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Bed Bath & Beyond Inc (BBBY) Q1 2019 Earnings Call Transcript

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Bed Bath & Beyond Inc (NASDAQ: BBBY)
Q1 2019 Earnings Call
Jul 10, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to Bed Bath & Beyond's First Quarter Fiscal 2019 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, July 10th, 2019 at 8 o'clock P.M. Eastern time through 8 o'clock P.M. Eastern Time on Friday, July 12th, 2019. To access the rebroadcast, you may dial 888-843-7419 with a passcode ID of 48713230.

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

Janet M. Barth -- Vice President, Investor Relations

Thank you, Cheryl, and good afternoon, everyone. Before we begin, I want to remind you that our fiscal 2019 first quarter earnings release and slide presentation can be found in the Investor Relations section of our website at www.bedbathandbeyond.com and as exhibits to a Form 8-K we filed just ahead of this call.

Joining me on our call today are Mary Winston, Bed Bath & Beyond Interim Chief Executive Officer and member of the Board of Directors; and Robyn D'Elia, our Chief Financial Officer and Treasurer.

Let me remind you that this conference call and the slides we refer to may contain forward-looking statements, including statements about or references to our 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 the risks and uncertainties, including the Risk Factors section in our Annual Report on Form 10-K. The Company undertakes no obligation to update or revise any forward-looking statements.

Additionally, the information we will discuss today contains certain financial measures that exclude amounts or subject to adjustments that have the effect of excluding amounts that are included in the most directly comparable measures prepared in accordance with generally accepted financial measures. A reconciliation to the most comparable measure is presented in accordance with GAAP which refer to the tables at the end of our earnings release available on our website and included as an exhibit to our Form 8-K filed today.

Some highlights from the first quarter include, adjusted net earnings per diluted share were $0.12 at the high end of our guidance range of between approximately $0.07 and $0.12 and excluded $3.03 related to a non-cash impairment of goodwill and other intangible assets as well as severance and shareholder activity comp.

Net sales declined approximately 6.6%, slightly below our guidance of approximately $2.6 billion. Retail inventories were reduced by approximately $124 million at cost or approximately 5% compared to the end of the prior year first quarter. We ended the first quarter with approximately $923 million of cash and investments, which is approximately 9% more than the amount we had at the end of the prior year period.

In addition, on July 8th, our Board of Directors declared a quarterly dividend of $0.17 per share payable on October 15th, 2019 to shareholders of record at the close of business on September 13th, 2019.

I will now turn the call over to Mary.

Mary Winston -- Interim Chief Executive Officer

Thank you, Janet, and thank all of you for joining us this afternoon. On today's call, I'd like to share my initial thoughts and observations about the business and speak to our four near-term priorities and areas of focus. Following my comments, I will turn the call over to Robyn for a review of the financial and operational highlights for the quarter as well as our outlook for the full year, and then we'll take your questions.

As you may know, I joined the Bed Bath & Beyond Board of Directors in early May, in connection with the company's transformation and refreshment of the Board's composition and governance structure. As a longtime customer, I believe Bed Bath & Beyond is a great brand with a strong customer affinity, and I was eager to join the Board and contribute to stabilizing and repositioning the business for future growth as a successful omni-channel retailer.

When the board then determined it was the right time to identify the company's next-generation of leadership, I was honored to step in as interim CEO. I am working closely with the Board and management leveraging my retail industry experience as well as my background in finance and corporate strategy during this transition period. I view my role as one where I can provide strategic leadership and help prioritize and drive forward the most meaningful initiatives to advance the work under way to improve our financial performance, enhance our competitive position and drive shareholder value.

I'll start today with my initial observations of the company. I've made a concerted effort over the past several weeks to meet with many associates across the organization gaining an understanding of the company's history, culture and the way we operate. I have visited many of our stores across multiple banners as well as one of our distribution facilities to ensure I saw firsthand the operations of our business. During these visits, I witnessed our associates' passion for customer service and the deep connection we have with our customers was obvious. It is also compelling to see our customers' enthusiasm and commitment to our brand. That said, it is also clear that the company has not kept pace with how the customer has evolved and how consumers shop today. We need to give our customers a reason to keep shopping in our brick-and-mortar stores. And in order to do that, we must update and enhance store experience. This will continue to be a priority for us.

Beyond enhancing our store experience, we must also transform the online shopping experience to engage our customers digitally. Both our stores and digital experiences will continue to be areas of focus for us. It's still early and there is much work to do to fully assess the business. Importantly, what I have seen and heard up to this point has validated my confidence that Bed Bath & Beyond is an iconic brand with tremendous opportunity.

The company has a strong geographic footprint as well as attractive and growing product category. We also have a resilient team that is operating with a sense of urgency to improve the company's competitive position. As we look ahead, the Board and the management team are in full agreement that there needs to be a fundamental change in our approach to executing the company's business transformation.

A key challenge for the business in the past has been that there have been too many initiatives under way, which has resulted in a lack of strategic focus and less meaningful results. We are committed to completing a deep review of the business to prioritize and drive forward the most meaningful initiatives to improve performance. This is part of the critical work under way at the Board level. Under the leadership of Independent Chairman Patrick Gaston, the new board consisting of a highly diverse set of leaders with a wide range of fresh perspective and backgrounds is well equipped to oversee and partner with management to drive the intensive business transformation that is needed.

