Welcome to the Bed Bath & Beyond's First Quarter 2017 Earnings Conference Call. My name is Adrian and I'll be your operator for today's call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question and answer session. [Operator Instructions] Please note this conference is being recorded. I'll turn the call over Janet Barth, Investor Relations. Janet Barth, you may begin.

Thank you, Adrian, and good afternoon everyone. Joining me on our call today are Steven Temares, Bed Bath & Beyond's Chief Executive Officer and member of the Board of Directors; Gene Castagna, Chief Operating Officer; and Sue Lattmann, Chief Financial Officer and Treasurer. Before we begin, I'd like to remind you that this conference call may contain forward-looking statements including statements about or references to 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. The Company undertakes no obligation to update or revise any forward-looking statements. Our earnings press release dated June 22, 2017 can be found in the Investor Relations section of our website at www.bedbathandbeyond.com. Here are some highlights from our financial results. First quarter net earnings per diluted share were $0.53 including an unfavorable impact of approximately $0.05 from the adoption of the new share based payment accounting standard. Net sales for the quarter were approximately $2.7 billion, an increase of approximately 10 basis points compared to the prior year period. Quarterly comparable sales decreased approximately 2%. In addition, our Board of Directors today's declared a quarterly dividend of $0.15 per share to be paid on October 17, 2017 to shareholders of record as of September 15, 2017. I'll now turn the call over to Sue, who will discuss our first quarter financial results in more detail. Steve will then provide an update on the progress of some of our strategic initiatives and our ongoing efforts to be our customers' first choice for the home and heartfelt life event by building and delivering a strong foundation of differentiated products, services and solutions while driving operational excellence. After our prepared remarks, we'll open up the call to questions. I'll now turn the call over to Su.

Thanks Janet. I'll start with the review of our first quarter results. Our net sales were approximately $2.7 billion, an increase of approximately 10 basis points from the first quarter of last year, primarily due to an increase of 2.1% in non-comp sales including PMall, One Kings Lane and new stores, largely offset by a 2% decrease in comp sales. Our first quarter comp sales reflect a decrease in the number of transaction in stores partially offset by an increase in the average transaction amount. As we often say, we believe in an integrated and seamless customer experience, and although we cannot tell you through which channel a sale was initiated, we can provide information based on where the sale was consummated. As a reminder of how we reference certain omni transactions, sales consummated on a mobile device while the customer is physically in store location are referred to as customer facing digital channel sale. Customer orders taken in store by an associate through the Beyond Store our proprietary web based platform are referred to as in-store sales. Customer orders reserved online and picked up in a store are also referred to as in-store sales. While purchases made online that are subsequently returned to a store are referred to as a reduction in-store sales. With that said, comp sales from our customer facing digital channel continue to have strong growth in excess of 20%, while comp sales from our stores declined in the mid single digit percentage range. Gross margin for the quarter was approximately 36.5% as compared to approximately 37.4% of net sales in the first quarter of last year. This decrease as a percentage of net sales was primarily due to, in order of magnitude, first, an increase in net direct to customer shipping expense as a result in part of the Bed Bath & Beyond free shipping thresholds being at $29 for the full quarter this year while it was at $49 for about half of the first quarter last year. And second, an increase in coupon expense resulting from an increase in redemption, partially offset by a decrease in the average coupon amount. The inclusion of One Kings Lane reduced total company gross margin as a percentage of net sales by approximately four basis points. While the inclusion of PMall improved total company gross margin by 16 basis points. SG&A in the quarter was approximately 31.1% of net sales as compared to approximately 29.6% of net sales in the prior year period. This increase in SG&A as a percentage of net sales was primarily due to in order of magnitude, increases in advertising expenses, payroll and payroll related expenses and technology related expenses including related depreciation. The inclusion of One Kings Lane and PMall increased total company SG&A expense as a percentage of net sales by approximately 28 and 5 basis points respectively in the first quarter. As you probably know, the first quarter typically accounts for the smallest portion of our annual sales and earnings. As a result, any fixed cost as a percentage of net sales are relatively more pronounced in the first quarter than they would be in any of other quarters. Net interest expense was approximately $16.6 million compared to $16.3 million in the prior year period and related primarily to interest on our debt. Our income tax rate for the quarter was approximately 42.3% compared to approximately 37.7% in the prior year period. The first quarter of 2017 includes the adoption of the new share based payment accounting standard which increased the tax rate by 5.9%, increased income tax by $7.6 million and decreased net earnings per diluted share by approximately $0.05. As a reminder, as we said in our April call, the impact of the new accounting standard in 2017 was expected to be heavily weighted to the first quarter. Also included in the first quarter of 2017 were net after tax benefits of approximately $2 million due to distinct tax event occurring during the quarter. Approximately $500,000 of net after tax benefit was included in the prior year. Considering all of these activities, net earnings per diluted share were $0.53 for the quarter including the unfavorable impact of approximately $0.05 from the adoption of the new accounting standard that I just mentioned. Moving onto the balance sheet, we ended the first quarter with approximately $565 million in cash and cash equivalents and investment securities. Retail inventories for the quarter remained about the same as last year at approximately $2.9 billion at cost, and this year includes the inventory balances from One Kings Lane and PMall which were acquired during the second and third quarters respectively of 2016. Retail inventories continue to be tailored to meet the anticipated demands of our customers and are in good condition. Capital expenditures for the first three months of 2017 were approximately $81 million, with more than 40% related to technology projects including investments in our digital capabilities and the development and deployment of new systems and equipment in our store. The remaining CapEx is primarily related to investment in stores, our new Las Vegas distribution facility and our new customer contact center in Florida currently planned to open in late fall. Also during the quarter we opened one store and closed one store. Share repurchases under our current $2.5 billion share repurchase program were approximately $127 million in the quarter, representing about 3.3 million shares. This authorization had a remaining balance of approximately $1.6 billion at the end of our first quarter. In addition, our Board of Directors today declared a quarterly dividend of $0.15 per share, to be paid on October 17, 2017 to shareholders of record at the close of business on September 15, 2017. Now let's turn to the full year. At this time, we are not updating the full year modeling assumptions we provided on April 5 during our year end call. Although, the first quarter is typically the least impactful quarter for us in terms of annual sales and earnings, and while we continue to have strong growth in our customer facing digital channel this quarter, we did see increased softness in transaction in stores, as well as higher net direct-to-customer shipping expense, coupon expense and advertising cost during the quarter. It remains to be seen whether these challenges were more pronounced in or unique to the first quarter due to the smaller sales base in this period and/or later start to the summer selling period. We believe we'll have better visibility after the second quarter and if necessary we'll update our full year modeling assumptions at that time. We'll provide further information related to the second quarter and full year 2017 on our next quarterly conference call on Tuesday, September 19. I'll now turn the call over to Steven.

