Welcome to the Bed Bath & Beyond’s First Quarter Fiscal 2018 Earnings Call. All participants will be in a listen-only mode until the Q&A portion of the call. Today’s conference call is being recorded. A rebroadcast of the conference call will be available beginning on Wednesday, June 27, 2018 at 8 p.m. Eastern Time through 8 p.m. Eastern Time on Friday, June 29, 2018. To access the rebroadcast, you may dial 888-843-7419, with the passcode ID of 47122204. At this time, I would like to turn the conference over to Janet Barth, Vice President, Investor Relations. Please go ahead.

Thank you, Adrianne and good afternoon everyone. Before we begin, I want to let you know that in addition to today’s earnings press release dated June 27, 2018, we have also published a slide presentation to accompany our prepared remarks as part of our continuous effort to enhance our investor communications. Both the earnings release and the 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. Feel free to access it now if you can, while I continue with our introduction. Joining me on our call today are Steven Temares, Bed Bath & Beyond’s Chief Executive Officer and Member of the Board of Directors; Robyn D'Elia, our Chief Financial Officer and Treasurer; Gene Castagna, President and Chief Operating Officer; Sue Lattmann, our Chief Administrative Officer; and Debbie Propst, President and Chief Merchandising Officer, One Kings Lane. 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 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. Here are some highlights from our first quarter results which reflects our ongoing transformation and our continued focus on being trusted by our customers as the expert for the home and heartfelt life events. We are on track with our modeling assumptions for fiscal 2018 as well as our 3-year financial goals that comprise our vision for 2020. Our first quarter net sales increased approximately 0.4% and comparable sales declined approximately 0.6%, including strong sales growth from our customer-facing digital channels and a mid single-digit percentage decline in sales from our stores. Net earnings per diluted share were $0.32. Retail inventories were reduced by approximately $300 million at cost compared to the end of the prior year first quarter. And we continue to grow our cash and investments. In addition, our Board of Directors today declared a quarterly dividend of $0.16 per share payable on October 16, 2018 to shareholders of record at the close of business on September 14, 2018. During our call today, we will discuss some of our key initiatives, review our quarterly results, including our fiscal 2018 modeling assumptions and then open up the call for questions. I will now turn the call over to Steven.

Thank you, Janet. Before we begin, I would like to acknowledge the recent departure of Art Stark, President and Chief Merchandising Officer. During his long and distinguished career, Art played an instrumental leadership role in building and growing our company and we are forever grateful. Succeeding Art in our Chief Merchandising Officer role is Todd Johnson, who joined our company in 1997, has served in several key leadership roles, including most recently as President and Chief Merchandising Officer for Christmas Tree Shops. Todd brings great passion and knowledge about us and we look forward to his perspective as we continued to refine our assortment strategy and further evolve our merchant organization. I would also like to welcome Robyn D'Elia as a new participant on our call today. Robyn was recently promoted to Chief Financial Officer and Treasurer. We are fortunate to have experienced a seamless transition as Robyn has been an integral part of our management team and has been working closely with Sue and Gene since 1996. We are also pleased to have recently announced the promotions of Gene to President and Chief Operating Officer and Sue to Chief Administrative Officer. Gene and Sue will be focused on our company’s transformation and making sure we remain on target to achieve our long-term goals. We have a talented team of passionate leaders across our company, including long-time associates as well as those who have joined the company more recently and we are thrilled to be able to further leverage their strength. As for the quarter, our performance was in line with our expectations and as Janet said, we remain on track with our modeling assumptions for fiscal 2018 as well as our 3-year financial goals that comprise our vision for 2020, which include: to achieve comp sales growth beginning this year, to achieve moderating declines in our operating profit and net earnings per diluted share this year and next, and to achieve growth in our earnings per share by 2020. During the quarter, we continue to make good progress on our strategic initiatives in connection with our transformation. Our strategy remains rooted in our customer-centric culture and commitment to customer service and consists of four broad areas of focus: assortment, services, experience and operational excellence. In previous calls, we have detailed the number of initiatives underway within each of these areas, designed and prioritized to position our company to effectively pursue our mission to become the trusted expert for the home and heartfelt life events and we would like to provide an update on some of these initiatives on today’s call. For those of you that have our slide presentation up, you might want to turn to the slide entitled Accelerate Growth of Decorative Furnishings. So with that, I would like to turn the call over to Debbie Propst to give an update. Debbie is leading our effort to further establish Bed Bath & Beyond in the decorative furnishings category. Debbie is also President and Chief Merchandising Officer of One Kings Lane, an authority in home décor and design offering a unique collection of select home goods, designer and vintage items as well as our private label brand, One Kings Lane collection. As a reminder, Debbie joined us with the acquisition of One Kings Lane in 2016 and we are very glad to have her expertise and fresh perspective as we execute our strategy in the decorative furnishings category. Debbie?