Importantly, all of our directors are highly engaged and are moving quickly to continue to enhance our governance structure, transform our compensation program, evaluate our capital allocation priorities and assess and shape a new strategic direction for our company. To that end, the recently formed Business Transformation and Strategy Committee is set to review and evaluate the ongoing business transformation and will make recommendations on how the company can best capitalize on and navigate the evolving retail environment to accelerate the company's evolution.

Together, the Board and the management team are challenging our current value proposition and operating model to take on a more holistic approach to the transformation while also maintaining focus on delighting our customers and delivering long-term value to shareholders. We are in full agreement on our four key near-term priorities.

First, stabilizing sales and driving top line growth; secondly, resetting the cost structure; third, reviewing and optimizing the company's asset base, including our portfolio of retail banners. And finally, refining our organization structure. As I evaluate and assess the work under way my early observations reveal that our number one priority must be a focus on stabilizing our top line and optimizing our sales opportunities. This will require collaboration and refinement of initiatives across multiple areas of the business, including merchandising, marketing, branding, pricing, and supply chain. And as I mentioned, we will also be sharpening our focus on delivering a seamless omni-channel experience, including our current in-store and digital experiences.

To be clear, our efforts will be focused on opportunities to drive profitable sales growth. Our second priority is to reset our cost structure to better align with the current state of the business. This will include reductions in cost of goods and SG&A. While the company has previously initiated some actions and made progress on this front, we need to dig deeper and to cast a wider net. Focus on our cost of goods and gross margin will entail an assessment of opportunities within our proprietary and private label brand as well as our supply chain and global sourcing capabilities. Prior actions under way relating to pricing strategies, coupon expense and outbound shipping expense are showing early positive results.

Our initial focus on SG&A has resulted in further reduction in store payroll primarily through better alignment of store hours with foot traffic, streamlining of our field support structure, and a reduction in tasks performed at the store level. In advertising, we have been improving the efficiency of our direct mail events and digital marketing. As we continue our focus on our cost structure, we will take a fresh look at our corporate overhead ensuring we have the right structure and resources for the business we're managing today.

Finally, the company commenced a comprehensive real estate optimization effort six months ago with the assistance of a specialized real estate consultant who is leading the renegotiation of the company's leases. Occupancy savings from this effort will benefit fiscal 2019 and far beyond.

Our third near-term priority is to review the company's asset base. This encompasses a fleet optimization project for all Bed Bath & Beyond stores to understand how best to position our store locations in various markets across the country and Canada.

In addition to the real estate optimization effort I just mentioned, we anticipate leveraging the findings of this fleet optimization project to evaluate potential store closures and/or relocations. These decisions will be based on a combination of each stores' performance, profitability, its geographic location and the customer demographics. Our ultimate objective is to find the right balance between our physical and digital presence within the markets we serve and to deliver the shopping experience our customers want. The Board and I are also in the process of evaluating the various retail banners we operate to better understand their strategic and financial contributions to the portfolio. Following this review, we will determine the appropriate next steps.

Our fourth near-term priority is to take a fresh look at our organizational structure. We have a seasoned management team that understands the business and culture well. And as I mentioned earlier, I've seen our teams operating with urgency and I'm grateful for their hard work and commitment. It is critically important that as we transform Bed Bath & Beyond, we ensure we have not only the right talent and expertise but also the right team structures in place to facilitate a connected and efficient organization.

To build the future of this business, leaders will operate with clarity and focus and being empowered to make decisions for which there will be accountability. By focusing on our four near-term priorities, we will reset our approach to the company's business transformation prioritizing the things that we believe are going to deliver the greatest value to our customers and our shareholders.

Before I turn the call over to Robyn, I'd like to provide a brief update of the Board's CEO search. With the support of a leading executive search firm, the CEO search committee has undertaken a robust process to recruit a permanent CEO working to identify a leader who has a multifaceted skill set, including transformation and innovation experience in the retail sector, as well as e-commerce and marketing experience. We have generated significant interest and while urgent we will take the time we need to select the right leader for the future of Bed Bath & Beyond. We will update you further once we have something to share.

Finally, I'd like to comment briefly on our first quarter results and our outlook for the full year. As you saw in our news release, first quarter sales were slightly below the range the company has provided while EPS on an adjusted basis is at the high end of the company's previously provided range. As we move forward taking into consideration both the work to be done in our transformation as well as continuing challenges and broader retail environments, we are taking a more conservative approach to our outlook for the remainder of fiscal 2019. As Robyn will discuss in a moment, we have maintained our sales and earnings expectations for the year albeit at the lower end of the previously stated guidance ranges.

In summary, there is critical work to do and there are challenges we are working to address. We remain confident in the underlying business and our ability to leverage the strengths of the Bed Bath & Beyond brand and our lasting connection with customers to deliver on our near-term priority and transform the company. With a renewed focus on our customer and a winning customer value proposition, we believe we can capture opportunities in the market and create sustainable value for our shareholders. As we move forward, we will share our progress about how we are executing against our near-term priorities and our plans to deliver improved results.

And now, I'll turn the call over to Robyn to review our financials and our outlook.

Robyn D'Elia -- Chief Financial Officer & Treasure

Thank you Mary. Starting with our bottom line. For the first quarter of fiscal 2019, our reported net loss per diluted share was $2.91. This loss included pre-tax charges related to non-cash goodwill and other impairments of approximately $401 million; severance, including the departures of key senior executives of approximately $38 million; and shareholder activity cost of approximately $8 million. Excluding these items, our net earnings per diluted share was $0.12 at the high end of our guidance range.