Thank you, Sue. Good afternoon, everyone. As Sue said, we are not updating our modeling assumptions for the year at this time. However, the quarter again exemplified the challenges presented by declining foot traffic in stores and the opportunities presented by omni channel retailing. It is an exciting and rapidly evolving period in retail driven by the swift adoption of ever improving technology. It's within this framework that we remain focused on our strategic mission to be trusted by our customers as the expert for the home and heartfelt life events, by continuing to build the strong foundation of differentiated products, services and solutions while driving operational excellence. It is through these efforts that we develop deeper and more personalized relationships with our customers and be their first choice for the home. Today, I'll provide an update on the progress of some of our strategic initiative since our last call in April. First, our digital channels both web and mobile. They continue to grow at a very healthy pace driven in part by a customer experience that keeps getting better. Some of the improvements that we've made include adding to an online product assortment and service offering. Improving our content to be more inspirational, making enhancement to search and navigation and creating a more frictionless checkout experience. Specific examples include the piloting of enhanced type-ahead search capabilities which improve the overall online experience by making a much easier and faster through use of images to find items on the Bed Bath & Beyond website. Also in search we continue to implement machine learning capability to further improve the relevancy of results. We've simplified the navigation of our site, now introducing a new mover tab to make it easier for these customers to find relevant content and products. In addition, we've also launched a simple coupon code in checkout to allow customers to apply their favorite big blue coupon to their online order. In our mobile channel, we've improved the speed of our Bed Bath & Beyond and buybuy BABY mobile app by optimizing some of the experiences for Apple and Android operating systems. In the past few months we've transitioned to our My Offers which is our coupon wallet and our registry led new pages on our app to native experiences which have greatly upgraded the speed and overall experience on the app. While these improvements are generating great feedback and reviews from our customers, we continue to monitor the ongoing changes in technology to further our customer experiences. Second, our base of more than 1,500 stores continues to generate very profitable results. We are always working to optimize a profitability of our real estate portfolio, and as I said before we believe in the benefits derived from a well executed omni channel experience. Our omni channel strategy captures operational efficiencies such as necessitating the lower digital advertising expenditures than usual for pure play online retailers. And provides for enhancement to customer convenience including services for reserving an item online and picking it up in store, returning an online purchase to store or scheduling an appointment online to meet with one of our registry consultant in store. We also utilize our stores to ship online orders to our customers and we are currently providing same day delivery service from certain stores and piloting in several additional market. As we've said, the pace of our store opening has slowed and we've increased the number of store closing over the past several years. And as leases come up renewal, if we cannot reach acceptable terms with our landlord, we would expect the pace of store closings to increase as a result of our assumptions regarding brick-and-mortar store traffic in future years, as well as the continuation of our market optimization strategy. At the same time, we are making investment to evolve and improve existing store format, enhance omni channel services, integrate technology tools and create a more experiential shopping environment in our stores. Third, with regard to marketing. We continue to focus on improving the effectiveness and efficiency of our campaigns to personalization, improve targeting, customer contact strategy, channel optimization, as well as branding activity to reinforce our position as experts for the home. Using our 360 degree view of our customer, coupled with advanced analytics and machine learning based algorithm we are moving effectively and are more effective today in targeting our customers. All these initiatives are allowing us to further optimize our investment in our marketing campaigns. We are also expanding the distribution of catalogue to build awareness of our broad based expertise and wide ranging assortment of differentiated products, services and solutions to the home. Our summer catalogue titled, The Escape and Online is released during the first quarter and features a curated collection of furniture, décor and accessories for both indoor and outdoor living, as well as inspirational pages of merchandize from our other core categories such as bedding, kitchen electrics and organization and storage. In addition, we've broaden the awareness of My Offers to provide our customers nationwide with the convenience of being able to access their coupon offers. Also we are starting to convert many of our single channel coupon to be omni channel meaning they can be used to both online and in-store, allowing our customers to enjoy these benefits as they desire. Next, we remained encouraged by the early results of our Beyond plus membership program. We slightly extended the pilot program at the beginning of the first quarter and continue to monitor the activity of these members. We are seeing favorable results across the variety of metrics including frequency, sales and overall profitability. While it's still very early in the analysis to determine the impact of this membership program and the life time value of these customers, we are planning and even further expansion of the pilot program during the summer. In merchandizing, we've many initiatives underway at Bed Bath & Beyond that support our objective to be viewed as the expert for the home and heart felt life events. For example, we continue to increase our online offering on the Bed Bath & Beyond website and specifically increased our offering of personalized product by leveraging our recently acquired capabilities from PMall. These newer items are resonating well with our customers and we will continue to add to the mix of product we offer. Also I'd like to share our progress on a few more merchandizing initiative at Bed Bath & Beyond, including our expanding window room offering, our table top makeover, our virtual bedding initiative and our life stage focus on college. On a previous call we introduced our new drapery design gallery which is available on select stores and online for customers to order customized drapery for their home choosing from 250 fabrics, four different lanes and three header styles. We are adding to our omni channel window room offering with the introduction of a blind and shades gallery. We are partnered with The Shade Store, a retailer that specializes in blind and shades to develop a new line of product under the brand Glow by the shade store which is available online and we'll be available in select stores. We've plans to test these two new offerings in 50 stores and online, and have redesigned these stores for space to present the mix of merchandizing in exciting way utilizing unique fixtures and wall displays to showcase our offerings. These window initiatives will increase the breadth and depth of our selection while optimizing our inventory by leveraging our online capabilities. We believe these initiatives will also provide another point of differentiation for us and further strengthen our position as the experts for the home. Similarly, we are redeveloping our table top business in store to create an integrated shopping experience that presents our offerings of both casual and fine table topping gifts together For remodeled four plan to be launched in four stores will enable us to be more efficiently space by incorporating a simplified presentation of our assortment, as well as virtual assortment options. As a result, we'll be able to maintain our breadth of assortment while carrying fewer inventories in store. We believe the improved look and feel of this department will resonate well with our customers. We are also developing a similar omni channel approach with our bedding department which wills emphasis the breadth of assortment and our capabilities to sell through delivery. Under the redesigned store layout to be tested initially in a handful of stores, we'll have an expanding assortment of approximately 200 different designs which represents a significant increase from what we offer in a typical bedding department. While they still have inventory of the more popular designs, the entire assortment will be available to purchase for home delivery by the online or through the help of one of our knowledgeable associates equipped with tablet who can further assist the customer through the beyond store. This approach again allows us to share more product in-store while carrying less inventory and provide an enhanced customer experience. With regard to an important live stage event that Bed Bath & Beyond continue to be the destination for college essentials. We were a first mover and recognizing back to college as an important to heart felt life event and we continue to be innovative in the space, not only with the quality of the merchandized we offer but also the growing length of services and solutions we provide. We feature college as a tab on our Bed Bath & Beyond website for customers to quickly and easily find information about all of our products, services and solutions we offer for the significant life stage. Earlier this week, we published our campus ready college catalogue that highlight these products, services and solutions, as well as the tools needed by our college bound customers and their parents to transition smoothly to campus life. The book features a variety of great products to design a stylish and well organized home away from home, information how to build a better bed as well as inspirational ideas and how to personalize your living space. The catalogue also describes all of the college shopping services we offer such as creating a college registry with help of one of our experts. Finding details about a specific college dorm and library's information of nearly 1,500 schools including more than 100 in Canada. And our popular pack and whole service which allows you to shop out store close to home and then pickup your items at our store close to campus. We also are working with colleges to expand our ship directly to campus program and our move in events which may take place on campus or at a store close to campus. I'd like to close down my quarterly update with some brief comments around our continual efforts to drive operational excellence. In this rapidly evolving period in retail, we've been evaluating and taking various actions to drive change across our company to improve operational efficiencies while maintaining a culture of providing exceptional customer service. For example, in our information technology group, we've initiated a process to evolve our management and our engineering approach to developing technology has allowed us to continue to scale our resources and deliver against our ever increasing technology roadmap. This, in addition to our growing strategic portfolio of management office is allowing us to better focus our resources to the areas which will provide the most significant benefit to our company. As part of these efforts we are utilizing internal expertise as well as developing, hiring and engaging additional resources to evaluate and sure implementation of best practices across all aspects of our operations. These include evaluating our management structure to better align our resources, optimizing our processes to make them more efficient and rationalizing all spend to identify areas for cost saving and for strategically reinvesting to support our mission to be our customer's first choice for the home. Some of the actions we are evaluating may have short-term cost but will have long-term benefits. As the retail environment evolves, we continue to actively transform many aspects of our business to reflect these changes. While we work to grow our bottom line and improve our market capitalization, our ongoing investments and efforts have allowed us to create and maintain a strong balance sheet and produce some of the best returns in retail. This is a powerful combination that allows us to take advantage of external opportunities and to make internal structural changes that will better position us for continue success in this rapidly changing period in retail. As always I want to thank our dedicated associates for their ongoing efforts to satisfy our customers and improve our competitive position and being viewed by our customers as the experts for the home and heart felt life events. I'll now turn the call back to Janet.

