolio.

Operator

And our next question comes from Steve Forbes from Guggenheim. Your line is open.

Steven Forbes — Guggenheim Securities LLC — Analyst

Good evening. I wanted to start with a follow-up on the promotional plans you discussed. And maybe to start on that, maybe if you can sort of give us some color and expand on the decision during the quarter or I guess over the past four [Phonetic] months to — do the 25% off the entire purchase multiple times. And the reason I ask right is just looking for some insight into the customer response. And then, also just maybe how that relates to your initial take mark on the value proposition of the Beyond Plus membership program, given that there is some inherent value right with those member’s abilities to utilize coupons all the time and the frequency — increase in the frequency and the depth of the coupon for everyone, sort of the distorts the value. So just love to hear how you’re sort of balancing promotional efforts with the Beyond Plus membership program?

Mark J. Tritton — President and Chief Executive Officer

Yeah. So, in terms of the Thanksgiving period, this was the first time that we actually deployed an active mass promotional strategy, not a coupon strategy. And I think that, what we did inside there is we distracted, so there was an absolute. And I think it talked clearly and resonated fairly with the customer about value. And that’s a really tight microcosm of time with its hyper focus on price and value and discounts in the market.

So, it’s not a long-running opportunity and not a massively repeatable one. But what we see that we can strike with a simple effective promotion and they won’t be as steep as we’ve shown here. This was the — as I said in the time and place [Phonetic], we’ll balance that out with the portfolio of regular coupon and meaningful promotions.

So, we’re currently reviewing the results that we’ve had and helping to shape how that becomes more meaningful effort throughout our 2020 plans. So more to follow on that.

So the other part of your question, can you just repeat that for me?

Steven Forbes — Guggenheim Securities LLC — Analyst

Maybe just your initial perception right of the value proposition of the Beyond Plus membership program.

Mark J. Tritton — President and Chief Executive Officer

Yeah.

Steven Forbes — Guggenheim Securities LLC — Analyst

Yes. Because — Obviously, part of that is that 20% off coupon every day, every item. If there is going to be a change in the promotional plan here, it distorts the value. So, just love to hear your initial perception.

Mark J. Tritton — President and Chief Executive Officer

Yeah, I mean I think we are kind of putting it out for a total review across the Board. I think what we see is that we have a guest who is incredibly loyal and how do we reward them, but how do we engage them? And I think they’re looking for both. And so, I think the Beyond Plus 20% off is one strategy and one offer that we’ve used, and I think there is probably several more notes that we can add into that to play it a different way.

But again, it’s about a major response between the action and co-reaction of each of those pieces promo, Beyond Plus coupon and regular price. And so, we are reviewing those in real time at the moment. It’s definitely an area of focus for us.

Operator

And our next question comes from Jonathan Matuszewski from Jefferies. Your line is open.

Jonathan Matuszewski — Jefferies — Analyst

Great. Thanks for taking my questions, and welcome Mark.

Mark J. Tritton — President and Chief Executive Officer

Thanks Jon.

Jonathan Matuszewski — Jefferies — Analyst

Appreciate that we’ll be — Yeah, of course, Appreciate we’ll be getting more color on the timing of potential divestitures in a few months with a broader vision, but what are the parameters you will be using to prioritize in deciding which concepts you deem is core and which you deem as less important to the new Bed Bath?

Mark J. Tritton — President and Chief Executive Officer

Yeah. It’s a great question. I think the great spot that we’re in is, we — the criteria isn’t necessarily cash because we are so cash rich and we can add to that to invest in that business and do another — a number of different things. The criteria really is around what do we see is fundamentally connected to our core and that we can build sustainable growth and really build equity in over time and also to what is an addition to our current workload or a subtraction to our current workload and our focus. So our portfolio is wide. They’re all strong and they are all great assets. But who do we want to be in — you know, one, two, three years time? I think we want to see ourselves as a core nucleus of brands and businesses that are inter-related and that can support one another and create true economies of scale. So that’s part of the criteria that we’re using as we assess.