To provide more meaningful insight about the operational performance of our business during the first quarter, my comments throughout the quarterly results exclude the impact of these items in 2019 as well as the impact of severance incurred in last year's fiscal first quarter.

Turning now to a review of our sales results. Our net sales in the quarter were approximately $2.6 billion, a decrease of approximately 6.6% from the first quarter of last year. Comp sales for the quarter also decreased approximately 6.6% and reflected a decrease in the number of transactions in stores, partially offset by an increase in the average transaction amount. On a directional basis, comp sales from our stores declined in the high single-digit percentage range, partially offset by slight growth in comp sales from our customer-facing digital channel.

As we discussed during our earnings call in April, our first quarter modeling assumptions included a decline in comp sales due to: one, a shift in the Easter holiday to later in the quarter this year compared to last year, which for us would reduce the tailwind effect we typically get from consumers looking to refresh their homes for spring; two, a lower advertising spend this quarter versus the prior year period with plans to shift that spend to the fourth quarter; and three, an acceleration of our bias toward prioritizing profitability over near-term sales growth, which includes actions such as eliminating less profitable SKUs from the assortment, adding minimum quantity requirements and excluding coupons for select SKUs.

Gross margin for the quarter was approximately 34.5% of net sales as compared to approximately 35% in the first quarter of last year. In order of magnitude, this decrease as a percentage of net sales was primarily due to the decrease in merchandise margin, partially offset by decreases in coupon expense and net direct-to-customer shipping expense.

The decrease in coupon expense was a result of the decrease in the number of redemptions with fewer pieces distributed, partially offset by an increase in the average coupon amount. In addition, as we have previously described, our BEYOND+ membership program has impacted and will continue to unfavorably impact our gross margin as the rate of member enrollment increases.

As a reminder, the consumer-focused benefit of this program, including 20% off entire purchase and free shipping, are realized immediately upon sale while the membership fee is currently amortized over the one-year membership period. As of the end of the first quarter we have approximately 1.2 million BEYOND+ members. We estimate the impact from BEYOND+ on our gross margin was approximately 50 basis points for the first quarter this year and 40 basis points for the first quarter last year.

Notwithstanding the short-term margin impact during this period of increasing member enrollment, we continue to evaluate the learnings and we remain very encouraged by the incremental benefits we are seeing as well as the long-term potential of BEYOND+. In addition, this program is another means to gain customer insights that over time will help us to direct specific product offers and content to these loyal customers through marketing personalization to drive incremental sales and margin enhancement.

SG&A for the quarter was approximately 32.9% of net sales as compared to approximately 31.7% 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 technology-related expenses, including depreciation and occupancy expenses.

Heading into the quarter, we expect to see leverage from these fixed costs due to our planned decline in comp sales. Our effective tax rate in the first quarter was approximately 38.6% and includes approximately $2.9 million of net after-tax costs due to distinct events occurring in the quarter. In the prior year period, our effective tax rate was approximately 30.5% and included net after-tax costs of approximately $2.6 million due to distinct events occurring in that quarter. Our first quarter guidance planned for a higher tax rate; however, we had more favorable discrete items than were included in our model representing about $0.02 per share.

Now looking to our balance sheet, we ended the quarter with approximately $923 million in cash and investments, an increase of approximately $76 million or approximately 9% over the end of the prior year first quarter. Retail inventories at the end of the quarter were approximately $2.5 million at cost, which represents a reduction of nearly 5% or approximately $124 million compared to the end of the first quarter last year.

During the fiscal first quarter, we further adjusted the carrying value of our goodwill and other intangible assets as required by the accounting rules by taking an impairment charge of approximately $401 million. This non-cash pre-tax charge was primarily the result of a sustained decline in the company's market capitalization and does not impact our ongoing day-to-day operations.

Capital expenditures for the quarter were approximately $68 million with about 50% related to technology projects, primarily including investments in our digital capabilities, analytics and logistics. The remaining CapEx spend was primarily for the opening of three new stores and remodeling of over 40 existing stores, but both of which were next-generation lab stores.

Share repurchases during the quarter were approximately $81 million, representing about 5.3 million shares. In addition, on July 8th, our Board of Directors declared a quarterly dividend of $0.17 per share to be paid on October 15th, 2019 to shareholders of record as of September 13th, 2019.

Lastly, regarding our balance sheet, it now reflects operating lease assets of $2 billion and operating lease liabilities off $2.2 billion due to the adoption of the new lease accounting standard, which for us requires all leases with terms greater than 12 months to be capitalized on the balance sheet.

As we noted in the press release, the adoption of this standard will not result in significant changes to our statements of operations or cash flows. In addition, there is no impact to any of our debt covenants related to our indenture or revolving credit agreement. Additional disclosure is included in our 10-Q filed with the SEC today.

Now turning to our financial guidance for fiscal 2019. As we evolve our plans around the four key near-term priorities just described, we will continue to evaluate components of our financial model for the year. As Mary mentioned, taking into consideration both the work to be done in our transformation, as well as the continuing challenges in the broader retail environment, we are taking a more conservative approach to our outlook for the remainder of the year.

On our last call, we modeled net sales to be between $11.4 billion and $11.7 billion. Considering what we know about the second quarter to-date and our outlook for the back half of this fiscal year, we expect our consolidated net sales to continue to be within this range, but at the lower end driven by declines in store comps that we have been experiencing. Net earnings per diluted share are estimated to fall toward the lower end of the previously provided range of approximately $2.11 to $2.20, excluding the goodwill and other impairments, severance expenses and shareholder activity cost.