Thank you, Steven. We'll now turn to the Q&A portion of our call. Adrian, we are ready to take questions.

A rebroadcast of the conference call will be available beginning on Thursday, June 22, 2017 at 7:30 PM Eastern Time to 7:30 PM Eastern Time on Monday, June 26, 2017. To access rebroadcast you may redial 888-8437419 with pass code ID of 45080392. [Operator Instructions] We have Seth Basham from Wedbush Securities online with the question. Please go ahead.

Thanks a lot and good afternoon. My first question is just around the Q1 comp trends. You talked about some softness relative to expectations. Could you break that down a little bit and give us a color as to how much to think of softness was due to things like late start to the summer versus other factors.

Yes, hi, this is Steve. Honestly we are not sure. And again that's one of the things that we are assessing. As Sue said that we did see increased softness in certain items like transactions in stores and higher expenses as a percentage of sales for things like our shipping expenses, our coupon expenses and our advertising cost and it was really wasn't clear to us whether those challenges were more pronounce in the quarter or maybe unique to the quarter either because of the smaller sales base or because of the later start to what we -- to our summer selling season that we experienced across all our concepts. So one the one hand we are not certain and on the second as we assess it going forward we see that as the early read we have on sales, and again it's only 20 days so don't -- I won't put so much [stock] [ph] into it but the sales now we are tracking better or slightly better than last quarter and that the sales are generally in line with what we had anticipated when we provided our model back in April. So like we said the first quarter we knew it's going to be weakest and we have planned on the fourth quarter being the strongest. But we couldn't give you a certain answer to that but we probably would have better visibility after the second quarter. And if necessary we would update our model at that time.

That's helpful. And just as a follow up, in terms of your couponing strategy, are you making any changes to that? We noticed some dollar off coupon as opposed to 20% off coupon recently. Can you give an update and how you are thinking about coupons going forward?

Sure. The objective is to really speak each customer on a more individual basis and not rely on a general coupon philosophy. The fact just people see different coupon is something that's always been the case. So whether it's 5% or 15%, 20% off after a period of time, all these things are tested and they are done in different markets to different degrees. So we feel but that's always ongoing but overall the objective really is to be speak personally with our customers to know what their interest are, their life stages, what their passions are and so really tailor our communication to our customer over time in that direction and we are making a lot of progress in it. But we remain significantly driven by our coupon and it's significantly a value equation that our customers see from us. And so it remains extremely important to us today.

And the next question comes from Brian Nagel from Oppenheimer. Please go ahead.

Hi, good afternoon. A couple of questions just on I guess on the online business. Let me first off you discussed lowering here in the quarter I guess lowering the threshold for free shipping. I guess the question I have, are you now consistent with competitors, better than competitors or do you think a metric that will continue to lower so to say to keep with the competition.

So I'll take the first part of that. So regarding the free shipping threshold, we did anniversary for Bed Bath & Beyond the $29 free shipping threshold. For this particular quarter the entire quarter was at $29, where compared to last year about half of the quarter was at $49. In terms of competition, obviously that's something that we are keenly aware and we look to see what's the free shipping threshold is for others. It's considered part of a value prop and we realized that the customer look to that when making their purchasing decision. But for now we feel the $29 for Bed Bath is a good spot to be in it, a sweet spot and that's where we are for now.

Got it. And then a follow up to that maybe bigger picture nature but as you guys -- as the online business continues to grow and evolve, how are you thinking now about the overall profitability of an online sales versus a store -- a sale in your store?

Well, as you know we've said before we believe in an integrated and seamless customer experience and there is tremendous overlap between channels. I referenced this a few of them on the call today where you can reserve online and pickup in store that considered a store sale. You can also - a sale that consummated on a mobile device while physically in a store is considered an ecom sale so historically it's been difficult for us to try to really understand and nail down exactly how you consider that. So then when you get into trying to evolve into a P&L perspective it's difficult, it's an assumption laden the exercise where if you have certain expenses, it's difficult to say if those advertising expenses are really for something that you would consider online or was it store purchase type thing. So bottom line is we've seen some folk look at that and come in with 8% to 10% type range in terms of ecom but in the end we feel that's directionally okay and our overall goal is to do more [Indiscernible] with our customers in a profitable environment.

