BBBY presentation 7 9-2014 Value Investment

Seamus Sullivan

(BBBY)

The Company

Recommendation: Buy Price Target - $82.00

Current Price $55.50

52-week range $80.82 – $54.95

Shares outstanding 202MM

Market Cap $11,682MM

P/E (2014) 11.0x

EV/EBITDA (2014) 8.5x

• Company overview

• Investment thesis

• Catalysts

• Risks

• Why now?

• Price Target and range

• DCF

• Relative Value

• Summary

• Appendix

– IS, BS, CFS, WACC

Presentation Overview

Company Profile • Founded 1971

• Headquarters: Union, New Jersey

• CEO: Steven H. Temares

• Operates 1,496 stores in all 50 states

• 58,000 employees

• Sector: Retail Home & Other

• Bed Bath & Beyond Inc. and subsidiaries is a retailer which operates under the names Bed Bath & Beyond (“BBB”),

Christmas Tree Shops, Christmas Tree Shops andThat! or andThat! (collectively, “CTS”), Harmon or Harmon Face

Values (collectively, “Harmon”), buybuy BABY (“Baby”) and World Market, Cost Plus World Market or Cost Plus

(collectively, “Cost Plus World Market”). Customers can purchase products from the Company either in store, online

or through a mobile device. The Company has the developing ability to fulfill customer purchases by in store

customer pick up or by direct shipment to the customer from the Company’s distribution facilities, stores or

vendors. The Company also operates Linen Holdings, a provider of a variety of textile products, amenities and other

goods to institutional customers in the hospitality, cruise line, food service, healthcare and other industries.

Additionally, the Company is a partner in a joint venture which operates four retail stores in Mexico under the name

Bed Bath & Beyond.

• The Company sells a wide assortment of domestics merchandise and home furnishings. Domestics merchandise

includes categories such as bed linens and related items, bath items and kitchen textiles. Home furnishings include

categories such as kitchen and tabletop items, fine tabletop, basic housewares, general home furnishings,

consumables and certain juvenile products.

• The Company’s 1,496 stores are located in all 50 states, the District of Columbia, Puerto Rico and Canada and range

in size from approximately 5,000 to 100,000 square feet, but are predominantly between 18,000 and 50,000 square

feet. Approximately 85% to 90% of store space is used for selling areas.

Investment Thesis

• Strong management team and brand

• Capital investments

– Omni-Channel

– Increased emphasis on analytics

– New information technology data center

– Store improvements

• Sustainable growth

• Market share gain

• Strong free cash flow

• Continued share repurchase/buyback

– With shares at this price buying back at a discount

• Strong balance sheet

– Potential Private Equity acquisition

Management Team • Proven commitment to long-term shareholders

through aggressive share repurchase

– Since 2004 through the end of 2013, BBBY has

repurchased ~ $6.3bln of its common stock

– Since the end of 2011, BBBY has returned ~89%

of its cash flows from operations to shareholders

• BBBY is ruthless with suppliers. Negotiating

hard for competitive pricing

– No long-term contracts for most suppliers

• Largest supplier accounts for only 5% of

company merchandise

– Top 10 accounts for 17%

• No debt

• Consistent ROIC ≥ 30% since 2004

• Prudent inventory management

Brand • BBBY has a well-deserved reputation for being

totally unconventional when it comes to picking

store locations. It routinely takes space nobody

else will touch, believing, rightfully so, that it is a

destination store and that its customers will find

it no matter where it is

– “You build it, they will shop”

• Customer Service is a key differentiator of BBBY

• Management gives individual store managers

the authority (this shows trust and builds mutual

respect) to adjust merchandise assortments,

which they feel addresses customer preferences

in local markets

Strong Management and Brand

Capital Investments Investments in Omni-Channel space

• Replatforming its mobile sites and App upgrades

• Improvement in purchase channel by using stores for buy online and store pickup, by

using more social media, and by building distribution for direct shipments

• New Distribution facility for both direct to customer and store fulfillment

• Adding functionality and assortment to its selling websites

• Roll out (Implementation) of new of point-of-sale system

• Bed Bath has been further behind competitors in two key factors:

– Developing its website

– Omni-Channel

New Website Old Website

While in the near-term capital investments may impact the bottom line and the stock, in the

long-run these investments will pay off. Managements capacity to be patient and think through

strategies prior to implementation have resulted in an industry leading ROIC and will continue

into the future

Increased emphasis on data analytics

• Completed the construction of a new IT data center

• Better information/data will increase the effectiveness, conversion rates, and ROI of

marketing and promotional campaigns

– Marketing spend has historically been ~2% of revenues

Store improvements

• Installed new energy efficient lighting, heating and cooling systems

Capital Investments

Retailer Online Growth vs. Industry Online Growth Rates E-Commerce Penetration vs. ROIC (2013)

In the 22-year period form 1992 to the end of 2013, the chain has grown from 34 to 1,496 stores. During

2013 BBBY opened 29 new stores and looking forward I expect to see solid growth but more normalized in

comparison to historical

Bed Bath & Beyond has potential for further US growth as well as new markets

• Management believes that throughout the US and Canada, there is an opportunity to operate in excess of 1,300 Bed

Bath and Beyond stores – As of March 2014 there were 1,014 BedBath stores. To get to 1,300 would be a 28% increase

• Further penetration into new markets for buybuy baby and Cost Plus

• Small acquisitions – Management has had a proven history of acquiring local retail niches and expanding them to national players