On a quarterly basis, we expect to see improvement in our financial performance as the year progresses. Our model to achieve consolidated net sales at the low end of our previously guided range anticipates a gradual sequential improvement in comp sales in store as we progress through the year, benefiting from our efforts to stabilize sales including changes to our marketing program coupled with other sales initiatives under way. Considering this, plus the timing of our transformational initiatives, as well as the usual seasonality of our business, we believe our net earnings per diluted share will be stronger in the back half of fiscal 2019.

Finally, capital expenditures for fiscal 2019 are planned to be approximately $350 million to $375 million. This year's spend includes about $50 million associated with investments in warehouses for e-commerce distribution to personalize product, although we are continuing to evaluate our capital projects for the year.

I will now turn the call back over to Mary.

Mary Winston -- Interim Chief Executive Officer

Thank you, Robyn. In closing, I want to reiterate my confidence in our associates' ability to connect with and serve our customers. Without question our associates are our greatest asset, but we need to ensure they have the right tools to effectively and successfully compete in today's retail environment. As we move ahead to execute against the near-term priorities that I laid out, our focus will remain on delighting our customers and delivering long-term value for our shareholders.

And with that, we can now open the call for questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) Our first question comes from Bobby Griffin from Raymond James. Your line is open.

Budd Bugatch -- Raymond James -- Analyst

Good afternoon. It's actually Budd Bugatch for Bobby. He's traveling today. So I have something for him. Congratulations Mary. Good luck to you on the -- your interim role and we wish you the best on that. I have a few questions, if I could. The first question is, can you talk a little bit about the NGS stores? There are now how many of them? And what is the performance of those? And is the plan still to roll those out?

Mary Winston -- Interim Chief Executive Officer

Thank you for the kind comments. So in terms of the NGS stores, yes, that is still priority. We have 34 stores right now. We're still seeing good results. We are refining what we see in the stores and continuing to update and continuing to roll that out, so that program is continuing to be one of our top priorities.

And again, as...

Budd Bugatch -- Raymond James -- Analyst

By the end, you're...

Mary Winston -- Interim Chief Executive Officer

As I said in my prepared remarks, we are taking a look though at all of the initiatives. We'll be looking at that one as well. And again, as you know, it's still early days, but the performance on that looks good and we're getting good information and we can help -- that will help us transform our store experience.

Budd Bugatch -- Raymond James -- Analyst

Okay. And Robyn, on the charge of the goodwill and the other intangibles, is that just related to the market cap fall? Is it attached to any of the particular items or items of goodwill on the balance sheet?

Robyn D'Elia -- Chief Financial Officer & Treasure

The most significant component of the charge is related to goodwill. And just as a point of reference, goodwill is now down to zero on the balance sheet. But there was some residual impact related to the trade names for some of the acquisitions that we've had throughout the years.

Budd Bugatch -- Raymond James -- Analyst

Okay. And when you look at the cash flow for the -- cash flow from operations or free cash, that was significantly below last year. I suspect that includes some of the unusual items -- the severance and the shareholder activity cost. What was the net impact of those unusual items on cash in the quarter?

Robyn D'Elia -- Chief Financial Officer & Treasure

I don't have that component piece broken out right in front of me, but we can certainly give you a call with that information.

Budd Bugatch -- Raymond James -- Analyst

Okay. And the guidance, forward guidance, does not include any more one-time charges or called-out items? Or are you unable to predict those at this point in time?

Robyn D'Elia -- Chief Financial Officer & Treasure

No, the guidance that we're providing would be excluding what's happened to date and any other one-time items. It's really guidance from an operational perspective.

Budd Bugatch -- Raymond James -- Analyst

Right. And are there any other one-time items that you can see at this point in time?

Robyn D'Elia -- Chief Financial Officer & Treasure

Nothing built into the plan.

Operator

Our next question comes from Jamie Katz from Morningstar. Jamie, your line is open.

Jaime M. Katz -- Morningstar -- Analyst

Hi. Thanks for taking my questions. I'm curious, I think last quarter it was commented that comps were expected to be in the low single-digit to mid-single-digit range. And I'm assuming that that low single-digit is off the table and then we're looking more toward a mid-single-digit decline, even with improving comps over the remainder of the year. Is that fair?

Robyn D'Elia -- Chief Financial Officer & Treasure

For the full year, yes, we're still in that same low to mid-single-digit decline. Yeah.

Jaime M. Katz -- Morningstar -- Analyst

Okay. And then, I know there are a lot of initiatives under way, but maybe if you can help us think about what initiatives might have been undertaken already where we might see benefits and expenses, things like changes in the buying organization. I know that was partially siloed across brands in the past where maybe we can see the elimination of some redundancies going forward in the near-term. Thank you.

Robyn D'Elia -- Chief Financial Officer & Treasure

So, I'll point -- I'll just point us back to some of the things that I said in my prepared remarks. So we have had a number of initiatives under way. The renegotiation of some of the company's leases, that's expected to benefit this fiscal year and beyond. We've also already seen some reductions in our store labor cost as a result of rightsizing to foot traffic and just taking a look at streamlining ***Part 14***

streamlining the field organization and eliminating tax in the stores.