Thank you, Steven and hello everyone. I am very happy to be here today to talk about decorative furnishings. We believe decorative furnishings is an important business for Bed Bath & Beyond to be in, not only for the revenue growth opportunity, but more importantly to further establish ourselves as the trusted expert for the whole home. To us, decorative furnishings represent the following categories: furniture, lightings, rugs, art, mirrors, and wall décor. Our strategy focuses on four key areas: one, to have an expansive online assortment differentiated over time that gives our customers a choice of style and price point; two, to offer quality and value to our customers ensuring we are priced competitively against our digital competitors; three, to provide a convenient and easy shopping and delivery experience; and fourth, to increase awareness among our customers that we are in the furniture business. Our efforts are supported by an agile and cross-functional team consisting of buyers, planners, data analysts, merchandise operations specialists, categories site merchandisers and dedicated marketing support. We are in the early stages, but despite that we are beginning to see some positive results. For example, on a year-over-year basis, sales of decorative furnishings within Bed Bath & Beyond and buybuy BABY in the U.S. and Canada have experienced strong growth of approximately 21.5% in the first quarter of fiscal 2018. Year-to-date through the end of the first quarter, engagement with decorative furnishings product pages on the Bed Bath & Beyond website is up about 34%. Similarly, on the buybuy BABY website, engagement with decorative furnishings product pages has doubled. As another example, the average order value of decorative furnishings during the same period on the Bed Bath & Beyond website was up approximately 4.4% to same period last year and by 49% higher than the overall site average order value. For baby, the average order value for baby furnishings is up around 1.9% for the same period last year, approximately 115% higher than the overall site average order value. These are encouraging data points that we will continue to use to track our progress. As I mentioned, we have several initiatives underway supporting the growth strategy for decorative furnishings. As far as our assortment expansion effort, we have added more than 78,000 decorative furnishing SKUs to the Bed Bath & Beyond website during fiscal 2017 and year-to-date through the end of the first quarter, we have added about 24,000 more decorative furnishing SKUs. As we are adding SKUs, we are very focused on improving the find-ability of the product on the site through enhanced navigations and filters and enriching the data on each product. As much as we are focused on adding, we are also focused on editing from the assortments. Using web data and item level profitability analysis, we are removing SKUs that cluster the site experience or negatively impact profitability. We are also excited to be developing proprietary decorative furnishings brands that we plan to introduce some payments fiscal 2019, including a One Kings Lane brand to be sold exclusively at Bed Bath & Beyond. As far as providing a convenient and easy shopping experience one initiative is underway is our investment in 3D technology so as to give the customer the opportunity to see the product and sell to real 3D rendering. We are building at a capability to use 3D imaging more broadly. As far as increasing customer awareness, we launched an in-store pilot this spring and rolled out a variety of furniture vignettes in 78 Bed Bath & Beyond stores across the Pacific Northwest, West and Mid-Atlantic regions of the United States. We also conducted additional associate training in these stores and are testing the use of tablets for our associates to better communicate with our customers about our decorative furnishings offering and our design services. We also enhanced our signage in these stores that fits the customers in finding more beyond the stores at bedbathandbeyond.com or to place an order with an associate with Bed Bath & Beyond store, an internal web-based platform. Even though it has only been a few weeks since the vignette to install, we are tracking some positive results. In these pilot stores, we have seen an approximately 10.4% increase in decorative furnishings order placed in store and ship directly to the customer over the past 4 weeks compared to a growth of about 3.6% for total stores. We also have a customer survey underway that we hope will provide some useful insight as we begin to more fully develop the store model for an assortment of decorative furnishings. We believe we have a strategic advantage over some of our online competitors in home furnishings to use our large store case as a channel, which the customer could engage with a representation of our product and pick our in-store expert, not only about the product showcased in the stores, but about the breadth of the assortment that we stand tall within our digital assortment. And finally, within our portfolio of concept, One Kings Lane serves as our higher end assortment offering within furnishing and we have been actively expanding the total offering with an additional 49,000 SKUs added year-over-year. Our private label One Kings Lane collection has more than doubled since the beginning of 2017. During the first quarter of this year, we also added art and paints and in July we will be adding wallpaper to the existing assortment of furnishings in the collection. To complement our own collections, we continue to grow the amount of products we sourced from markets and are focused on our presentation of elite brands, including Ralph Lauren Home and we will soon be launching a similar experience showcasing the world of marketing sites. Additionally, in order to offer customer’s access to custom window treatments in our One Kings Lane handwriting, we launched an exclusive assortment approach through a licensed collection available at the same store. We believe we have developed a beloved brand with One Kings Lane and are pleased to now begin investing in through our bricks-and-mortar expansion, including a new shop in SoHo, New York scheduled to open this fall, which will include designs [indiscernible].