And like Sue said and the need is to figure it out. I mean we are going to be interacting with our customers how they wish to be interacted with. We always said that we always had this philosophy about merchandizing the mix. So whether we were selling items and we are making 60, 70 or 100 points of it, or we're losing money on stock pots so the objective is to figure it out and when we provide service in the store that didn't necessarily make sense taking returns years after somebody bought something. We are taking expired coupons for years carrying inventory the breadth and depth at which wasn’t - seems reasonable for decade. All these things are part of the overall equation of having to drive and optimize our profitability. So again there is no doubt that we have to be great digitally and we have to figure out a way to optimize the profitability. We understand that the people everybody doing their model. They need to understand can you be , how much will you be, how much margin do you give up and that all remains to be seen. So we are very sensitive to it but again the onus is on us to figure out how we merchandize the mix, it’s to figure out how we treat and integrate these experiences for our customers so that we are satisfying them in a way that they think of us first and they are optimizing our profitability. So unfortunately we can't give you that model number but we know the objective.

And the next question comes from Michael Lasser from UBS. Please go ahead.

Good evening. Thanks a lot for taking my question. So Steve you made a lot of investments over the last few years. Sales were declining at an accelerating rate. So are you just not seeing the return on these investments or is the environmental a little tougher than what you saw? And that does make you rethink how you are investing in business and can you look at the asset base?

Michael it's -- I'll give you the general answer. The general answer is that investments we've made been essential for us. And to the degree that they have been good investment they have been necessary and good investment. And if you look at where we would be without these investments, you are looking at the people that we were consider best in class with 7, 8, 9 years ago across all the big boxes, many of them don't exist today. So it's unfortunately from a bottom line perspective is that as the world evolves these investments aren't producing growing earnings but they are sustaining our relative position in the landscape. So we remain when we look across now 46 different competitors, one of the most successful retailers out there with some of the best return. But we are not satisfied with that but these investments need to be made. If we didn't make these things, we won't exist today. So listen the frustration that you grew was such better compensate than we were 18 months ago or three years ago or five years ago, so you would think that we correlate with making being more profitable. But the business and the competitive framework have changed. And the business goes in so many different directions. The competition landscape is different and the profitability and the margins people operate under the transparency and pricing, all these things are reality. So the investments have been very necessary. They have been successful. We won't be here today without them. At the same time, we are crazed by the fact that we are not more profitable and that we continue to drive towards that. Before that which is critical that we create this trust with our customer so they think of us first for the home and that we are successful and we do this to differentiate price, to better service and solutions that we offer. That we really could continue to drive the better broad of baby decorating college camp. All the experiences that we want them to have and that we look across the organization and we make sure that our analytics group, that our IT group, that our digital experience, that our customer contact center, that our in store recognition, the customer through POS, all this is integrated with the marketing to be slightly ahead of customer to be speaking to our customer in a personalized nature that they think of us first and that they come to us so that we could again drive that growing profitability. So it's frustrating but we ended for the long haul, we intent to and we continue to be best and to do that these investments are necessary. So that's a very long winded answer to your question. I apologize Michael.

No problem at all. My follow up question is if the environment remain tough and sales remain under pressure and it sounds like you are going to take more decisive actions on the cost structure, so can you quantify the opportunity of total cost savings you see in your cost structure assuming the top line trajectory remains as it has been. And as part of that could you also just give us insight so how are you thinking about share repurchases, you continue to buyback stock pretty aggressively and if you remain on this protracted decline when it make more sense to preserve your capital. Thank you so much.

Appreciating. I'll take the second part of that first. Listen, if we could foreseeing what the stock was going to be doing we would have acted differently. But at the same time buying back stock is the last thing we do. First thing we are doing is investing in our business. The second thing is we look for the opportunity in terms of acquisitions. The third thing we are doing is the dividend and the four things we are doing is the share repurchase. But it is the constant conversation on every board meeting and it continues to be looked at on a rated whether we do it at all really requires us to have some sense where the company is going and what we think the future of the stock price. We know the company is getting better. So that's what we know. When it turns into additional profitability and how the market reacts to it, those are greater unknown but it get assessed on an ongoing basis and yes from what we've learned and what we've seen that we should be more critical of what we do with regard to our share repurchase but again it's a board decision and it's constant conversation. The first part of the question I am not sure Michael you are still on was -- you know what we've always been very cost conscious as a company. So as we look at the organization the really the opportunity to a great extent is really aligning for the organization with the evolution that we are seeing. And putting our money in the places that reflect where the customer is going and where we think we could drive the customer experience and satisfy the customer and so those are the opportunities for us. And in terms of the dollars and how it would affects the model, as the year goes on I'd expect that we would provide greater clarity on that when we have better numbers and ideas and things are -- the communication around it is coordinated during those points we would be able to discuss those with much more specificity.

And our next question comes from Steven Forbes from Guggenheim. Please go ahead.

Good afternoon. I have a multipart question on furniture. I guess first as you think about the category or your category exposure today and where you see the market going, what is the strategic importance of the furniture category right and obviously the assortment you have online in total? And how important is it as a driver of new customer acquisition?

Yes, Steve, we think it's critically important. Again, one it's a significant opportunity for us to be inspirational to show our expertise in all the other categories if we could master the furniture and home décor categories and show it our customer in that inspirational way. It's also a great opportunity because it's a business that while we end to some degrees in some of our concepts, it's really taking market share when it comes to furniture. So the opportunity to pull together to tell the story to communicate to the customer our expertise across the home and the ability to take market share for all those reasons it's extremely important to us.

And I guess on that regard as my follow up here, where do you want position the brand within the furnish category as it relates to quality, value and convenience? And I guess where do you view is the greatest opportunity to differentiate your offering versus what you see in the marketplace today?

Right. Great question. Lot of internal debate over it. So listen we know what One Kings Lane is and we know that Bed Bath & Beyond is and so to the degree we are viewed as a generalist and we communicate to customers across from moderate to better to high to the question is where are we going to be and how do we differentiate ourselves, what's the story we are going to tell and why us. Why should someone shop furniture with us? So all those things has been roadmap for us and I don't want to competitively tell you where we are going before the customer sees it but it is a great question and it's a challenge. And of course like anything else we learned from the customer as we go down this path and we will adjust accordingly. But again we do have the Bed Bath customer and we are able to sell across a spectrum of the customers and we do have furniture that does well at buybuy Baby and category, at Cost Plus World Market, we are in the knocked down business basically to some degree at Bed Bath and Christmas Tree so the good news also is that we get a lot of input from our vendor base because it's very desirable for the vendors to open up these doors for them. So it's really -- I'd have asked you to be patient so that when we -- when it's out there for people to see we have that little bit of head start.