So all of those initiatives are continuing to be ongoing, but we are seeing impact from them now and expect to later in the year. Beyond some of those we again are going to be looking at where we're getting the greatest impact in reprioritizing within the context of the four key near-term priorities. So there may be some shift in initiatives as we go into the back half of the year but those are some of the primary ones that we're currently seeing benefit from.

Operator

Our next question comes from Christopher Horvers from JPMorgan. Your line is now open.

Christopher Horvers -- JPMorgan -- Analyst

Thanks. Good evening. So I had a question about the guide. Usually with a new CEO and in cases like this, the guidance is often pulled. So it's interesting that you're only going to the low end despite the strategy is going to shift and it could shift further.

So, can you talk about the thought process around keeping the guide and only going to the lower end? And what gives you the confidence whether it's you see more cost out opportunity or you see the progression of comp of the business what's giving you that confidence to be even in the range at this point?

Mary Winston -- Interim Chief Executive Officer

Well, a big piece of it is, as you point out, many of the initiatives are already ongoing. So, while I am still getting my arms around the business and assessing where those initiatives stand and what the impact of them will be, I've seen enough to know that we got lots of activity going on even though we may reprioritize some of it, we do expect to see some benefit from it.

You'll notice that we took out some of the details that were provided in the previous guidance. So I think as we reprioritize initiatives, there may be shifts between what will impact gross margin versus SG&A and that kind of thing. But at this point, I'm confident in the top line and the bottom line, although at the low end of the range. And again, our guidance is without any special items, so if we make significant changes we'll communicate those at the time.

Christopher Horvers -- JPMorgan -- Analyst

Thank you. This is a good segue. So if you think about the down to fixed comp, while that's disappointing and below the range and below the market, at the same time the gross margin declined really improved. So I don't know if you had a chance to think about like how much of the -- was there a comp in gross margin trade-off that was made in this quarter? And do you think -- does that part of strategy per se shift where maybe we get some better comps but the gross margin declines start to reaccelerate?

Mary Winston -- Interim Chief Executive Officer

Well, as we pointed in the last couple of quarters we've mentioned, prioritizing profitability over sales. And certainly some of the changes that we've made particularly impacted the customer-facing digital channel growth. But we are moving those levers or pulling those levers to drive more profitable results, so that's definitely contributing. And those things were eliminating less profitable SKUs from the assortment, adding minimum client requirements for certain SKUs, coupon exclusions solutions, changing dynamic pricing algorithms. And all of those have been layering in for some consecutive quarters.

I guess, in addition to that, we also had initiatives driving improvement in the merchandise margin area, some of which Mary had just recently mentioned but I would add to that that we've been evaluating our pricing strategies as well.

Operator

Our next question comes from Oliver Wintermantel from Evercore ISI. Your line is now open.

Oliver Wintermantel -- Evercore ISI -- Analyst

Yeah, thanks, and good evening. I just wanted to double-check the guidance from last quarter in the fourth quarter that 2020 guidance you didn't mention that. Is that still a valid guidance or did you pull that?

Mary Winston -- Interim Chief Executive Officer

I'm sorry. In terms of our guidance, we felt comfortable confirming that our sales and EPS will be at the low end of the range previously provided. So our sales range was between 11.4 billion and 11.7 billion and our EPS range was $2.11 to $2.20.

Oliver Wintermantel -- Evercore ISI -- Analyst

But the 2020 guidance that you gave last time and the long-term guidance?

Mary Winston -- Interim Chief Executive Officer

I'm sorry. We did not provide any guidance beyond 2019 at this point.

Robyn D'Elia -- Chief Financial Officer & Treasure

And I think that's related to the fact that again I and the board will be looking at all the initiatives. And of course many of the initiatives that we are going to be prioritizing will have impact beyond 2019. And so once we are set on how we're going to reset the transformation and what the top initiative priorities will be, we'll be in better position to talk to 2020.

Oliver Wintermantel -- Evercore ISI -- Analyst

Got it. Got it, thank you. And if I may the online growth, did you comment on that on the prepared remarks? And if not, can you maybe update us what online growth was in the quarter?

Robyn D'Elia -- Chief Financial Officer & Treasure

We said the growth we had slight growth from our customer-facing digital channel. And as I just walked through, the growth in the customer-facing digital channels for this quarter was impacted by the actions we took to prioritize profitability over sales. So we eliminated less profitable SKUs from our assortment. We added minimum quantity requirements for certain SKUs. We have not yet anniversaried the increase in our free shipping threshold that we put in place toward the back half of last year. So all of these things are layering on top of one another and impacting the growth in the customer-facing digital channels, but we are seeing higher profitability.

Operator

Our next question comes from Michael Lasser from UBS. Your line is now open.

Atul Maheswari -- UBS -- Analyst

Good evening. This is Atul Maheshwari filling in for Michael Lasser. Thanks a lot for taking the question. My question is a bit of a follow-up from one of the earlier questions. So you did list stabilizing sales as one of the near-term priorities. How do you really expect to achieve this objective without compromising margins, given you have prioritized one over the other in the past? And what are some of the key changes that you think you need to implement to ensure that both sales and margin grow at the same time?

Mary Winston -- Interim Chief Executive Officer

So obviously it's still early days and we're still getting our arms around everything that's going on at prioritizing what initiatives will be. But I think the -- in addition to the sales comment, you also have to couple that with our focus on managing gross margin from a cost perspective. So we do expect to drive sales, but we expect that to be profitable. And in the gross margin area, I think we talked about looking at where we are with our vendors and looking at others just components of cost of sales where we can get some benefit there.