Thank you, Debbie. Next, let’s move to an update on our next generation store initiative. I would like to start by reminding you that we have nearly 400 stores across our real estate portfolio that have leases coming due over the next 2 years, that includes about 270 Bed Bath & Beyond stores. This provides us with tremendous flexibility to negotiate improved lease terms, relocate stores to more favorable locations and/or close stores. In many cases, we have been successful in renegotiating more favorable leases, including their durations. Through the work that began years ago, our average remaining lease term for Bed Bath & Beyond stores is now down to 4.2 years. Having leases rolling over more frequently in this retail environment also gives us the flexibility and in some cases the leverage to reduce occupancy costs as well as to also structure the economics necessary to permit significant renovations in selected stores primarily for the development and iteration of our next generation stores. These next-generation stores will include a larger focus on generating traffic to help optimize store productivity. We are working to increase shopping trips, transactions and transaction value by improving our offering of scarcity product such as seasonal decorative furnishings treasure hunt, and deep value merchandise as well as commodity product, including food and beverage and health and beauty care. Also, our next generation stores will reflect our efforts to make our stores more efficient by better focusing our assortment and improving how we work through the information insights and tools that our associates have. With regard to our merchandising initiatives, in order to free up space so that we can carry these new and/or evolving categories, we have been implementing strategies to optimize the core assortment shown in our stores. To do that, we have a number of initiatives underway, including a comprehensive review of our assortment as well as inventory initiatives that enable us to reduce our retail inventory across our core assortment, while showing the same amount of product in our stores and in some cases more yet carrying less inventory. Robyn will tell you more about this in a few minutes. The iteration of our next generation stores is underway and we are on track with the original 12 store remodels that we previously communicated. In fact, to-date, we have completed 4 remodels and planned another 15 remodels by late fall, again iterating quickly for continuous improvement and we anticipate another 20 stores to be remodeled by the end of next spring. We have also created a dedicated, agile cross-functional team to work on our next-generation stores. And due to our early favorable results, we are moving faster than we had initially planned. As far as the results, while still early, the number of transactions in these stores is 10 to 15 percentage points better than the rest of our Bed Bath & Beyond stores. Additionally, the number of transactions that include items from the new and/or evolving merchandise assortment are up approximately 70% and the transaction value for customers that purchase from both the core departments in the new and/or evolving merchandise areas is greater than the store average transaction value by about 30%. In addition, although the core department space has been reduced by nearly 10% in these stores, sales for the core departments are still outperforming the rest of our Bed Bath & Beyond stores and outperforming their own trend prior to the stores being remodeled. While it is still early in the development of our next-generation store, we remain encouraged by our early results. As I mentioned earlier, we are utilizing another dedicated agile, cross-functional team to be able to iterate quickly and improve the model as we redevelop more stores. Everything we are doing of course with our stores, including this next-generation store initiative, we are doing in full awareness of the shift in traffic from bricks and mortar to digital. This project takes these factors into account as we continually move to optimize the productivity of our store experience. Next, we will have Robyn give a quick update on inventory optimization initiatives that I briefly touched upon. Robyn? Robyn D'Elia: Thank you, Steven and hello everyone. We have a slide in our presentation today that shows the progress we are making in optimizing our retail inventories. We have a number of initiatives in this area, including what we call show more, carry less, where we show an expanded breadth of our merchandise assortment, but only carry the top-selling files in-store, SKU space reduction, which looks to optimize product space accordingly to support the evolving in-store experience, SKU rationalization, where we identify and act on duplicate and unproductive products and assisted store ordering, which uses advanced analytics to more accurately project our inventory needs. As a result of these initiatives during fiscal 2017, our inventory decreased by about $170 million at cost or 6% versus the prior year and through the end of our first quarter decreased year-over-year by approximately $300 million at cost or 10%. We continue to focus on these and other inventory optimization strategies and project that these initiatives should yield further inventory reductions. There is one more initiative that we would like to cover before reviewing our quarterly results and opening up for Q&A. For that, Gene will now give an update on our marketing personalization efforts.