And our next question comes from Simeon Gutman from Morgan Stanley. Please go ahead.

Thanks. Good afternoon. Steve, it's follow up like follow up to an earlier question. The business has been transformed for the past several years and the top line business disappointing. Looking at it from a top line perspective can you talk about the capabilities that don't exist today that can drive those -- or they are being built today that can drive future growth?

Well, listen you have the capabilities that it's -- if quest every aspect of our business that we wanted to talk about what we are doing in IT or analytics or pricing, the dynamic pricing, well we've talked about the IT role about it's growing assortment or improving the content or enhancing search and navigation. We are creating a more frictionless environment for our customers and improving the speed or its experience. So all the many things we are doing, streamlining to increase the experience for store line, to the many, many things we are doing from a CRM's capability aspect. The details we are doing in analytics to tie together, all those things that we are doing from marketing, from a content approach to be more inspirational. I mean it's an any aspect of the business and invite you to come into us because it really deserves a lengthy conversation but every year with the business has a roadmap for constant improvement. So if you want to focus on any one I'd happy to but I think it's a very long conversation.

I guess the reason I asked it is there a disconnect with how -- I means some of these things are happening today and you talked about some progress with some of the analytics and the top line rate are slipping a bit. And so it would imply that some of these have not reached maturity or is that there is some corrosion that's masking some of the progress that they are making. And that's what I think the disconnect to the market or at least what this quarter which could have been a blip to your point right if the business is running a little healthier. That was the point of the question.

Yes, no, so let me -- so again it's hard to explain the dynamic. But as we get better we are losing for traffic and that's the lion share of our business. So even though we've been able to sustain very healthy growth in the digital world, when the big base deteriorates that's a big hit for us. And is so much own so much we can do to drive our customers into the store. We don't want to take them place they don't want to be. We are not going to win at that. Then you have an environment where the business leaks in a lot of different ways. So much available online with so many different people, so many ways to get product today. So even if we are getting significantly better at everything we are doing the idea that's going to translate necessarily into growing the top line doesn't hold water anymore. What it holds water is to that the erosion is less than we would otherwise see. That's not good enough. We don't accept that. But it has been the reality. At a certain point if we continue to grow the digital business and digital business becomes a bigger portion of our business, and we continue this growth, those numbers in and of itself will turnaround but the reality is that we are historically a brick-and-mortar operation that seeing less foot traffic and that's a hard thing to make up. And again I can't say that we can do short term things to try buy the customer to come into the store, but we are just fooling ourselves, that's not way they wanted to be over time.

And our next question comes from Alan Ruskin from BTIG. Please go ahead.

Thank you very much. Steve, you said that possibly going forward you expect the pace of store closings to increase. I was wondering if you can maybe shed a little bit color on what the store portfolio looks like. How many stores are not meeting their cost of capital? What's the average lease term remaining? Couple of things likes that and I do have a follow up. Thank you.

Sure, Alan. Listen, we've been criticized for not closing stores. The problem is that all the stores are profitable. And the stores are returning well and so we've always done, and our people have done a good job with the real estate and we've looked to have like we said five, six, seven years out anticipating a drop in foot traffic and increase in our cost structure. But now we do have a lot of leases that are coming up for renewal. So whether it's 80 to 100 stores that are coming up renewal, that's a clear opportunity for us to say, okay, over the next five years what do we see happening. If you are taking out the next five years do we still have a profitable store that meets our return criteria so and have been looking that, this is an opportunity now when all those renewals seems to drive an occupancy structure that gives us great confidence that we should continue to have those stores. If we are not able to negotiate those types of renewals then we will close the stores. So and in each case by the way the stores that are profitable that we close and have closed because when we look at the market and the optimization within the market that we deem it not necessary to have that particular store. But again you go back to the fact that it is omni channel and that the stores provide great value. That the stores -- listen they are very profitable which is wonderful. The stores also allow us to have a much lower advertising expense than our traditionally pure- play people have because of their availability --they are basically an advertise and awareness issue for us to shop type in www.bedbathandbeyond.com that we able to have people buy online and return into store, reserve online and pickup in store. Call us to make an appointment schedule, walk to store with somebody they wanted to have registry for baby or for bridal. So there are so many experiences and moving forward to have other experiences like decorating experiences and other things. So again when we look at this holistically, so I think we are realist and we've recognized that looking at all these options that are coming -- that are available to us as an opportunity to make sure we are getting the right feel to make sure that the profitability going forward is everything we would expect and the return criteria is met. Follow up, Alan?

Yes. Thank you. So since you are realist I mean do you agree that the pace of things and the pace of change have intensifying. And I know you and I have known each other long time and you've always talked about not being in a hurry to make a mistake. But is there a greater sense of urgency in terms of when you are looking at programs to make decisions to try that change the course of things today versus in the past.

I would agree that the rate of change continues to become more rapid. I think that we know each other long enough and that you should know I am an neurotic idiot so the idea that [Multiple Speakers]

I didn't say that Steven.

Yes. But there is no patience and there has never been any patience. We still want to make the right decision, so the degree that we didn't -- so yes there is a huge sense of urgency because we doesn't want to be view as losing or not meeting expectations or disappointing our shareholders or our associates or you, so we don't want to have that. So we are neurotic about that so that makes us any more neurotic act any quicker. I don't know. It's hard to say because that's kind of who we are. We've always focused on the things we don't do right. Not all of things we do right. We've always -- that type culture within the company is to having thick skin and broad shoulder and tackling the things that we don't do well and talking about and what those things are not worrying about who's feeling we are hurting. So that's who we are. So understand what you are saying but I don't -- so we are not in a greater hurry to make a wrong decision. But we have a sense of tremendous urgency because we don't want anybody thinking ill of us.

And our next question comes from Seth Sigman from Credit Suisse. Please go ahead.

Thanks for taking the question. And maybe just a follow up to some of the prior questions. Steve, can you give us a sense of where you are thinking you are holding your own category wise? Where you are actually able to recapture some of the sales online accepting that store sales are down but you are growing your online business, what is working online category wise besides furniture? And then can you give us a sense of whether there are specific categories where more challenge you maybe losing share. Can you just walk us through that?

Sure. So first of all we are adding a lot of assortment. So that's an advantage right there because we have more to offer the customer. And then really because the rate of growth has been so strong now for an extended period of time, really this every category and I say every, generally every category it shows great strength. Again so that's all the good news. But I do think that the growth of the home décor furniture business will help drive all the other businesses. You know somebody is buying a rug that they are looking to a redo a room. And so what else is lying an opportunity that present for us. So again right now it's a good story, been a good story, been a good opportunity but we got to continue to drive as we are copying, we continue to comp very strong numbers.