Jonathan Matuszewski — Jefferies — Analyst

That’s helpful. And just a quick follow-up. You mentioned the vendor collaboration program, I think slated for later this year. Maybe just if you could just share kind of your vision for what that will become and what Bed Bath is seeking to achieve there?

Mark J. Tritton — President and Chief Executive Officer

Yeah. I think overall, I see vendors as a major key to the door, in terms of our future success that vested in us, and we work as key partners. And I think we can double down on the partnership. And that really stems from a level of data, understanding our customer and their needs, and really tapping into our vendors for their strength. And I think that that’s an opportunity for us to be more symbiotic in the way that we work and transferring of information and opportunity between us. It is, I think, one of the hallmarks of how I’ve operated in the past. I really want to double down on that here at Bed Bath & Beyond.

As I said, I’ve only been here 66 days and we’ve been doing a lot of things. One of the things I look forward to with my new team is really establishing a much deeper and closer relationship with our vendor partners along with more intuitive data to be able to make real-time business decisions, meet our customer needs and all of this prosper.

Operator

And our next question comes from Seth Basham from Wedbush Securities. Your line is open.

Seth Basham — Wedbush Securities — Analyst

Thanks a lot. Good afternoon and welcome Mark.

Mark J. Tritton — President and Chief Executive Officer

Thanks Seth.

Seth Basham — Wedbush Securities — Analyst

My first question is around omni-channel. You suggested a key piece of your turnaround plan is to build a true omni-channel retailer. Which retailers do you view as best-in-class in this regard [Phonetic] already, and will you use these retailers as a road map for your transformation?

Mark J. Tritton — President and Chief Executive Officer

You know, great questions. I mean I think that I’m — we are looking at the total marketplace and really trying to understand the customer, how the customer has learnt new ways of shopping and new ways of interacting and really looking at all those best practices across the board. And the key elements of those are really around a digital-first strategy, what we’re calling on omni-always and really thinking about digital as a gateway experience like we’ve seen some great statistics within the quarter that saw how mobile conversion outpaced our desktop conversion for the very first time and that’s with the app playing a great role and we think that it can be even more prevalent in the way that we interact with the customer.

We see that even convenience is a very important part of our business and I think that the last 12 months, two years has really seen a renaissance in the interconnection between digital and physical especially around both this way, there has been a lot of growth. And I don’t think we’ve been geared effectively for that and I think we’ve been missing out on that opportunity. We’ve seen some really great double-digit comp growth in our robust business, but that is reserve online, buy on store, which is still creating friction for the guests to have to go through the actual purchase at the store.

We’re going to move to frictionless purchasing in early 2020 as we move into a BOPIS environment, which we see a competition already flourishing in that.

So we have big eyes and ears and really looking at that competition and seeing how they’re succeeding, but also how they’re influencing future guest behavior. And we’re looking to more quickly come on board with that. We know that we have been behind in that. And that’s everything from assortment, pricing, how we represent online and in store, how we make it easier for customers to shop. All these are highly emulatable. But, we also want to make sure that during that process, we are creating an unique and differentiated model from other retailers. So influence? Yes. Copying? No.

And we have a great opportunity being a single authority in the home space to create a really unique 360 omni-always environment that I look forward to fast-tracking and sharing with you guys.

Seth Basham — Wedbush Securities — Analyst

That’s very helpful. Thank you. And one follow-up question for Robyn. Just if you think about that fourth quarter reported comps, should we consider those to be 500 basis points better, so to speak, because of the calendar shift?

Robyn D’Elia — Chief Financial Officer and Treasurer

Well, in terms of fourth quarter, because we have a lot going on and we’re making a lot of changes we still working on our plans. At this point, we feel it’s appropriate not to comment on any metrics there.