Thanks, Robyn and good afternoon everyone. There are a couple of slides in our presentation today that cover our marketing personalization initiatives. Our goal for marketing personalization is to drive incremental revenue and optimize the customer experience through personalized, relevant communications with our customers. In conjunction with this project, we created still another new agile environment for our associates to more effective or efficiently and effectively together. We launched our first personalization lab back in April. This is a cross-functional team of about a dozen members working together in the same room to develop lack of testing of personalized experiences. We are quite pleased with how the agile team has come together and what they have achieved so far. We have experts from IT, analytics, digital, creative, as well as marketing all collaborating together. In less than 2 months, the team has launched over 20 tests. The speed and throughput of our personalized testing capabilities have grown by 10 times. Results from these early tests are also encouraging. We have seen between 15% to 20% boost in customer engagement across all personalized tests. We have also identified incremental revenue from these personalization initiatives and we believe that by scaling the winners we will see a higher revenue benefit. In terms of what’s next in order to support personalization at scale, over the next 12 to 18 months, we plan to make further investments to develop our integrated technology tools, including the implementation of a personalization decision engine, identity management infrastructure, and the customer data platform, among others to leverage our best-in-class data as well as other relevant third-party data to develop and scale tailored and personalized marketing communications. I will now turn the call back over to Robyn. Robyn D'Elia: Thanks, Gene. For those of you who are following along with the slides, I will now review our first quarter results. Net sales in the quarter were approximately $2.8 billion, an increase of 40 basis points from the first quarter of last year. As a reminder, our fiscal 2017 was a 53-week year causing our fiscal 2018 to start one calendar week later than fiscal 2017. However, our comp sales metric compares the same year-over-year calendar weeks. For your reference, specific date ranges related to our comp sales metric are provided on the slide entitled Q1 2018 P&L Summary. On that basis, comp sales for the quarter decreased 60 basis points and reflected a decrease in the number of transactions in stores partially offset by an increase in the average transaction amounts. On a directional basis, comp sales from our customer-facing digital channels continue to be strong in the quarter, while comp sales from our stores declined in the mid single-digit percentage range. In addition, One Kings Lane was included in our first quarter comp sales. Gross margin for the quarter was approximately 35% of net sales as compared to approximately 36.5% in the first quarter of last year. In order of magnitude, this decrease as a percentage of net sales was primarily due to increases in coupon expense and net direct to customer shipping expense. The increase in coupon expense was the result of an increase in the average coupon amount partially offset by a slight decrease in the number of retentions. SG&A for the quarter was approximately 32.1% of net sales as compared to approximately 31.1% in the prior year period. In order of magnitude, this increase in SG&A as a percentage of net sales was primarily due to increases in payroll and payroll-related expenses, including severance cost incurred during the quarter, technology-related expenses, including related depreciation, and management consulting expenses, including costs related to our merchandising improvement and marketing personalization initiatives. Our effective tax rate in the first quarter was approximately 32.4%, which benefited from the lower rate as a result of the tax act and included the net after-tax cost of approximately $3.4 million due to distinct events occurring during the quarter. In the prior year period, our effective rate was approximately 42.3% and included $5.6 million of net after-tax cost due to distinct events occurring in that quarter. Considering all of this activity, net earnings per diluted share were $0.32 for the quarter, which included the following and unfavorable impact of approximately 6 times from the severance cost incurred this quarter, which was not included in our fiscal 2018 modeling assumptions and a favorable impact of approximately $0.05 from the adoption of the new revenue recognition accounting standard, which was anticipated and included in our modeling assumptions for the full year. Now looking to our balance sheet, we ended the quarter with approximately $847 million in cash and investments, an increase of $281 million over the end of the fiscal 2017 first quarter. Retail inventories of $2.6 billion at cost continued to be tailored to meet the anticipated demands of our customers and are in good condition. This represents a reduction of about 10% compared to the end of the first quarter last year. As I mentioned earlier, we have begun and remained focused on inventory optimization strategy. Capital expenditures for the quarter were approximately $98 million, with about 80% related to technology projects, including investments in our digital capabilities and the development and deployment of new systems and equipment in our stores. The remaining CapEx was primarily related to investments in our stores. We opened 7 stores during the quarter and closed 2 stores. Share repurchases under our current $2.5 billion share repurchase program were approximately 22 million in the quarter, representing about 1.2 million shares and has a remaining balance of approximately 1.5 billion at the end of the quarter. In addition, our Board of Directors today declared a quarterly dividend of $0.16 per share to be paid on October 16, 2018 to shareholders of record as of September 14, 2018. Turning to our planning assumptions, as Steve said earlier, we remain on track with our fiscal 2018 modeling assumptions and 3-year financial goals. Our planning assumptions for 2018 include: consolidated net sales to be relatively flat to slightly positive compared to 2017 which had 53 weeks, comparable sales growth in the low single-digit percentage range, including continued strong growth in our customer-facing digital channel, gross margin de-leverage primarily due to our continued investment in our customer value proposition, and the ongoing shift to our digital channel, SG&A de-leverage primarily due to the investments we are making to transform the company, operating margin de-leverage to be less than we experienced in 2017, depreciation expense in the range of approximately $315 million to $325 million, and estimated full year tax rate in the 26% to 27% range, capital expenditures in the range of approximately $375 million to $425 million subject to the timing and composition of projects, the opening of approximately 20 new stores with the majority being buybuy BABY and Cost Plus World Market stores, the closing of approximately 40 stores unless we are able to negotiate more favorable lease terms with our landlords, continued growth of our cash and investments even after funding our operations and capital expenditures as well as our quarterly dividends and share repurchases. As a reminder, our share repurchase program maybe influenced by several factors, including business and market conditions. Based on these and other planning assumptions, we are continuing to model net earnings per diluted share to be in the low to mid $2 range. For modeling purposes when comparing to the prior year, our estimated 2018 quarterly EPS as a percent to the total year was anticipated to be lighter in the second and third quarters and stronger in the fourth quarter. This is despite the shift of one holiday week out of the fourth quarter and the loss of the 53rd week. Again, the main takeaway today is that we remain on track with our modeling assumptions for fiscal 2018 as well as our 3-year financial goals that comprise our vision for 2020. Before opening the call to questions, please note that our next quarterly conference call will take place on Wednesday, September 26. At that time, we will review our second quarter results and provide an update on the remainder of fiscal 2018. We can now open the call for questions.