Atul Maheswari -- UBS -- Analyst

Thank you.

Operator

Our next question comes from Simeon Gutman from Morgan Stanley. Your line is now open.

Josh Kamboj -- Morgan Stanley -- Analyst

This is Josh Kamboj on for Simeon Gutman. Thank you for taking our question. Our first question, what rate of industry growth is embedded in your guide for 2019? And how did the market grow versus your initial expectations in the first quarter?

Mary Winston -- Interim Chief Executive Officer

I'm sorry. Can you just repeat that?

Josh Kamboj -- Morgan Stanley -- Analyst

Sorry, yeah. What rate of industry growth have you embedded into your guide for 2019, and how did the market grow versus your expectations in the first quarter?

Mary Winston -- Interim Chief Executive Officer

So, I guess, you're thinking about our sales plan? I mean, in terms of our sales guidance, we were anticipating a decline between 5% and 6% in the first quarter. We came in slightly below that sales range. And from a...

Josh Kamboj -- Morgan Stanley -- Analyst

No. Sorry. Yeah. I was wondering, if you were baking it in a certain rate of home furnishings industry growth as a whole into your guide for the year. And if you could share what that is and what that might have been in the first quarter like if you thought home furnishings were going to be flat and maybe an industry declined a little bit. Not your own guide just how you're thinking about industry backdrop for the year?

Mary Winston -- Interim Chief Executive Officer

Let us take a look at that and maybe get back with you. I mean, as we think about the home furnishing market, it's not a usually declining market, but it's obviously not robust growing either. I think the biggest thing we see in the market is the continued focus on online sales and that is so that's impacting everybody in the market. But the overall market, we have not built in any significant expectations in either direction for the market to be booming or for the market to be weighed down.

Josh Kamboj -- Morgan Stanley -- Analyst

All right. That's helpful. Thank you. And then just as a follow-up, is it safe to assume that you have 25% tariffs embedded in the guide now? And just in the context of the fact that the guide move that much were they also -- [Technical Difficulty]

Operator

I'm sorry. (Operator Instruction) Your line is now open if you can please complete your question.

Josh Kamboj -- Morgan Stanley -- Analyst

Sorry I'm not sure. I think we have some line issues. A follow up question was just is it now safe to assume that 25% tariffs are baked into your guide and just in the context of the fact that it didn't move much following what you initially laid out alongside the fourth quarter results, were they also at the 25% level in that initial guide even though the tariffs hadn't stepped up to that rate at that point in time?

Mary Winston -- Interim Chief Executive Officer

No. At the onset of the year they were definitely not at the 25% rate, and we're continuing to monitor the situation and we haven't made any changes to the guidance at this point for that rate.

Operator

Our next question comes from Steve Forbes from Guggenheim Securities. Your line is now open.

Steve Forbes -- Guggenheim Securities -- Analyst

Good evening. I wanted to focus on the BEYOND+ program right given sort of the gross margin implications here, and so just on the growth in members whether it's a quarter-over-quarter or just the run rate of the growth. Are you surprised by the ramp in membership growth as it appears it slowed little bit? And are there any plans to sort of tweak the offering whether it's a certain component of the value proposition as you think about reaccelerating that growth? And maybe just if you can comment on what you're seeing as it relates to membership ticket and traffic trends?

Mary Winston -- Interim Chief Executive Officer

So, yes, we have seen some growth during this quarter in the BEYOND+ membership program. And as we mentioned, we're continuing to evaluate it. So, we may see some changes to the value offers in the future. At this point, we're continuing to see positive results that BEYOND+ members were seeing that they shopped twice as many times of the average customer and that they spend 4 times the amount of an average customer. And so, we're encouraged by that and we're continuing to monitor it.

Steve Forbes -- Guggenheim Securities -- Analyst

And then as a follow-up, maybe for you Mary. You think about your tenure thus far, obviously, traveling around to the stores, the distribution centers, talking to store associates. I think you mentioned, right, in the prepared remarks revisiting the value proposition and sort of rethinking that on how you can improve it. So what did you hear, right, from the store associates as it pertains to what maybe they think or they're hearing from customers as what needs to transpire as it relates to the broader value proposition that Bed Bath & Beyond puts out there?

Mary Winston -- Interim Chief Executive Officer

Yeah. Well, the first thing I would say that I've heard from our associates is, their enthusiasm about the customers' commitment to the stores. They know the customers who come in, because they're frequent shoppers and they're committed to providing them the best service and the best value that they can. So that's the first thing.

I think the other thing I've heard from people and seen myself is the affinity for the coupon. And so, we have to continue to manage that and evaluate how we want to handle that, but that's near and dear to the customers' hearts and our stores. Members know that as well.

I think from a value proposition standpoint, again, this is something we will be revisiting at the Board level and certainly working with our transformation and strategy committee. But what we're hearing at store level is, customers comparing our pricing to others' pricing and we feel good about the moves we made recently, but customers are focused on pricing, value and that type of thing. So we're hearing a little bit of that as well.

Operator

Our next question comes from Anthony Chukumba from Loop Capital Markets. Your line is now open.

Anthony Chukumba -- Loop Capital Markets -- Analyst

Thank you for taking my question. I guess, my first question is just on the presentation of the result, particularly you backed out the goodwill, which also backed out the severance costs and the shareholder cost and then you showed the comparison year-over-year where you backed out some items in the first quarter of last year. I guess, I was just wondering, why did you switch the presentation to show the non-GAAP as opposed to historical when you're going really -- for the most part, shown GAAP with the exception of, like, big goodwill amortization charges? I guess, I was just wondering what the rationale was for going to that presentation.