Are you seeing major changes or differences in performance between big tickets and small ticket or branded and unbranded categories, different customer segments, I'm just trying to understand where you are seeing the most improvement and where are you still seeing challenges?

Yes, you know what, listen, we don't really provide a level of specificity so and but of course those exist. Everything -- there is businesses that we've been and you are probably aware of them that is being sold everywhere today. So they have been under greater pressure. This business is today that everybody is getting into is migration of customers whether it's into electronics as a category represents opportunities for us. The businesses that have been very small for us so as we grow them, the growth number is substantial. So still all those things do happen but truthfully because the business is growing so well and it's relatively remains relatively immature for us is that we are seeing growth among all and we have the expectation to do so. And then the real key for us is really to find out what segment the population, to find out what they want and to drive each of those opportunities with those segments of our customers.

And our next question comes through Matt Fassler from Goldman Sachs. Please go ahead.

Thanks so much. Good afternoon. I've got one financial question and then a strategic follow up. A first one on the financial side. Steve, you spoke about the imperative to invest. If you look at expenses per square foot or some proxy for that, they continue to grow up pretty consistently kind about non trivial amount and obviously in a quarter this from the sales took a bit of hit. The expense ratio tends to up -- to blow up a bit. What is your sense of the portion of SG&A then is controllable and in a quarter like this did you pull back and is there capacity to pull back a bit more than you have so far while still investing as you see appropriate.

Yes. One question on the expense per square foot --

That's Eugene jumping and first of all also which is good because Eugene is sitting here and Sue sitting here. And when you said a financial question everybody perks up, so I would shut up eventually and all went that as Sue jump in, I mean Eugene

I thought you just look concerned that if the question wouldn't up to your standard. We want to make sure wasn't you the answer. But the expense per square foot if you are dividing all of our expense by our retail square foot, as we grow the online business that's going to be an expense increase that doesn't have a square footage growth when we give our square footage because we don't include the warehouses in our retail square footage. So that just might be something you have to look at in the calculation. But we do we are continuing to invest all those investments would increase disproportionate square foot, square foot is staying relatively flat with store opening or closing as many out to another 10s or so on basis 1500 that allow the expenses that we have for our investment can be flowing through at a rate that's going to increase our cost per square foot on the retail basis.

Understood. And then on the strategic front you talked about CRM and analytics, what's your core strategy for the deploying what you've learned and really engaging the consumer more directly on an ongoing basis and presumably kind of in a more real time basis on mobile as the shop to store? Is there way or general strategy you have for pursuing that angle?

Yes. The opportunity to communicate through [wires] to our customer is significant. I think that in each lot of the growth areas of the business we are getting better, we are growing these parts of the business but we don't really take the customer and had today and have been able to tie together from a customer's view where they are in their life, what are they doing, on Matt Fassler, I have an apartment, I might have a house with summer home, my kids are going to school, they are going to camp, or someone is going to college, that I have somebody is getting married, somebody is having a baby. We don't take and communicate to that the course are customers, we don't really have that blue of the customer to optimize our communication with them. So using the analytics and being able to tie our marketing campaign and to be able to really a step ahead of our customer and really provide value and real service to our customer than to communicate our differentiated product services, solutions to our customer. So then they really believe in us and think of us first, wires that are what we think seizing out the opportunity. So we have a litany of specific -- first of all, building together the mosaic of how we are going to get there and lot of the individuals think that we would start with and the tactics that we are going to begin with to be able to be successful in that strategy is underway.

And our next question comes from Greg Melich from Evercore ISI. Please go ahead.

Hi, thanks. I had one number question and a follow up. Maybe just to understand a little bit more the top line drivers. You did mention ticket was supportive and I love to have a little more color on that. Was it mix or maybe items in the basket or average retail? What was helping there?

No, we really did provide the ticket information. I am sorry that's not helpful for you but just as we have said we did see some growth in excess of 20% from our customer facing digital channel. And we did see some softness in the store and store transactions. But that's a detail level that we get to.

I would add but maybe a different way just when if you look at the digital channel, the 20% growth I am assuming it was up like a double digit figure as a percentage of sales, would that be a fair assumption? I don't know if you have ever provide them also with --

Yes, I don't think that something that we've done but we have done is in excess of it. In excess of 20% but that is the growth that we are seeing online.

That's we be up to, okay. And

Go ahead, I was saying as you know I mean we look at it holistically right so it's all -- that's accomplished in all one, we try to provide this information directionally as Sue said in her prepared remarks for those various reasons and how customers can shop with us. But directionally we have seen it moving in excess to 20%. And I know I have seen some folks model things out a while ago that we are getting to that 9%, 10% range obviously we continue to grow. But we haven't provided -- we don't look at it that way that the digital business is x% versus the whole, is all part of the one.

Got it. And I guess the last thing, now that you have full year of the lower shipping threshold, how important is that? I mean is that the kind of thing that is the difference between getting the customer you find that really transact with you in that bucket? I mean is that a narrow, a majority of online sales in that $29 threshold?

I think it's a moving target, Gregg. And that's it for now that we think as a sweet spot but again when you are talking Bed Bath concept specifically but even looks at our other concepts, they are all over the place. Christmas Tree and That, you are looking what Harmon are, you are looking at Cost Plus World Market, you are looking at Tmall, you are looking One Kings Lane, you are talking about buybuy Baby. They each have their own formula and trying to figure out who their competitive set is, what drives the customer experience, their customer thought process, how much differentiations do we offer, what's the value that need to provided in terms of shipping. But for the Bed Bath & Beyond concept that's for this period of time appears to be the sweet spot as we continue to test to some degree with the limited customers of those things. But again these things continue to be a moving target but that's what we found to date.

And our next question comes from Laura Champine from Roe Equity. Please go ahead.

Thanks for taking my question. With everything that you've already said today, Steve, as you look out at your businesses, some of your banners are less matured than others. Are you certain that your store count will decline in future years or is the goal to get better deals with landlords so that the matured businesses stay stable and you grow a little bit in the smaller concepts?

You know what you are asking us to predict something so listen at every landlord was charging us a $1 a square foot; we would have these stores even when we look to optimize markets probably. But if you are asking us to predict or to guess to future I think we would be fairly comfortable saying that probably a reduction in our store base both because I think it takes a while for the landlord to recognize some of the things that we believe in terms of foot traffic and cost structure in the store. And so for that reason we would think that is few stores. And also as we look out just in opportunity to optimize markets by having few stores that is still even with profitable store, that's a pretty hard bar to overcome in some market where we think that we can retain a significant amount of the business and be much more profitable by closing the store in the market. So if we had to predict I'd say fewer stores.