Thank you. [Operator Instructions] And our first question comes from Mike Baker from Deutsche Bank. Please go ahead.

Hi, thanks. Did I hear correctly and maybe I didn’t, so correct me if I am wrong, did you say that we had more couponing, but it was the result of the increased dollars on the coupons, but actually fewer redemptions than a year ago? And if that is the case, I think it’s been at least a couple of years since we have heard that if not even longer. So, is that a change in trend, in other words, having fewer coupon redemptions year-over-year? Robyn D'Elia: So, you did hear it correctly that our average value of our coupon was up and the redemptions were down. We did provide some different coupon offers throughout the quarter. We are making sure that we have the right customer value proposition out there. So, one variation that we offered with $20, $20 off a $75 purchase and then we also had increased enrollment in BEYOND+ so that contributed as well.

So in other words, increased enrollment in BEYOND+ means those people wouldn’t be using coupons anymore and that leads to a reduction in the use of coupons, is that what you are trying to say? Robyn D'Elia: Definitely, BEYOND+ members would not use coupons any longer, so yes.

Okay, interesting. Is there any way to sort of directionally put that all together, in other words, okay, so couponing is still hurting your margins as it has been for quite some time, but is it hurting your margins more or less than in recent quarters?

I don’t know more or less, I mean, that’s the net math of it. We had a higher average value and so it was net higher percentage of sales, but it was just a combination of the lower coupons and the higher amount netted out to a higher amount as a percentage.

Understood. But couponing is dragging down your margins as it has for lot of quarters, so I guess a question, is it dragging down your margins more or less than it has in the last, let’s say, four quarters?

Has it changed quarter-over-quarter?

Correct. Robyn D'Elia: It’s continuing to have a significant impact and when we discuss the changes in the margin we put them in magnitude order. So, it’s still the highest driver.

Okay. Okay, thanks for that. One more – much more mundane question on the tax rate, you are still guiding to 26% or 27% for the year, it was higher than that this quarter which would just mathematically imply would be lower than that 26% to 27% at some point later in the year. Is that the right expectation? Robyn D'Elia: Yes, that’s the right expectation.

Okay, thank you very much. Robyn D'Elia: You’re welcome.

And our next question comes from Matt McClintock from Barclays. Please go ahead.

Hi, yes. Good afternoon, everyone and thanks for the slides. They are helpful. I was wondering if we could focus on the furniture business, the comment that was made was you are in the furniture business. And I am trying to conceptualize this now, because I want to get your thoughts on the arms race, the technological arms race that’s going on in that business today, you have one of the more established companies just made $100 plus billion acquisition to do augmented reality, you have an online competitor that has, I don’t know, the 1,000 plus engineers focused just on that category from a technological perspective. So, how do you think about longer term the cost, the technological cost and investments that you need to make to remain relevant in that business and to become increasingly relevant in that business? Thank you.

Thank you for the question. This is Debbie Propst. We obviously believe that investment in technology is critical in order to make it easier for the customer to transact from this kind of high value product in a digital environment. One of the key opportunities we have there is actually the investment in our stores and our ability to display that products in our stores and grow our credibility through that channel. So, one of the things that we are currently investing in is 3D. One benefit of our Decorist acquisition is that the team that joined us as a result, brings strong expertise of 3D technology to our organization. We are currently using it in a variety of applications such as to create photo reel lifestyle imagery. For example, an image that we used on Page 9 of our investor slide presentation in the 3D rendering and to create color extensions of key products without making photography samples or to prepare design projects to One Kings Lane VIP design clients in 3D rendering format. And we are looking to scale the 3D rendering capabilities in a profitable manner.

And our next question comes from John Porter from MoffettNathanson. Please go ahead.

Hi, guys. This is John on for Greg here. Thanks for taking the question. If you could walk us through a little bit the process of closing the stores and just as a follow-up, it looks like you are closing 40 of the stores of 400 this year and what does that mean for next year?

Sure, John. Thanks. This is Steve. First of all, this hasn’t been determined the exact number of stores that we will be closing, because we are involved in negotiations with landlords. But what we have done over the years is that we have tried to create a situation that we get to this point on the decision tree, where we have the option of closing stores, so in markets where we have coverage of that we would have spillover or significant spillover if we closed a store like obviously it’s those are places that are great candidates, but ultimately, we look at all the ingredients that the store has to offer, including the visibility and what it means to our digital sales, the fact that people can come in and they could reserve online and pickup in store that they could come in and make an appointment scheduled for registry and then create a registry, now the people buy online. The fact that our expense structure in the digital world is a lot less, because of the name recognition in the market, the fact that when you look at our store sales numbers that reflects returns, things that are going online that are returned to the stores get decremented from store sales. So all those are component pieces in understanding the value of the store, today, it’s just even more than the four-wall profitability of the store, but we have positioned ourselves, so that we can take advantage of the leverage we have in the marketplace and the ability to close stores, because they are at end of term. So, it remains to be seen. We have been very I think the landlord community has been responsive to us, because I think we are a meaningful tenant for them. We draw a sophisticated female customer who is consummate customer for their centers and we are important for co-tenancy. So we have had good success in renegotiating the deals, renegotiating the option terms. So, again, it remains to be seen, but we look out over the remaining term that we would stay and we look at assuming what’s going to happen to foot traffic, what’s going to happen to our expense structure, what’s going to happen to our payroll and we do demand four-wall profitability out of our stores over that period of time when we look at these things, but again we still have to just exercise years ago, so we are well-positioned, so but again going back to where we started it remains to be seen how many exactly we closed, but right now that’s the current thinking.