Seth Basham — Wedbush Securities — Analyst

I’m sorry. Just in terms of the calendar shift, the impact in the third quarter was about 500 basis points between your reported and adjusted comp. So shouldn’t you just get that back in the fourth quarter? That’s all I want to clarify.

Robyn D’Elia — Chief Financial Officer and Treasurer

Oh, I understand. I’m sorry. Yes. I believe it — I don’t know if it would weigh [Phonetic] the same way on the fourth quarter sales. But we’ll provide that information once we report fourth quarter earnings.

Operator

And we have time for one more question. Peter Benedict from Baird your line is open.

Peter Benedict — Robert W. Baird — Analyst

Great, thanks. Made it under the gun. [Speech Overlap]. Good to hear your voice.

Mark J. Tritton — President and Chief Executive Officer

Thank you.

Peter Benedict — Robert W. Baird — Analyst

I guess — well, jeez, one and a follow-up here. I’ll start with the — just the private brand strategy, because obviously that’s something that you come with very fresh and a lot of experience in. I’m just curious what the — what the infrastructure needs are and what needs to be put in place for you to kind of push that initiative at the level, I assume you want to push it? Is it in place already? Is there a lot of investment has to take place? Just curious, your thoughts around on that in terms of private brands.

Mark J. Tritton — President and Chief Executive Officer

Yeah. And so creating an owned brand stable really does take two things. I mean, it takes a talented team, it takes a clear strategy, but also takes great partners. And we’re cultivating all three at the moment. We have an existing team who are very strong. We’re currently deepening our partnership work. Our team has been out in Asia working through that in the December period to fast track that. We see tons of upside in terms of our COGS assessment by converting discretionary labeled into a more meaningful owned brand portfolio and that’s high on our agenda.

There will be some infrastructure investments to get even greater talent to add to our team, to get the job done. But this is why we are currently in [Indecipherable] looking at our overall SG&A to make sure that we can really recut [Phonetic] our operations to self-fund and drive these businesses. We see setting up this team in full, but still creating operational efficiencies and cost savings to our SG&A, as a result. But we’re really excited to build off that team and build a portfolio and a staged set of events as I’ve done in prior companies around the introduction of owned and defendable brands that you can only find in Bed Bath & Beyond and in our portfolio. It’s not as we have to design, source, create brands move forward. That’s not an overnight sensation but I’m really excited about what I’m seeing as the early footprint of what we’re going to be doing there.

Peter Benedict — Robert W. Baird — Analyst

Now that’s helpful, thanks. And then I guess my last question or my follow up would be on just the role of registry at Bed Bath & Beyond. Historically, it’s been a pretty important part of the business. Just curious, your views on registry and what do you think you can do there, if that’s an area of focus for you?

Mark J. Tritton — President and Chief Executive Officer

Yeah. Actually, we were just reviewing some data around that yesterday and some really — some very positive signs there. I think that that’s been a tougher market for everyone in total, but particularly in our baby business, we’ve been gaining market share as a result of our registry and we’re building deeper trust and engagement with our customers. And I think that it’s a way that we can reignite our engagement even further. We’ve seen some declines in our overall sales in registry, while still maintaining a very high share penetration in the registry space. We are known for this. I think it’s something we won’t ignore and we’ll find ways to ignite [Phonetic] it inside our strategic plan. If you kind of think about the combination of really unique product offerings through our brand and the power of registry and the power of BOPIS and the power of digital, you start to really get a new frontier and the way that we can drive our business.

Operator

And this concludes the question-answer session. I will now turn the call back over to Janet Barth for final remarks.

Janet M. Barth — Vice President, Investor Relations

Thank you, and thank you all for participating in our call today. If we didn’t get to your questions or if you have additional questions, as always, please feel free to contact me for a follow-up call. Otherwise, have a good night. Thank you.

Mark J. Tritton — President and Chief Executive Officer

Thank you.

Operator

[Operator Closing Remarks]