– Purchased Cost Plus and Linen Holdings in 2012

• Geographic expansion – Canada and Mexico

• Cross merchandising opportunities with Cost Plus products, which can be introduced into Bead Bath &

Beyond stores as well as World Market products i.e. food – Further potential product line expansion with food or specialty foods

• Progress on improving the positioning of its online assets – Bed Bath generates only about 1% of its total sales from online

Sustainable Growth

BBBY gained share in 4Q’13

Market Share Gain buybuy baby was acquired in 2007 for $67MM

Toys R US poor financial and operating performance over the years has eroded their brand image and opened

the door for buybuy baby to take market share

• “As we mentioned earlier, one of the biggest assets that we have given even on our balance sheet, 18 million active customers in our

loyalty basis. 73% of all pregnant mothers register at Babies R Us. These are huge assets. We've invested money in this, we've got the

information. But so far we've under-utilized this information.” 1

Improving customer demographic

• The good news is that despite the continued fallout from the recession, fertility intentions among American women remain high, such

that economic recovery could reverse the current trend and even yield a spike in fertility 2

Further evidence of sector performance

• While BBBY’s web properties has declined by an average of -15% over the last six months, traffic to buybuybaby.com has bucked this

trend by increasing an average of 19% during this time 3

US Census Bureau Birthrate Estimate United States

1: Source: Toys R Us Q4 13 2: Source: Packaged Facts Americans in 2020 3: Source: comScore, UBS estimates