Thank you.

Thanks, John.

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

Hi, it’s Joshua Siber on for Simeon. I just had a question on the fiscal ‘20 EPS growth outlook can you talk about that margin assumptions within that forecast and whether you are assuming operating income growth? Robyn D'Elia: Are you talking about 2020 or are you just talking about our plan? Well, our plan for ‘18 that we provided…

I am not sure, Josh, if you were talking about 2020 or 2018, but we are not going to give those details for 2020, we haven’t shared and we wouldn’t share at this point yet. It’s premature, but not sure we got the question, was the question for this year or….

No, it was the 2020 forecast that calls for EPS growth, I was just wondering if that embeds margin improvement? Robyn D'Elia: Again, as Steve just mentioned, we haven’t shared the details of the 2020 plan at this point.

Yes. And again there to the extent that we have is to the extent is that moderating declines in the operating profit. And so we haven’t given details beyond that.

Okay. And then my follow-up on the comp forecast calling for plus low single-digits, can you talk about what’s driving the forecast for positive comp growth? Robyn D'Elia: Sure. So, what we considered in our plans for fiscal ‘18 is opportunity certainly in the buybuy BABY business with Babies"R"Us closing their doors. And then we also have plans on continued strong growth in our customer-facing digital channels. We have experienced that for many quarters now and we see that trend continuing. And then we also touched on some of the initiatives that we have ongoing today that would contribute to sales, although maybe to a lesser extent we have decorative furnishings, next generation store and marketing personalization.

And as Robyn was saying again some of those things everything is a contributor, but dec furnishings or the next generation store that again those will be having bigger impacts or larger impacts in following years, but even things like front-end optimization that we are working on, the things that we are doing storewide in terms of driving value optimization in the stores is an opportunity to drive sales as well. But as Robyn said, the baby post-closing of Babies"R"Us, the continued strong growth in the digital business would be, i guess, the two larger contributors that they are more short-term.

And our next question comes from Kate McShane from Citigroup.

Hi, thanks for taking my questions. My question is also centered around gross margin, I think when you have listed the drags on gross margin in the past, you have also listed mix. I don’t think I heard that thing. So I just wondered if you could maybe talk to the mix of what’s being sold and what was sold in Q1? And as you focus on some of the new generation stores, I think you also mentioned value items, I just wondered how that came into play with regards to the gross margin mix?

Yes, I will start with the second part of it and maybe Robyn and see if somebody wants to address the first part. But the next generation store is that it’s a work in progress. So, when we talk about those areas that were growing, so the scarcity product and also the necessity and the desire to show newness and freshness and the markdown cadence for it, the value items, the deeper value, all those things, how they marry up to also the reduction in the inventory carry for the core assortment, all those things remain to be seen and that’s why the quick iteration of these stores is necessary, because we will learn as we go. And in addition as we mentioned that there is a concept strategy that’s being undertaken here to really challenge the entire assortment and the role of every category and the assortment and the role of every item in the category. So, all of that will marry as we move forward to the next generation store. So, it’s premature to tell you that we are locked and loaded to know what that is. We know that we will be working towards finding and optimizing that, but it’s a work in progress. Robyn D'Elia: And just to address your question regarding mix in describing the components of gross margin that contributed the most to the gross margin, mix just did not rise to the level this quarter, it was more attributable to coupons from the customer shipping.

Great, thank you. And if I could just sneak in one more question, because it was brought up with regards to Toys"R"Us, Babies"R"Us, I just wondered if there was anything being done differently in buybuy BABY to take advantage of some of those sales being diverted from the bankruptcy of Babies"R"Us. Are there any categories where maybe you were under-penetrated where now you are investing or anything that you are pivoting towards in order to take advantage of getting those customers?

Yes. We have looked at the assortment and we are looking to adjust in the area where the Babies"R"Us customer may have been accustomed to shopping at Babies"R"Us, but maybe that was not as available within buybuy BABY. Our goal is to be a destination for every single parent who wants to shop for their child. We will be really the only baby superstore nationwide. And so we are looking at every aspect to make sure that we are welcoming every customer from Babies"R"Us to make sure that they can know that buybuy BABY is their store also.