Robyn D'Elia -- Chief Financial Officer & Treasure

Well, I think, our objective was to present our operating results, present things on an apples-to-apples basis, so it's easy to compare and see the changes or the improvements that we've made on a year-over-year basis.

Anthony Chukumba -- Loop Capital Markets -- Analyst

Okay. That's helpful. And then, just a quick follow-up. You talked about this before, key near-term priorities and one of them is sort of reviewing the asset base. And it looks like you'll be reviewing all of your concepts including your sort of non-core concepts. Any sense for timing in terms of making decisions on specifically on the non-core concepts like which type of potential divestitures?

Mary Winston -- Interim Chief Executive Officer

At this point, I'm not going to commit any specific timing. We're certainly moving with a sense of urgency. This is a priority for the management team and the Board. The Board will be overseeing our work to look at the various concepts. And when we have some next steps or something to announce, we'll certainly make you aware of it.

Operator

Our next question comes from Jonathan Matuszewski from Jefferies. Your line is now open.

Jonathan Matuszewski -- Jefferies -- Analyst

Yeah. Thanks for taking my questions. So, in guiding through the lower end of the range, you alluded to maybe what sounds like a continuation of tough top line trends quarter-to-date. Is that quarter-to-date trend consistent with the high single digit decline in brick-and-mortar comps and slight DTC growth we saw this quarter?

Robyn D'Elia -- Chief Financial Officer & Treasure

So we are expecting a gradual sequential improvement in the comp sales from stores as we move throughout the year. And that -- we'll achieve that through our efforts to stabilize sales, including some changes we've made to our marketing program and other sales initiatives that we have under way. We did mention earlier that we were going to shift some advertising expenses from the first quarter to the fourth quarter, so that will help out later in the back half but we are again looking to improve the trend throughout the year.

Jonathan Matuszewski -- Jefferies -- Analyst

Got you. So that would include a sequential improvement from 1Q to 2Q?

Mary Winston -- Interim Chief Executive Officer

What we know about 2Q to-date has definitely been built into the model. We haven't seen a major shift in the trend that we've experienced in 1Q at this point, but we are again projecting through the remainder of the year improvement.

Jonathan Matuszewski -- Jefferies -- Analyst

Got you. And then, just on the sourcing side, you guys have made some enhancements to the team and opened up the second office in Asia. And obviously, there were long-term plans discussed to really ramp up direct imports in certain categories. So maybe just share some of your latest thoughts there if there's been any initial traction in ramping up direct imports. Any thoughts there would be great.

Mary Winston -- Interim Chief Executive Officer

Well, let me speak about it a little bit more broadly, and then if Robyn wants to add in terms of what we've seen recently. In general, I think, obviously, focusing on our supply chain and our direct sourcing opportunities to provide great benefits, so we're definitely taking a look at that. That is on the docket with all of the initiatives that we'll be working with the transformation committee of the board with to prioritize. We have had early good results and we're looking at certain things in that area, but we don't have a lot to report on it at this point so...

Operator

Our next question comes from Seth Basham from Wedbush Securities. Your line is now open.

Seth Basham -- Wedbush Securities -- Analyst

Thanks a lot and good afternoon. My question is first around pricing. You talked about the diluting and pricing strategy. What changes have you made recently? And how are you thinking about pricing with the competition going forward?

Robyn D'Elia -- Chief Financial Officer & Treasure

We've definitely made changes in terms of changes to our dynamic pricing strategies and algorithms and we've looked to optimize our base pricing or initial and base pricing of merchandise. We've seen that those pricing strategies helped us in the merchandise margin area. We saw a decrease in merchandise margin but it's at a lesser rate, I guess, than we've been experiencing. So the trend is improving due to some of those pricing changes that were put in place.

Seth Basham -- Wedbush Securities -- Analyst

Got it. So, your emphasis on the base pricing, you're raising base prices to protect margins. Is that the -- or what I should be taking away from this?

Robyn D'Elia -- Chief Financial Officer & Treasure

Yeah. We are evaluating our pricing strategies holistically in that one element of it. Yes.

Mary Winston -- Interim Chief Executive Officer

Yeah, so I will put an emphasis on the fact that, that is one element of it. You should not take away that we're wholesale increasing prices. I mean we are monitoring what the competition is doing thinking about our need to stabilize sales and how sensitive the customer can be to pricing. So we're evaluating it holistically. And so on some SKUs and categories we might increase prices, in other areas we might not. So it's more complicated than just saying being able to say that yes, we're taking wholesale price increases because we're not doing that.

Operator

Our next question comes from Curtis Nagle from Bank of America. Your line is now open.

Curtis Nagle -- Bank of America -- Analyst

Great. Thanks very much for taking my question. So just a quick one on, I guess, potential asset or concept sales. Is that something you'll be able to do or I guess would consider doing without a permanent CEO in place?

Mary Winston -- Interim Chief Executive Officer

Well, what I will say about everything that we're focused on, the Board has a sense of urgency and the management team has a sense of urgency. And so, while the CEO search is certainly a priority, we're not going to be standing still in the Interim.