CPI: Infant & Toddler Apparel

Store Count Breakdown & Growth

Market Share Gain

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E

Bead bath and Beyond Store beg of period 982 993 1004 1014

Net additiions 11 11 10 8

Total Bed Bath & Byond stores end of period 993 1004 1014 1020

Store % of total 84.65% 68.25% 67.78% 66.49%

yoy % increase 1.12% 1.11% 1.00% 0.59%

Christmas Tree Shops Stores beg of period 66 71 74 77

Net additions 5 3 3 3

Total Christmas Tree Shops end of period 71 74 77 80

Store % of total 6.05% 5.03% 5.15% 5.22%

yoy % increase 7.58% 4.23% 4.05% 3.90%

BuyBuy Baby Store beg of period 45 64 82 90


Total Buy Buy Baby Stores end of period 64 82 90 106

Store % of total 5.46% 5.57% 6.02% 6.91%

yoy % increase 42.22% 28.13% 9.76% 17.78%

Harmon Stores beg of period 46 45 47 50

Net additions -1 2 3 0

Total Harmon Stores end of period 45 47 50 49

Store % of total 3.84% 3.20% 3.34% 3.19%

yoy % increase -2.17% 4.44% 6.38% -2.00%

Cost Plus Stores beg of period 0 0 264 265


Total Cost Plus Stores end of period 0 264 265 277

Store % of total 0.00% 17.95% 17.71% 18.06%

yoy % increase - - 0.38% 4.53%

Total Stores beg of period 629 721 809 889 972 1039 1139 1173 1471 1496

Net additions 92 88 80 83 67 67 34 298 25 29

Total end of period 721 809 889 972 1039 1106 1173 1471 1496 1534

14.63% 12.21% 9.89% 9.34% 6.89% 6.45% 2.99% 25.40% 1.70% 2.54%

Strong Free Cash Flow

• BBBY’s strong cash flow and

balance sheet are a competitive

advantage and value driver over

the long-term

Free Cash Flow Relative Value

NOPAT DEP CAPEX Increase in NWC FCF Shares outstanding FCF/Share FCF Yield

STAPLES INC 809.65 458.22 (371.23) 47.89 848.75 646.62 1.31 12.11%

ULTA SALON COSMETICS & FRAGR 202.78 106.28 (226.02) 68.63 14.41 64.32 0.22 0.24%

DICK'S SPORTING GOODS INC 331.85 154.93 (285.67) 178.23 22.88 97.74 0.23 0.51%

AUTOZONE INC 1,268.61 227.25 (414.45) (129.74) 1,211.15 32.60 37.15 6.97%

OFFICE DEPOT INC (15.39) 209.00 (137.00) 394.00 (337.39) 534.75 (0.63) -11.28%

HOME DEPOT INC 5,829.56 1,757.00 (1,389.00) (103.00) 6,300.56 1,367.62 4.61 5.67%

LOWE'S COS INC 2,582.25 1,562.00 (940.00) (222.00) 3,426.25 997.32 3.44 7.23%

PIER 1 IMPORTS INC 110.62 45.80 (80.31) 4.59 71.53 94.53 0.76 4.94%

TJX COMPANIES INC 2,174.99 548.82 (946.68) 202.57 1,574.57 700.31 2.25 4.24%

WILLIAMS-SONOMA INC 295.75 149.80 (193.95) (7.14) 258.74 94.12 2.75 3.86%

LUMBER LIQUIDATORS HOLDINGS 35.69 11.67 (28.59) 41.62 (22.86) 27.43 (0.83) -1.10%

RESTORATION HARDWARE

HOLDING 20.32 27.65 (93.87) 19.81 (65.70) 39.37 (1.67) -1.79%

BED BATH & BEYOND INC 1,241.90 218.81 (317.18) (98.57) 1,242.10 202.61 6.13 10.79%

High 5,829.56 1,757.00 (28.59) 394.00 6,300.56 1,367.62 37.15 12.11%

Mean 1,479.87 516.73 (389.47) 56.49 1,488.97 447.64 6.63 3.89%

Median 331.85 209.00 (285.67) 19.81 258.74 97.74 1.31 4.24%

Low (15.39) 11.67 (1,389.00) (222.00) (337.39) 27.43 (1.67) -11.28%

5.00%

7.00%

9.00%

11.00%

13.00%

15.00%

17.00%

$0.00

$1.00

$2.00

$3.00

$4.00

$5.00

$6.00

$7.00

$8.00

$9.00

2012 2013 2014 2015 2016 2017 2018 2019

Free Cash Flow & Free Cash Flow Yield Per share

FCF/Share

FCF Yield

Returning cash to shareholders Disciplined Share Buyback

Continued Share Repurchase

• Since 2004 through the end of 2013,

BBBY has repurchased ~ $6.3bln of

its common stock

• Since the end of 2011, BBBY has

returned ~89% of its cash flows from

operations to shareholders

• As of May 31, 2014 BBBY has

~$861MM in its current share

repurchase program

• December 1

Period

Total Number

of Shares

Purchased

Average Price

Paid per Share

Approximate Dollar Value of

Shares that may yet be purchased

onder the plans or programs

1 December 1, 2013 - December 28, 2013 1,717.4 $77.61 $1,532,716.19

2 December 29, 2013 - January 25, 2014 2,594.5 $72.77 $1,343,914.03

3 January 26, 2014 - March 1, 2014 3,237.1 $64.75 $1,134,319.02

Total 7,549.0 $70.43 $1,134,319.02

4 March 2, 2014 - March 29, 2014 1,391.1 $68.20 $1,039,448.62

5 March 30, 2014 - April 26, 2014 1,134.0 $66.58 $963,941.82

6 April 27, 2014 - May 31, 2014 1,656.9 $61.84 $861,473.88

Total 4,182.0 $65.24 $861,473.88

Through all of September 1,

2013 – November 30, 2013

a total of 2.2MM shares

were purchased

• July 7, 2014 BBBY announced an

additional $2bln share

repurchase, which they expect to

complete by 2016

Strong Balance Sheet

• Even with operating lease debt

adjustment, BBBY debt/cap is 39%

• Cash & short-term investments are $3.80

per share

– Cash/Mkt cap = 6.5%

• No covenant concerns

• Cash goes directly to equity holders

• ROIC of over 30% with no leverage since

2004

• Announcement of further share repurchase

– Will be more impactful at current prices

• Increase in online sales

Catalysts

Online as % of Sales: 2013

• Private Equity acquisition potential

– Strong Cash Flow

– Limited/No debt

– Age of the founders

– Potential to expand globally, expand supplier network, and

purchase outside the US for higher margin products

• Increased margin pressure from coupon usage and pricing pressure from competitors like Amazon

– Continued pressure from top-line deceleration on slowing store growth and comp in addition to a deteriorating gross

margin and SG&A deleverage

– However, Bricks-and-mortar retailers offer the added value of immediacy, trial/touch/feel, exclusive products. And

often have deeper product/sector research on their websites

• Taking into account the potential revenue growth of 3%, 400bps reduction in gross margins from 40% to

36% you get a get a base case price of $58.53

Risks DCF Sensitivity Analysis for Bed Bath & Byond IncDollars in millions, except per share

A + B = C Terminal Value Sensitivity

PV of Cash Present Value of Residual at Exit Multiple of: Enterprise Value at Exit Multiple of:

Discount Rate Flows 2015-2019 6.8x 7.8x 8.8x 6.8x 7.8x 8.8x

7.0% 3,724$ 8,448$ 9,691$ 10,933$ 12,172$ 13,414$ 14,657$

7.5% 3,691 8,265 9,481 10,696 11,956 13,172 14,387

8.0% 3,658 8,087 9,276 10,466 11,745 12,935 14,124

8.5% 3,626 7,914 9,077 10,241 11,540 12,704 13,868

9.0% 3,595 7,745 8,884 10,022 11,340 12,479 13,618

- D = E F Terminal Value SensitivityEquity Value at Exit Multiple of: Per Share Value at Exit Multiple of:

Discount Rate Net Debt (1)

6.8x 7.8x 8.8x 6.8x 7.8x 8.8x

7.0% 4,093$ 8,079$ 9,322$ 10,564$ 42.08$ 48.55$ 55.02$

7.5% 4,093 7,864 9,079 10,295 40.96 47.29 53.62

8.0% 4,093 7,653 8,842 10,032 39.86 46.05 52.25

8.5% 4,093 7,448 8,611 9,775 38.79 44.85 50.91

9.0% 4,093 7,247 8,386 9,525 37.75 43.68 49.61

DCF Sensitivity Analysis for Bed Bath & Byond IncDollars in millions, except per share




7.0% 3,724$ 8,448$ 9,691$ 10,933$ 12,172$ 13,414$ 14,657$

7.5% 3,691 8,265 9,481 10,696 11,956 13,172 14,387

8.0% 3,658 8,087 9,276 10,466 11,745 12,935 14,124

8.5% 3,626 7,914 9,077 10,241 11,540 12,704 13,868

9.0% 3,595 7,745 8,884 10,022 11,340 12,479 13,618



6.8x 7.8x 8.8x 6.8x 7.8x 8.8x

7.0% 4,093$ 8,079$ 9,322$ 10,564$ 42.08$ 48.55$ 55.02$

7.5% 4,093 7,864 9,079 10,295 40.96 47.29 53.62

8.0% 4,093 7,653 8,842 10,032 39.86 46.05 52.25

8.5% 4,093 7,448 8,611 9,775 38.79 44.85 50.91

9.0% 4,093 7,247 8,386 9,525 37.75 43.68 49.61


PV of Cash Present Value of Residual at Growth Rate of: Enterprise Value at Growth Rate of:

Discount Rate Flows 2015-2019 1.5% 3.0% 3.5% 1.5% 3.0% 3.5%

7.0% 3,724$ 13,106$ 18,287$ 21,001$ 16,829$ 22,010$ 24,724$

7.5% 3,691 11,781 15,940 18,020 15,472 19,631 21,710

8.0% 3,658 10,665 14,069 15,708 14,323 17,728 19,367

8.5% 3,626 9,713 12,545 13,866 13,339 16,171 17,493

9.0% 3,595 8,892 11,280 12,365 12,487 14,875 15,960

- D = E F Terminal Value Sensitivity

Equity Value at Growth Rate of: Per Share Value at Growth Rate of:


1.5% 3.0% 3.5% 1.5% 3.0% 3.5%

7.0% 4,093$ 12,737$ 17,918$ 20,632$ 66.34$ 93.32$ 107.46$

7.5% 4,093 11,379 15,538 17,618 59.27 80.93 91.76

8.0% 4,093 10,231 13,635 15,274 53.28 71.02 79.55

8.5% 4,093 9,247 12,079 13,400 48.16 62.91 69.79

9.0% 4,093 8,395 10,782 11,867 43.72 56.16 61.81




7.0% 3,724$ 13,106$ 18,287$ 21,001$ 16,829$ 22,010$ 24,724$

7.5% 3,691 11,781 15,940 18,020 15,472 19,631 21,710

8.0% 3,658 10,665 14,069 15,708 14,323 17,728 19,367

8.5% 3,626 9,713 12,545 13,866 13,339 16,171 17,493

9.0% 3,595 8,892 11,280 12,365 12,487 14,875 15,960




1.5% 3.0% 3.5% 1.5% 3.0% 3.5%

7.0% 4,093$ 12,737$ 17,918$ 20,632$ 66.34$ 93.32$ 107.46$

7.5% 4,093 11,379 15,538 17,618 59.27 80.93 91.76

8.0% 4,093 10,231 13,635 15,274 53.28 71.02 79.55

8.5% 4,093 9,247 12,079 13,400 48.16 62.91 69.79

9.0% 4,093 8,395 10,782 11,867 43.72 56.16 61.81

Method Price Weight

DCF Exit Multiple (7x TEV/EBITDA) $46.05 50%

DCF Constant Growth (3% Terminal) $71.02 50%

Forward EV/EBITDA $27.32 0%

Forward P/E $73.27 0%

Share Price $58.53

• Lower growth/economic slowdown

• Failure to continue to gain market share

• Failure to implement Omni-channel

While the market is up YTD, many names in Hardlines have significantly underperformed the

S&P 500 through mid-April: HD -7%, LOW -5.7%, BBY -38.6%, SPLS 25.2%, ODP -25.5%,

and BBBY -30.0%

I believe that retail/Hardline names have been driven up with the market and consequently

overvalued. This is a direct result of overly bullish expectations regarding the economic

recovery as well as artificially low interest rates. The combination of these factors drove

managers into sectors such as retail, which they felt best gave them exposure to a seemingly

growing and improving economy

While I still believe the retail sector as a whole is expensive, BBBY is a strong company that

is being unfairly punished as a result of managers taking profits from a recovering economy

trade further exacerbated by heard mentality

Why Now?

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6/7/2010 6/7/2011 6/7/2012 6/7/2013 6/7/2014 6/7/2015

Sto

ck P

rice

BBBY Risk Reward

Close

Price Target

$112.09 (+101%)

$82.00 (+47.7%)

$50.00 (-10.0%)

Financials Discounted Cash Flow Analysis for Bed Bath & Byond IncDollars in millions, except per share

Historical Year Ending December 31, Projected Year Ending December 31, 2014-2019

2012 2013 2014 2015 2016 2017 2018 2019 CAGR

Sales $9,499.9 $10,914.6 $11,504.0 $11,964.1 $12,442.7 $12,940.4 $13,458.0 $13,996.3 4.0%

growth #REF! 15% 5% 4% 4% 4% 4% 4%

EBITDA 1,763.1 1,857.1 1,833.4 1,795.8 1,953.5 2,031.6 2,112.9 2,197.4 3.7%

Less: Depreciation (194.7) (218.8) (218.8) (240.5) (236.4) (245.9) (255.7) (265.9)

Less: Amortization 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Plus Capital Lease Obligations 237.0 279.0 296.0 206.4 214.0 214.0 214.0 214.0

Adj. EBIT (1)

1,805.3 1,917.3 1,910.6 1,761.8 1,931.1 1,999.8 2,071.2 2,145.5 2.3%

Less: Taxes @ 36% (649.9) (690.2) (687.8) (634.2) (695.2) (719.9) (745.6) (772.4)

Net Operating Profit After Taxes (NOPAT) 1,155.4 1,227.0 1,222.8 1,127.5 1,235.9 1,279.9 1,325.6 1,373.1

Plus: Depreciation 194.7 218.8 218.8 240.5 236.4 245.9 255.7 265.9

Plus: Amortization 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Plus: Share-based Compensation 47.2 47.2 56.2 58.4 60.8 63.2 65.7 68.4