Right. We are additionally committed to supporting the vendor community that’s struggling as a result of this exit from our marketplace and also the customers that are walking through our doors looking to purchase products, as Gene said, that we haven’t necessarily carried in the past such as an opening price point crib.

And at the same time, I would just say to reiterate that we understand that selling quality product is critically important to us. And so that while we recognize the opportunity, we want to be who we want to be and we want to make sure that we are communicating to the customer through our product offering, the quality product.

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

Good evening. Thanks a lot for taking my questions. I know you haven’t provided this in the past, but can you give us a sense for how the various comp like concepts or how much did buybuy BABY comp this quarter, because presumably, it started to already see some share gains from both Babies"R"Us going away and if that’s the case, it was just the rest of the business decelerated it or comped worse from the fourth quarter to the first quarter?

Sure, Michael. Again, like we said is that we don’t break it out by concepts, but baby is a small piece of the overall business just so you recognize that. And we do think that the baby business will get stronger as the year goes on because of the closing of the baby stores at the end of this month. We did benefit to-date because of their bankruptcy and the announcing of the closing of the stores, but we do think it will be a greater opportunity going forward. And overall in the significant mix, if you look at the $12 billion business of whatever the number is, the Babies, some odd percent of whatever the numbers of Bed Bath business, that’s the business that’s driving the negative store impact. And directionally, it remained consistent that, that mid single-digit, what we are experiencing in Bed Bath stores offset by a strong digital sales growth continues to be the trend.

So, Steve, to summarize what you are saying, you think you captured some of the Babies"R"Us business, but at least thus far, it hasn’t been enough to move the needle, but you are expecting it to move the needle more so as you move throughout the year? Is that fair?

I think that the baby overall business as a component of the total business is relatively small. And yes to what you said in the sense that we expect the pickups that we are going to see in the baby business will be greater as the year goes on.

And then separately presumably you are excited about what you are seeing from BEYOND+ and the net benefits that your P&L experiences, is worth the cost of it. But can you give us some sense for how it is impacting the P&L, specifically on a gross margin, because if the membership in that program continues to grow over time that should be a more meaningful impact for your profitability?

So, again, a couple of things, I am going to let Robyn or Sue answer also, but just I think from an accounting perspective, it’s important to note that the fees don’t get all booked in the quarter, they get booked over the course of the year and that is not in our comp. So, you should recognize that. The second thing is that the impact on the couponing is interesting, because it’s not a coupon. The impact on our margins is because they are all getting up to 20% off depending upon there might be an item or two excluded, so it approaches 20%. So from an accounting perspective that those are all important ingredients and also the benefit of someone signing up really is the lifetime benefit, it’s just this next purchase that’s been coming back more often. It’s buying more over time. It’s being top of mind. So, as we build the program, the lifetime value of the customer is where great benefit will be derived. Robyn D'Elia: Just to clarify one point, for BEYOND+ it is counted as a coupon, but it’s a single coupon versus customers in the past may have used multiple coupons.

Got it.

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

Hi, guys. Thanks. Just back to the gross margin, I was just trying to think how you are thinking about it over the balance of the year. Are you expecting the declines to kind of moderate from that, roughly 140 basis points or so on the first quarter, I mean, now that comparisons start to get easier in the back half of the year. My first question is just kind of your view on gross margin as you look over the back half of the year? Robyn D'Elia: Well, what we indicated in the model is that we do plan to have continued de-leverage in the gross margin for the full year, but that our operating margin will de-leverage at a lower rate than what we saw in 2017.

Okay. Then switching over to SG&A maybe the growth rate in SG&A has been tighter the last couple of quarters, 4Q and 1Q. When you ex out some of the items like severance, I think it grew maybe 2% this quarter. That’s been growing a lot faster than that over the past several years. I know you have got a lot of initiatives you have got in place. Just trying to understand if that sustainable growth rate in SG&A as we look forward the balance of this year and longer term? Thank you. Robyn D'Elia: Well, we are planning for the full year to continue to still have de-leverage in SG&A due to our ongoing investments in IT and we also had management consulting that we called out this quarter as we continue to work through those items, we expect those costs to continue throughout the remainder of the year.

And our next question comes from Matt Fassler from Goldman Sachs.

Thank you so much and good afternoon. I have got two financial questions. I will ask them one at a time. And the first relates to inventory, your inventory is down substantially year-on-year. It doesn’t seem to be directly impacting your rate of sales, which is holding relatively steady. Can you talk particularly as the business migrates more online logistically and otherwise how you are pulling that inventory and driving productivity of working capital?

Yes. We have several initiatives surrounding the inventory reduction. It affects both in-store and online and warehouse inventories. They are designed not to affect sales. We are really trying to find ways where we can optimize and continue to provide the customer with all the choices they need in the store. Meanwhile, we are looking to make sure that we are not carrying tertiary SKUs that aren’t needed within the assortment or weeks of supply that aren’t warranted based on the rate of sale. And so it’s a series of initiatives that we have been able to execute and we have been successful so far.