And our next question comes from Peter Benedict from Robert Baird. Please go ahead.

Hey, guys. Thanks for taking all the questions here. Quickly just to clarify so at least 80 to 100 store leases coming up for renewal. Did you mean next year or did you mean over the next few years?

You know what I think that just to be honest I don't know the exact number. So maybe I shunt this, I'll be reprimanded afterwards but I think that we are anniversarying a period time that we were doing about 80 to 100 stores a year. So I think this is a like if you go out 10 years or so, 10 to 15 years on the 10 years leases some 15 I think that's about the rate, Sue saying that's correct. So here you go Peter.

Yes. No, that's what we thought, thank you. I didn't mean to get you reprimanded, Steve. So next question would just be around omni channel. I mean you have done a lot of talk about omni channel today. What percentage of the store of the online sales is fulfilled by the store? I mean you got to pickup and store, you got delivered from store, can you give us a flavor for how active the store are and fulfilling online orders.

Yes. We don't set a target goal. There are certain products that are more efficiently fulfilled out of the stores. There are other products more efficiently filled out of a distribution center depending on I think the labor is usually leveraged more in the distribution center. You might get an opportunity for some fees and freight if it's closer to the customer or the store. So it really depends, we have out revenues that calculate and try to optimize that. So it really depends on the mix of products purchased through the channels that will have direct led to a customer.

And right as Eugene pointing out also we talked about same day delivery, and growth in same delivery which is as we have look at the algorithm probably will be driving more of the fulfillment from local stores because of the cost savings. So all that will be directional but again we were early. We have the capability of doing that and we are leveraging it. And we continue to develop best practices around it.

And our next question comes from Brad Thomas from KeyBanc Capital. Please go ahead.

Good afternoon and thank you for taking my question. Hoping to ask about the non Bed Bath & Beyond chains and any color there that you are able to share on how they performed in a first quarter? One of the competitors of buybuy Baby in particular towards their asset called out weak environment in the first quarter for baby products. And then more strategically maybe if you could talk about the importance of actually owning these other physical stores in light of the over possible to simplify the store base to back some of these businesses considering that you make up about a third of your store base today. Thanks.

Sure. So I think noteworthy that when we looked across for example the summer selling period and the merchandize that we would expect across our concepts to be selling. It was consistent across the concept that they all struggling with summer seasonal. So in a way that's upsetting and in a way it's comforting. Then I could say I think you read what other retailers are saying. When you talk about Toy specifically, I guess Toy has said the cold spring hurt their sales and have listed things like bikes and tool for toys and pull toys and then bunch of things in their categories. But they pointed out that as well. So but we don't break them out to all one segment for us and one concept. We try to leverage each so like we always say that the store within the store is important to us. So defining the commodity products you would find it at Harmon within Bed Bath & Beyond or Christmas Tree shop or finding the seasonal product at Christmas Tree shop in Bed Bath & Beyond or finding food and beverage at Cost Plus now in Bed Bath & Beyond, all these things we are trying to integrate. And now even in the studios, the One Kings Lane providing and using a white label and what decorist does to be able to provide decorating service to our customer. We really are customer centric and saying how do we use all display to better service our customer and then how we are using our analytics to understand our customer and how we are using our marketing to deliver upon a better experience for our customer both digitally and in our stores. So I touched upon I guess on bunch of parts to the answers. Do you have anything more specific? If you are still us with Brad, we would be happy to follow up.

Yes. I mean I guess just in terms of -- do you need a store fleet for all these different banners or it might be worth divesting some of them or shutting some of them down. Since you are able to sell many of those products in the core Bed Bath & Beyond source?

You know what again we are not locked in a merit anything. We have opened up not so many Harmon stores, face value stores that the primarily the growth has been stored within store both in Christmas Tree and in Bed Bath & Beyond. That we are putting Baby, so as we open baby stores but we haven't move forward as we were opening up the numbers of Bed Bath that we are doing stores within a store or we are doing smaller stores. So we have not -- we don't view them as a standalone concept trying to achieve a specific objective as much as we view them as clay how do we satisfy the customer. And if individual store front optimizes our ability to do that. Then we would do that but if it's not the way to do it then we won't.

And our next question comes from Beryl Bugatch from Raymond James. Please go ahead.

Good afternoon. And thank you for taking my question as well. So SG&A bolted up -- I am going to try to kind of piggyback on Matt's question. SG&A bolted up by $2.4 million in the quarter. Can you talk to whether that was within your plan, on your modeling assumptions and maybe give us a breakdown on what were the differences in SG&A for the quarter.

Sure. For example one of the items we talked about that those PMall and One Kings Lane were new to this particular quarter versus last year. We also mentioned that we saw increases in advertising as well as payroll and digital. So where our technology space and the depreciation associated with that. So those are the items that we called out that increased our SG&A.

As a percentage of sale.

As a percentage right.

So I think when you're quoted numbers that is $2.4 million number you quoted higher, that's not necessarily the case. I mean the anticipated spend -- and I don't want to speak out of turn so Sue correct me but if the anticipated spend is what we expected but our sales came in light we are seeing the deleverage that we mentioned when we talked about SG&A.

Against plan yes

Well, that was a question, was the SG&A was a dollar value, at dollar amount of the SG&A which you expected to spend was that in your modeling or in your assumptions. I understand the deleverage and the ratio went higher than -- because of the sales but I was trying to understand just dollar amount of the earnings surprises in that you.

Well, for example it really does depend in terms of when you are looking at our plan, we were -- we had softness in our sales so we need to adjust from a variable perspective when it turns to your sales fees. So a little difficult to answer your question. I am trying to answer it is adjusting for the sales fees.

Yes. Because we have variables, semi variables and fixed cost within the SG&A. So lot of the fixed costs are more predictable and they were probably in line, we have to check, occupancy doesn't vary much from plan because we have very visibility for that, other areas like staff payroll which is a semi variable and other components that are completely variable like credit card and settlement. They all go and up down with sales. So we have to go category by category but and so it's never exactly what we plan because it is somewhat depended on sales and so it really happened may be you call us after or we would happy to go through more in more detail.

Yes. Again so we are not trying to avoid the answer into -- books and numbers but let me just tell you because and again advertising we didn't spend more than we have planned to spend. We gave you the plan in April. Payroll and payroll related items; I don't believe we spend more than we anticipated. Those are the two big ones that increase percentage of sales. I don't think technology was anything unexpected. So I don't think that any of it was unexpected, so I'd be surprised if anything was above planned but just putting through the pages just to confirm that but I still answered but that I don't think so.

I just want to add though even if the numbers were the same that wouldn't mean that's exactly what we plan because if sales were lower you might expect to be lowest and there might be some component to that were higher. So I wouldn't want to say even they were the same as exactly what we planned because there would be ups and downs within the categories.