Less: Capital Expenditures (243.4) (314.7) (317.2) (350.5) (348.4) (362.3) (376.8) (391.9)

Less: Working Capital Investment (132.5) (165.2) (62.6) (146.1) (145.6) (60.6) (63.0) (65.5)

Unlevered Free Cash Flow $1,021.5 $1,013.2 $1,118.0 $929.8 $1,039.1 $1,166.1 $1,207.2 $1,250.0

growth -1% 10% -17% 12% 12% 4% 4%

Partial Period 62.2% 100.0% 100.0% 100.0% 100.0%

Stub-Adjusted UFCF $578.2 $1,039.1 $1,166.1 $1,207.2 $1,250.0

Mid-year Convention 9/8/2015 6/30/2016 6/30/2017 6/30/2018 6/30/2019

UFCF per Share $4.84 $5.41 $6.07 $6.29 $6.51

UFCF yield % 8.73% 9.75% 10.94% 11.33% 11.73%

(1) Adjusted EBIT does not deduct amortization of intangible assets.

Growth and Margins

Sales growth rate #REF! 14.9% 5.4% 4.0% 4.0% 4.0% 4.0% 4.0%

Gross margin 41.4% 40.2% 39.7% 39.0% 39.0% 39.0% 39.0% 39.0%

SG&A 24.9% 25.2% 25.7% 26.0% 25.2% 25.2% 25.2% 25.2%

R&D 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

EBITDA 18.6% 17.0% 15.9% 15.0% 15.7% 15.7% 15.7% 15.7%

EBIT 19.0% 17.6% 16.6% 14.7% 15.5% 15.5% 15.4% 15.3%

Effective tax rate 36.0% 36.0% 36.0% 36.0% 36.0% 36.0% 36.0% 36.0%

Depreciation 2.0% 2.0% 1.9% 2.0% 1.9% 1.9% 1.9% 1.9%

Amortization 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Cap Ex 2.6% 2.9% 2.8% 23.0% 21.0% 20.0% 2.8% 2.8%

Working Capital Investment 17.9% 11.7% 10.6% 31.8% 30.4% 12.2% 12.2% 12.2%

• BBBY has consistently held

industry leading ROIC

Relative Value

• Recent stock performance

has made BBBY cheap on

a historical basis (avg

2006-2013 P/EBITDA =

6.4x) as well as on a

relative basis ( trading at

6.4x P/EBITDA vs. peer

average of 8.2x)

Relative Value Trading Multiples

Enterprise Value As a Multople of:

Revenue EBITDA P/E P/E/G

Company Name

Stock

Price Equity Value

Enterprise

Value TTM NTM TTM NTM TTM NTM NTM

STAPLES INC 10.92 7,009.4 7,423.92 .4x .3x 5.4x 5.3x 10.0x 11.0x -.3x

ULTA SALON COSMETICS & FRAGR 91.33 5,869.6 5,412.90 1.8x 1.5x 11.4x 8.9x 27.8x 20.8x 2.3x

DICK'S SPORTING GOODS INC 45.58 5,749.8 5,617.21 1.0x .8x 8.7x 6.7x 16.8x 14.2x 1.5x

AUTOZONE INC 532.4 17,385.0 21,618.06 2.3x 2.2x 10.4x 9.8x 17.3x 14.9x .9x

OFFICE DEPOT INC 5.61 2,994.6 2,900.58 .2x .2x 6.4x 4.5x .0x 16.8x .2x

HOME DEPOT INC 80.75 110,954.8 123,184.80 1.5x 1.4x 10.8x 9.5x 20.9x 15.9x .8x

LOWE'S COS INC 47.2 47,342.6 56,701.60 1.1x 1.0x 9.8x 8.3x 20.8x 15.1x .6x

PIER 1 IMPORTS INC 15.28 1,448.7 1,435.65 .9x .7x 7.6x 5.3x 15.0x 11.1x -.4x

TJX COMPANIES INC 52.82 37,075.2 36,030.28 1.4x 1.2x 10.2x 7.9x 18.3x 14.9x 4.7x

WILLIAMS-SONOMA INC 70.85 6,696.3 6,587.19 1.3x 1.3x 9.4x 9.2x 24.3x 19.6x .9x

LUMBER LIQUIDATORS HOLDINGS 75.91 2,076.3 2,000.27 2.5x 1.5x 18.5x 9.6x 28.1x 17.9x -1.3x

RESTORATION HARDWARE

HOLDING 91.24 3,664.5 3,802.72 1.6x 1.7x 30.0x 14.6x 65.1x 32.1x 1.1x

BED BATH & BEYOND INC 56.7 11,462.5 10,749.73 1.0x .9x 6.4x 5.9x 11.8x 10.6x 2.1x

High 110,954.8 123,184.8 2.5x 2.2x 30.0x 14.6x 65.1x 32.1x 4.7x

Mean 20,688.9 22,726.3 1.3x 1.1x 11.6x 8.3x 22.0x 17.0x .9x

Median 6,283.0 6,102.2 1.4x 1.2x 10.0x 8.6x 19.5x 15.5x .8x

Low 1,448.7 1,435.7 .2x .2x 5.4x 4.5x .0x 11.0x -1.3x

Trading Multiples

Margin 1-Year Growth

Company Name TTM Gross Profit TTM EBITDA NTM EBITDA TTM NET NTM Revenue NTM EBITDA NTM EPS Debt/Capital Beta