And then the second question relates to the accounting change and we have seen lots of companies report quarter-to-date. You said that there are several cents of benefits that were contemplated in the guidance. Can you just give us a sense as to where those showed up on the P&L? Was it the changing and the timing of recognition of revenue or were there other line items that moved in and will there be any impact to the numbers versus the prior year in subsequent earnings reports, if you could? Robyn D'Elia: Sure. So, the significant impact for us related to revenue recognition is the timing of when we recognized advertising expenses. So the benefit that we called out within SG&A was related to advertising cost. And for the subsequent quarters, there will be a pronounced shift in the advertising cost moving into third quarter and out of fourth quarter and the way it works is that you now need to record those expenses on a direct mail piece is mailed versus when you get the benefit over the period of the sales.

So, for example, one of the changes would be that if we sent out a piece at the end of the third quarter in November and it was good until after Christmas before the cost would be spread over those 6 weeks, the several weeks from November into December. Now, that we have all the expense in November when the piece was mailed as that’s the shift.

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

Great. Thanks very much. Just a quick one piggybacking on Matt’s question from the accounting changes was there any impact to the gross margin rate in the quarter? Robyn D'Elia: No, nothing that we called out, but there will be detailed information in our 10-Q that we are planning to file next week.

Got it. Okay. And then just moving on to the store base, so it didn’t look like you closed any Bed Bath stores in 1Q. I guess how should we think about the cadence going through the rest of the year for closures?

Yes. Generally speaking, the leases expire I think it’s after Christmas that they are set up to expire. And I think it’s the end of January, if I recall correctly for the most that’s the lion’s share of them. So, they would be late in our fiscal year. In some cases, there might be a reason why we would do it before the Christmas holiday to move sales within a market and to let people know that it’s being moved within a market, but generally speaking, it would be late in the calendar year or fiscal year rather.

And our next question comes from Anthony Chukumba from Loop Capital Markets.

Good afternoon and thanks for taking my question. I just wanted to circle back in terms of the questions on buybuy BABY vis-à-vis the Toys"R"Us or Babies"R"Us liquidation. Is there any plan to potentially accelerate buybuy BABY store openings given the fact that there is obviously this void in the marketplace and you guys are the last remaining national baby retailer?

The decision to open a store is based upon our anticipated economics in the market. So, the lack of a bricks and mortar competitor would impact how much volume we would anticipate doing out of a store, so it could accelerate or change the decision in some markets, but I don’t think it’s – I think that when they looked at the markets, they had what 250 or so stores or whatever the number was.

I think they had combos also.

Yes. So, again, it’s said, we had stores in many of the same markets – their markets down on San Antonio. There is markets that we didn’t have a presence that they did have a presence, but there was a significant overlap and it’s not as if there were 1,000 stores to be done. As we move forward, as we move to the possibility of smaller stores or boutiques or something else, there might be an opportunity to change those numbers, but it’s not a dramatic difference that it’s going to make in the numbers or the rate that we are opening up stores.

Yes. But we have done the analysis and we have prioritized the areas where we do take those opportunities.

That’s helpful. Thank you.

And our next question comes from Seth Basham from Wedbush Securities. Please go ahead.

Thanks a lot and good afternoon. My question is on the decorative furniture business that you guys are more aggressively pursuing. Can you provide a little bit more color? You gave some great numbers today, but how do we think about that from a margin standpoint and a ROI standpoint?

So decorative furnishings, is an important category in the context of our overall value proposition. It heightens our ability to be a resource for whole home. So, we do believe with the transactions in this category, we could increase the lifetime value of a customer. We obviously all know furnishings can be a hard business to drive significant profitability in, but we believe we can make progress through our focus on supply chain optimization and proprietary product development such as the growth of those categories that pertains to our total mix wouldn’t negatively damage our margin.

That’s helpful perspective. And are you planning on acquiring a lot of inventory to grow this business or is it almost all going to be direct ship for the stuff that you are selling online?

We have opportunities to grow our imports, so acquire a small amount of inventory in order to offer our customers priority brands, but we will also build those proprietary brands through partnership with our domestic supply chain.

And our next question comes from Tami Zakaria from JPMorgan. Please go ahead.

Hi, thanks for taking my question. Could you comment on the timing of the private brands you are expecting to launch in 2019? Is it going to be in the beginning versus later in the year and what specific categories are you looking to start with? And where you are going to source those products from? Any color around that would be really helpful. Thank you.

Thank you, Tami. The private brands we are referencing are within the decorative furnishings strategy. So, we are currently working on a One Kings Lane diffusion line plus an additional four brands and we are in the early stages of development against those five brands in total. So, not all of them could come to fruition, but we are looking to pull those into our assortment for 2019.

[Operator Instructions] I will now turn the call back over to Janet Barth for closing remarks.

Thank you and thank you all for joining us today. We look forward to speaking with you again on September 26 when we report our fiscal 2018 second quarter results. Have a good night.

Thank you, ladies and gentlemen. This concludes today’s conference. Thank you for your participation and you may now disconnect.