Yes. I think we all understand that the fixed variable and semi variable component of SG&A. I was just trying to get the feeling of whether or not you did some things during the quarter that were kind of heroic or trying to get the sales uptick that may have caused you some SG&A leverage and deleverage.

No, so these were the answers that we pointed out that the three largest items as a percentage of sales went up that we did warrant an unanticipated spend above budget for so that would be the answer.

Not materially above our --

Okay. And just to -- I know this is always ongoing, users always ongoing but you are reviewing your management structure I think they try to become even leaner or more efficient as I think you said when do you think that would be done or when do you think we will see some actions that may have resulted from the current period of review.

Okay. So first of all Sue saying that payroll was slightly above what we have planned.

Not materially

And again a lot of it is chasing wage rate.

Yes.

So I want to clarify so two out of three you warrant, one was, and then with your answer, I am sorry about the other question regards to some of the changes we are making to our management structure. And the question regarding it was--

--will be completed and when we might see some actions that resulted from the review.

Right. So some of the things that we've done have been done already. We made structural changes in some of the responsibilities within the organization for parts of our businesses. So those things have been done. A lot of the things that we've done in terms of our technology or IT world to better align our resources engineering approach to the product oriented to realign work proposed and work forces to get the work done. A lot of that work has been done although there is probably six weeks or so hopefully till completion of that. In terms of some of the other things that we are looking at that the PMO is working on and some of the bigger opportunities both maybe some cost short term and savings long term, I think we will be in a better position to discuss on our next call because like I said it's all wrapped into completing the phases we are in, including communication phases of things and so I'd anticipate when we speak next, we will be able to put more color around it.

And our next question comes from Curtis Nagle from Bank of America. Please go ahead.

Great, thanks very much for taking the questions. So could you just remind us in terms of what's driving I guess better expectations for 4Q? And just having I guess for matter having our initiatives more in place or is just something else we should think about? Then I just have a quick follow up.

Sure, the 53rd week is included in our fourth quarter. So that's a piece of it for sure.

I see. So it's not so much on a comp basis, we are just talking about total sales then.

I wanted to think Nagle I think that maybe you will see in -- but I'd curious if anybody's heard the conversation around the election last year and what they thought they might have adverse impacted did not -- they might have had on businesses and whether people see that as an opportunity. But I think we did see some additional softness in and around the election. So there might be an opportunity as well. But as Sue said the 53rd week is clearly the thing that we could clearly point to.

Fair enough. And then you talked about expanding your assortment of wedding product in the store. Would you guys consider rolling out actual beds in stores now you have an online assortments online or is that something that just would require too much in terms of perhaps labor training, advertising, is it something that you might do.

You know first of all we won't telegraph something until the customer sought, just historically we did do bed, we've been in the business, we've been out of the business. We had stores that did it. So it's complimentary to what we do as you move into the furnishing and décor business that it might be, it is a huge user of space and if you really want to show a proper assortment very large user of space so there is pros and cons to it. And we do know that is a great comfort that people take today in buying mattresses online. So for all those reasons continue to be an opportunity and whether that opportunity is primarily online or online and in store that's something that remains to be seen.

And our next question comes from Adrienne Yih from Wolfe Research. Please go ahead.

Hey, guys. This Doug Drummond on for Adrienne. I want to circle back to the furniture opportunity. I believe this is your third seasonal catalogue issued at this point. So can you share any insights from early learnings there or any metrics on that customer relative to your legacy customers? Anything there will be helpful. And a follow up if I may.

Yes. And we learned enough to be committed to being great at this business.

That's okay. I guess I'll see that unfold. Then I guess looking at pricing, I know you guys are always have a careful eye looking at pricing both in store and online, any update during the quarter on more -- are you seeing any more competition or price cutting from your competitors whether be Amazon or some of the furniture guys? Thanks.

No, I think that it's -- as we've scroll our competitor's website as we integrate pricing throughout the organization, the buyer, the planners, what they do everyday every week as so bring more product online that we sell only online so that we need to be dynamically priced. We see a lot of more movement in prices within our company because of that. More of our assortment is subject to it is as we have more online that we don’t carry in the store. So and if you are asking whether people are becoming more promotional or we are seeing more pressure when it comes to pricing, I think that -- I think it's fair to say that there is more awareness and ability to shop pricing each and everyday. So the transparency just becomes clear to people and as a result especially with dynamic pricing responsiveness steps up. So for all those reasons I think that you see advantages that the consumer is experiencing and we think that's a great thing for our customer and for the country. So but at the same time there is an impact on retailers who want to be priced right.

And a next question comes from Dan Binder from Jefferies. Please go ahead.

Thanks. I just want to talk a little bit about your coupon expense. I am assuming your redemptions are up since your expenses up and I was curious is that simply the function of greater accessibility and if you could tell us a little bit about coupon redemption with new customers versus existing customers. In other words are you seeing a trend of more new customers redeeming or is it primarily being driven by existing?

Yes. As far as coupon accessibility, we do have our coupon available in most of the areas that people are looking for whether it's on a online app or -- exactly delivered to your home or to your inbox or to your mobile device. We've also rolled out the ability recently to most of our customers that they can now redeem their big blue coupon that we now online also so that is now an omni channel offer, and historically it has been simply an in-store offer.

And regarding the coupon expense for the quarter was a resulting from an increase in redemption partially offset by decreasing in the average coupon amount.

And what about new versus existing customers? What are you seeing in those trends?

Sometimes it is self fulfilling prophecy because if you may have the coupons to your existing customers. If we are not going to see -- when we are using the coupon for prospects that's where you are going to see the highest percentage of new customers. And I don't have the weighted comparison this year and last year with me versus existing customers. But it is a constant churn of the list. Like any retailers you have new customers coming in, your existing customers and then some people fade. But I don't have the numbers this year last year as far as percentages.

Okay. If I could just stick one more in. On the ad spend, I know that was up, can you just tell us a little bit about where that spends went and the effectiveness as you measured it.

Well, we have digital spend and advertising as well as we talked about our summer catalogue and our college catalogue. So there is some print and we continue to issue a coupon to circulate that. So that's a general make up of the advertising spend.

Yes. I mean directionally the digital spend is increasing more as a percentage of its growth than the other areas because the business is growing disproportionately.

And this concludes our question-and-answer session. I'll now turn the call over to Janet Barth for closing comments.

Thank you all for joining us today. We look forward to having you join us again on our next quarterly earnings call on September 19. We will be around a little bit tonight if you feel like you need to have further answers to your questions, feel free to email me or to call. Otherwise have a good evening. Thank you.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.