STAPLES INC 25.8% 6.9% 6.4% 2.4% -2.8% -27.5% -42.3% 16.3% 1.0

ULTA SALON COSMETICS & FRAGR 35.1% 16.2% 16.8% 7.5% 22.5% 12.3% 8.9% 0.0% 1.1

DICK'S SPORTING GOODS INC 31.2% 11.2% 11.1% 5.4% 7.9% 14.2% 9.4% 0.4% 1.1

AUTOZONE INC 51.9% 21.8% 22.2% 11.2% 6.2% 5.5% 16.6% 165.5% 0.6

OFFICE DEPOT INC 23.1% 2.5% 4.1% -1.0% 60.2% 89.4% 79.0% 26.3% 1.8

HOME DEPOT INC 34.8% 14.0% 15.1% 7.0% 2.9% 7.7% 20.2% 54.8% 0.9

LOWE'S COS INC 34.8% 10.8% 11.7% 4.4% 2.4% 7.9% 24.5% 46.9% 1.0

PIER 1 IMPORTS INC 41.5% 12.0% 13.1% 5.7% 6.1% -23.5% -28.8% 2.1% 1.5

TJX COMPANIES INC 28.4% 14.1% 14.6% 7.7% 4.9% 1.9% 3.2% 22.9% 0.8

WILLIAMS-SONOMA INC 38.9% 13.7% 14.3% 6.4% 9.7% 12.5% 22.5% 0.3% 1.1

LUMBER LIQUIDATORS HOLDINGS 41.3% 13.3% 15.5% 7.4% 6.9% -8.1% -13.8% 0.0% 1.2

RESTORATION HARDWARE HOLDING 35.9% 5.4% 11.5% 1.2% 21.5% 0.0% 29.4% 13.8% 0.2

BED BATH & BEYOND INC 39.5% 15.7% 14.9% 8.7% 4.0% 3.0% 5.0% 0.0% 1.0

High 51.9% 21.8% 22.2% 11.2% 60.2% 89.4% 79.0% 165.5% 1.8

Mean 35.2% 11.8% 13.0% 5.5% 12.4% 7.7% 10.7% 29.1% 1.0

Median 34.9% 12.7% 13.7% 6.0% 6.5% 6.6% 13.0% 15.0% 1.1

Low 23.1% 2.5% 4.1% -1.0% -2.8% -27.5% -42.3% 0.0% 0.2

Summary

• Strong management team and brand

• Capital investments

– Omni-Channel

– Increased emphasis on analytics

– New information technology data center

– Store improvements

• Sustainable growth

• Market share gain

• Strong free cash flow

• Continued share repurchase/buyback

– With shares at this price buying back at a discount

• Strong balance sheet

– Potential Private Equity acquisition

Appendix

Income Statement Income Statement for Bed Bath & Byond IncDollars in millions, except per share

2014 - 2019

Historical Year Ending March 01, Projected Year Ending March 01, CAGR

2012 2013 2014 2015 2016 2017 2018 2019

Sales $9,499.9 $10,914.6 $11,504.0 $11,964.1 $12,442.7 $12,940.4 $13,458.0 $13,996.3 4.0%

Cost of sales (excluding depreciation) 5,569.0 6,525.8 6,938.4 7,298.1 7,590.0 7,893.6 8,209.4 8,537.8

Gross Profit 3,930.9 4,388.8 4,565.6 4,666.0 4,852.6 5,046.8 5,248.6 5,458.6 3.6%

SG&A expenses (excluding amortization) 2,362.6 2,750.5 2,951.0 3,110.7 3,135.6 3,261.0 3,391.4 3,527.1

Other operating (income) / expense (194.7) (218.8) (218.8) (240.0) (240.4) (250.0) (260.0) (270.4)

EBITDA 1,763.1 1,857.1 1,833.4 1,795.3 1,957.5 2,035.8 2,117.2 2,201.9 3.7%

Depreciation 194.7 218.8 218.8 240.0 240.4 250.0 260.0 270.4

Operating Lease Obligations 0.0 0.0 0.0 206.4 214.0 214.0 214.0 214.0

EBIT 1,568.3 1,638.3 1,614.6 1,761.7 1,931.1 1,999.8 2,071.2 2,145.5 5.9%

Interest expense 0.0 4.2 1.1 206.4 214.0 214.0 214.0 214.0

Interest (income) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Other (income)/expense 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Pretax Income 1,568.3 1,634.1 1,613.5 1,555.3 1,717.1 1,785.8 1,857.2 1,931.5

Income taxes 580.0 596.3 591.2 559.9 618.2 642.9 668.6 695.3

Net Income $988.4 $1,037.8 $1,022.3 $995.4 $1,098.9 $1,142.9 $1,188.6 $1,236.2 3.9%

Diluted weighted average shares (in millions) 243.9 227.8 213.4 198.0 184.1 171.3 159.3 148.1