So when we see opportunities that we think are really going to be to the benefit of the business we will move forward on them. Now whether or not that particular thing will be one of those things can't speak to that at this point until we finish our evaluation of things. But we will not be holding off on actions that we think makes sense to really stabilize the company and move forward.

Curtis Nagle -- Bank of America -- Analyst

Understood. That makes sense. And just a quick one on the guidance, I don't think I heard anything pertaining to how buybacks may or may not be factored in. Are there future buybacks in the full year guidance?

Mary Winston -- Interim Chief Executive Officer

We do have plans for buybacks from the guidance. But again, we wanted to get the metrics that we were most comfortable with, which is sales at the low end of the range and EPS at the low end of the range.

Robyn D'Elia -- Chief Financial Officer & Treasure

Yeah. And what I will just add on that one of the things that the Board will be doing is taking a look at the capital allocation approach for the company. And so, we will be factoring into that -- the need to invest in the business to transform to maintain stability in the business. And we'll also be evaluating how we want to return cash to shareholders through both dividends and/or share repurchases.

Operator

Our next question comes from Zach Fadem from Wells Fargo. Your line is now open.

Eric Cohen -- Wells Fargo -- Analyst

Hi, this is Eric Cohen on for Zach. Thanks for taking the question. You commented earlier that historically Bed Bath has not kept up with changing consumer behavior, and you mentioned that you're going to make updates to that store experience. Can you sort of comment on what changes we can expect to see maybe when we can sort of see them in the store to impact the sales or margins?

Mary Winston -- Interim Chief Executive Officer

Well, what I will say is, we continue to have quite a few initiatives under way in that area and that is core to what our next-generation lab store initiative is all about is being able to test in those concepts, see what's working, tweak it as we go, roll out things that makes sense across the chain. So to say specifically at this moment what those things are it's probably a little premature because we're continuing to evaluate the performance in those stores and make those decisions.

Eric Cohen -- Wells Fargo -- Analyst

Fair enough. And then, can you also comment change you're making on the coupon strategy? You thought that was actually a gross margin benefit this quarter. Just sort of how changes you've made, and presumably this led to some loss sales that you're comfortable with so loss sales on the table and just sort of how your prices stack up versus peers?

Robyn D'Elia -- Chief Financial Officer & Treasure

From a coupon perspective, we looked at the mix of offers, availability of coupons, and then also having some coupon exclusion. So from a rate of growth of sales, it is favorable this quarter and it did -- there was a decrease this quarter that contributed to our gross margin.

Operator

Our final question comes from Brad Thomas from KeyBanc Capital. Your line is now open.

Brad Thomas -- KeyBanc Capital -- Analyst

Hi. Good afternoon, and thanks for squeezing me in here. I wanted to just follow-up on the review of the different concepts and over the years the company has not wanted to disclose revenues by segment or profit by segment. But I was wondering if there's any more quantification or color that you might be willing to provide today about how the different businesses are performing?

Mary Winston -- Interim Chief Executive Officer

Unfortunately no. There's nothing more that we're going to provide today on a concept basis, because you're right, we have not in the past given those numbers. And so, for now we're going to continue in that path, but you can be assured that we are going to be evaluating the concepts and looking at all of those businesses and making appropriate decisions.

Brad Thomas -- KeyBanc Capital -- Analyst

Got you. Thank you. And if I could follow-up then on maybe the cost expense opportunity recognizing that there could be some moving pieces between the line items versus the way you guided earlier in the year, I guess, Mary or Robyn, could you talk a little bit about how you're thinking about the expense opportunity into 2019 and maybe how much you could bring that SG&A line down by this year?

Mary Winston -- Interim Chief Executive Officer

Well, I won't attempt to quantify it, but as I did say in my prepared remarks, SG&A and rightsizing for the business that we're managing right now is a top priority for us. I think that we just have to look at that. And so, we're going to -- we've been looking at it. We have lots of initiatives under way. We've been executing initiatives in the SG&A area, but we're going to continue our focus there and accelerate some of the activities that's under way.

Brad Thomas -- KeyBanc Capital -- Analyst

Okay, thank you.

Operator

Ladies and gentlemen, that is all the time we have for questions today. I will now turn the call back to Janet Barth for closing comments.

Janet M. Barth -- Vice President, Investor Relations

Thank you, Cheryl. And thank you all for participating in our call today. If we didn't get to your questions or if you have additional questions, feel free to contact me for a follow-up call. Within that have a good night. Thank you.

Operator

Thank you, ladies and gentlemen. That concludes today's conference. Thank you for your participation. You may now disconnect.

Duration: 58 minutes

Call participants:

Janet M. Barth -- Vice President, Investor Relations

Mary Winston -- Interim Chief Executive Officer

Robyn D'Elia -- Chief Financial Officer & Treasure

Budd Bugatch -- Raymond James -- Analyst

Jaime M. Katz -- Morningstar -- Analyst

Christopher Horvers -- JPMorgan -- Analyst

Oliver Wintermantel -- Evercore ISI -- Analyst

Atul Maheswari -- UBS -- Analyst

Josh Kamboj -- Morgan Stanley -- Analyst

Steve Forbes -- Guggenheim Securities -- Analyst

Anthony Chukumba -- Loop Capital Markets -- Analyst

Jonathan Matuszewski -- Jefferies -- Analyst

Seth Basham -- Wedbush Securities -- Analyst

Curtis Nagle -- Bank of America -- Analyst

Eric Cohen -- Wells Fargo -- Analyst

Brad Thomas -- KeyBanc Capital -- Analyst

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