Earnings Per Share $4.05 $4.56 $4.79 $5.03 $5.97 $6.67 $7.46 $8.35 11.7%

Ratios & Assumptions

Sales growth rate 14.9% 5.4% 4.0% 4.0% 4.0% 4.0% 4.0%

Gross margin 41.4% 40.2% 39.7% 39.0% 39.0% 39.0% 39.0% 39.0%

SG&A expenses (as a % of sales) 24.9% 25.2% 25.7% 26.0% 25.2% 25.2% 25.2% 25.2%

Other Operating (Income) / expense 2.0% 2.0% 1.9% 2.0% 1.9% 1.9% 1.9% 1.9%

Effective tax rate 37.0% 36.5% 36.6% 36.0% 36.0% 36.0% 36.0% 36.0%

Balance Sheet

Balance Sheet for Bed Bath & Byond IncDollars in millions, except per share

Historical Year Ending December 31, Projected Year Ending December 31,

2012 2013 2014 2015 2016 2017 2018 2019

Cash $1,003.2 $565.0 $366.5 $237.9 $254.4 $379.4 $445.1 $553.1

Accounts receivables, net 756.4 449.9 489.3 498.5 518.4 539.2 560.8 583.2

Inventories 2,298.2 2,466.2 2,579.0 2,827.5 2,940.6 3,058.2 3,180.6 3,307.8

Other current assets 311.5 386.4 379.8 406.8 410.6 427.0 444.1 461.9

Total Current Assets: 4,369.2 3,867.5 3,814.6 3,970.7 4,124.0 4,403.8 4,630.5 4,905.9

PP&E, net 1,198.3 1,466.7 1,579.8 1,690.3 1,798.3 1,910.6 2,027.4 2,148.9

Definite life intangibles, net 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Indefinite life intangibles 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Goodwill 198.7 483.5 486.3 486.3 486.3 486.3 486.3 486.3

Other long-term assets 287.6 868.5 874.2 4,575.7 4,517.6 4,468.7 4,469.9 4,471.4

Total Assets: $6,053.7 $6,686.1 $6,754.9 $10,722.9 $10,926.2 $11,269.4 $11,614.2 $12,012.5

Accounts payable $752.1 $913.4 $1,104.7 $1,155.5 $1,098.4 $1,142.4 $1,188.1 $1,235.6

Accrued liabilities 329.2 393.1 386.0 425.7 442.7 460.4 478.8 498.0

Other current liabilities 587.1 721.8 735.3 783.3 814.7 847.3 881.2 916.4

Total Current Liabilities: 1,668.3 2,028.3 2,226.0 2,364.6 2,355.8 2,450.1 2,548.1 2,650.0

Revolver 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Long-term debt: Deferred Rent & other Liabilities 462.9 565.0 574.8 4,300.5 4,300.5 4,300.5 4,300.5 4,300.5

Other long-term liabilities 0.0 13.1 12.9 12.9 12.9 12.9 12.9 12.9

Total Liabilities: 2,131.2 2,606.4 2,813.6 6,677.9 6,669.2 6,763.4 6,861.4 6,963.3

Total equity 3,922.5 4,079.7 3,941.3 4,045.0 4,257.0 4,506.0 4,752.8 5,049.2

Total Liabilities and Equity: $6,053.7 $6,686.1 $6,754.9 $10,722.9 $10,926.2 $11,269.4 $11,614.2 $12,012.5

Parity check (A = L+E) 0.000 0.000 0.000 0.000 0.000 0.000 0.000 0.000

NWC

Working Capital Schedule for Bed Bath & Byond IncDollars in millions, except per share

Historical Year Ending December 31, Projected Year Ending December 31,

2012 2013 2014 2015 2016 2017 2018 2019

Sales $9,499.9 $10,914.6 $11,504.0 $11,964.1 $12,442.7 $12,940.4 $13,458.0 $13,996.3

Cost of sales (excluding depreciation) 5,569.0 6,525.8 6,938.4 7,298.1 7,590.0 7,893.6 8,209.4 8,537.8

Working Capital Balances

Accounts receivables, net $756.4 $449.9 $489.3 $498.5 $518.4 $539.2 $560.8 $583.2

Inventories 2,298.2 2,466.2 2,579.0 2,827.5 2,940.6 3,058.2 3,180.6 3,307.8

Other current assets 311.5 386.4 379.8 406.8 410.6 427.0 444.1 461.9

Total Non-Cash Current Assets: $3,366.1 $3,302.5 $3,448.1 $3,732.8 $3,869.7 $4,024.4 $4,185.4 $4,352.8

Accounts payable $752.1 $913.4 $1,104.7 $1,155.5 $1,098.4 $1,142.4 $1,188.1 $1,235.6

Accrued liabilities 329.2 393.1 386.0 425.7 442.7 460.4 478.8 498.0

Other current liabilities 587.1 721.8 735.3 783.3 814.7 847.3 881.2 916.4

Total Non-Debt Current Liabilities: $1,668.3 $2,028.3 $2,226.0 $2,364.6 $2,355.8 $2,450.1 $2,548.1 $2,650.0

NET WORKING CAPITAL / (DEFICIT) $1,697.7 $1,274.2 $1,222.1 $1,368.2 $1,513.8 $1,574.4 $1,637.3 $1,702.8

(Increase)/Decrease in Working Capital $423.5 $52.1 ($146.1) ($145.6) ($60.6) ($63.0) ($65.5)

Ratios and Assumptions

Numbers of days in the period 360 cell is named "Days"

Accounts receivables, net (collection period in days) 28.7 14.8 15.3 15.0 15.0 15.0 15.0 15.0

Inventories (days outstanding) 148.6 136.0 133.8 139.5 139.5 139.5 139.5 139.5

Other current assets (as % of sales) 3.3% 3.5% 3.3% 3.4% 3.3% 3.3% 3.3% 3.3%

Accounts payable (days outstanding) 48.6 50.4 57.3 57.0 52.1 52.1 52.1 52.1

Accrued liabilities (as % of cost of sales) 5.9% 6.0% 5.6% 5.8% 5.8% 5.8% 5.8% 5.8%

Other current liabilities (as % of cost of sales) 10.5% 11.1% 10.6% 10.7% 10.7% 10.7% 10.7% 10.7%

WACC

Armstrong World IndustriesWeighted Average Cost of Capital Analysis($ in millions)

Target Capital Structure Predicted Market Market Debt/ Marginal Unlevered

Debt-to-Total Capitalization 39.6% Company Levered Beta Value of Debt Value of Equity Equity Tax Rate Beta

Equity-to-Total Capitalization 60.4% STAPLES INC 1.0 $1,000.2 $6,951.2 14.4% 35.0% 0.95

ULTA SALON COSMETICS & FRAGR 1.1 - $5,905.0 - % 35.0% 1.10

DICK'S SPORTING GOODS INC 1.1 $6.5 $5,652.9 0.1% 35.0% 1.10

AUTOZONE INC 0.6 $4,013.3 $17,306.8 23.2% 35.0% 0.56

OFFICE DEPOT INC 1.8 $696.0 $2,973.2 23.4% 35.0% 1.56

HOME DEPOT INC 0.9 $14,691.0 $110,366.7 13.3% 35.0% 0.85

LOWE'S COS INC 1.0 $10,086.0 $46,993.5 21.5% 35.0% 0.86

PIER 1 IMPORTS INC 1.5 $9.5 $1,440.7 0.7% 35.0% 1.54

TJX COMPANIES INC 0.8 $1,274.2 $36,440.7 3.5% 35.0% 0.83

Cost of Debt WILLIAMS-SONOMA INC 1.1 $2.0 $6,656.8 0.0% 35.0% 1.10

Cost of Debt 4.8% LUMBER LIQUIDATORS HOLDINGS 1.2 - $2,075.79 - % 35.0% 1.22

Tax Rate 35.0% RESTORATION HARDWARE HOLDING 0.2 $85.4 $3,528.71 2.4% 35.0% 0.20

After-tax Cost of Debt 3.1% Mean 1.04 8.5% 0.99

Median 1.07 3.0% 1.02

Cost of Equity

Risk-free Rate 2.7% Mean Target Target

Market Risk Premium 6.0% Unlevered Debt/ Marginal Relevered

Levered Beta 1.41 Beta Equity Tax Rate Beta

Size Premium - % Relevered Beta 0.99 65.7% 35.0% 1.41

Cost of Equity 11.2%

WACC 8.0% 0.1 3.5% 4.0% 4.5% 5.0% 5.5%

20.0% 8.1% 8.2% 8.3% 8.3% 8.4%

30.0% 7.9% 8.0% 8.1% 8.2% 8.3%

40.0% 7.6% 7.8% 7.9% 8.0% 8.1%

50.0% 7.4% 7.5% 7.7% 7.9% 8.0%

60.0% 7.1% 7.3% 7.5% 7.7% 7.9%

Deb

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-To

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Cap

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WACC Calculation Comparable Companies Unlevered Beta

ValueCo Relevered Beta

WACC Sensitivity Analysis

Pre-tax Cost of Debt

Sensitivity Analysis




7.0% 4,631$ 17,430$ 24,320$ 27,929$ 22,061$ 28,951$ 32,560$

7.5% 4,588 15,668 21,199 23,964 20,256 25,787 28,553

8.0% 4,546 14,184 18,711 20,891 18,729 23,257 25,437

8.5% 4,504 12,918 16,684 18,441 17,422 21,188 22,945

9.0% 4,463 11,826 15,001 16,444 16,289 19,464 20,908




1.5% 3.0% 3.5% 1.5% 3.0% 3.5%

7.0% 4,093$ 17,968$ 24,858$ 28,468$ 93.58$ 129.47$ 148.27$

7.5% 4,093 16,163 21,694 24,460 84.18 112.99 127.40

8.0% 4,093 14,637 19,164 21,344 76.23 99.81 111.17

8.5% 4,093 13,329 17,095 18,853 69.42 89.04 98.19

9.0% 4,093 12,197 15,372 16,815 63.53 80.06 87.58

DCF Sensitivity Analysis for Bed Bath & Byond IncDollars in millions, except per share




7.0% 4,631$ 10,897$ 12,500$ 14,103$ 15,529$ 17,131$ 18,734$

7.5% 4,588 10,661 12,229 13,797 15,249 16,817 18,385

8.0% 4,546 10,432 11,966 13,500 14,977 16,511 18,045

8.5% 4,504 10,208 11,709 13,210 14,712 16,213 17,714

9.0% 4,463 9,990 11,459 12,928 14,453 15,922 17,391



6.8x 7.8x 8.8x 6.8x 7.8x 8.8x

7.0% 4,093$ 11,436$ 13,039$ 14,641$ 59.56$ 67.91$ 76.26$

7.5% 4,093 11,157 12,725 14,293 58.11 66.28 74.44

8.0% 4,093 10,885 12,419 13,953 56.69 64.68 72.67

8.5% 4,093 10,619 12,121 13,622 55.31 63.13 70.95

9.0% 4,093 10,361 11,830 13,299 53.96 61.61 69.26

BBBY presentation 7 9-2014 Value Investment

Business

Transcript of BBBY presentation 7 9-2014 Value Investment