2. 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
3. •Company overview
•Investment thesis
•Catalysts
•Risks
•Why now?
•Price Target and range
•DCF
•Relative Value
•Summary
•Appendix
–IS, BS, CFS, WACC
Presentation Overview
4. 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.
5. 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
6. 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
7. 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
8. 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)
9. 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
10. 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
11. 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
Net additions
19
18
8
12
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
Net additions
0
264
1
6
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%
13. 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
14. 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
15. •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
16. • 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 Byond Inc
B = C Terminal Value Sensitivity
Residual at Exit Multiple of: Enterprise Value at Exit Multiple of:
7.8x 8.8x 6.8x 7.8x 8.8x
$ 9,691 $ 10,933 $ 12,172 $ 13,414 $ 14,657
9,481 10,696 11,956 13,172 14,387
9,276 10,466 11,745 12,935 14,124
9,077 10,241 11,540 12,704 13,868
8,884 10,022 11,340 12,479 13,618
E F Terminal Value Sensitivity
Value at Exit Multiple of: Per Share Value at Exit Multiple of:
7.8x 8.8x 6.8x 7.8x 8.8x
$ 9,322 $ 10,564 42.08 $ 48.55 $ 55.02
9,079 10,295 40.96 47.29 53.62
8,842 10,032 39.86 46.05 52.25
8,611 9,775 38.79 44.85 50.91
8,386 9,525 37.75 43.68 49.61
DCF Sensitivity Analysis for Bed Bath & Byond Inc
Dollars in millions, except per share
A + B = C 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 Equity 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
B = C Terminal Value Sensitivity
Residual at Growth Rate of: Enterprise Value at Growth Rate of:
3.0% 3.5% 1.5% 3.0% 3.5%
18,287 $ 21,001 $ 16,829 $ 22,010 $ 24,724
15,940 18,020 15,472 19,631 21,710
14,069 15,708 14,323 17,728 19,367
12,545 13,866 13,339 16,171 17,493
11,280 12,365 12,487 14,875 15,960
E F Terminal Value Sensitivity
Value at Growth Rate of: Per Share Value at Growth Rate of:
3.0% 3.5% 1.5% 3.0% 3.5%
17,918 $ 20,632 $ 66.34 $ 93.32 $ 107.46
15,538 17,618 59.27 80.93 91.76
13,635 15,274 53.28 71.02 79.55
12,079 13,400 48.16 62.91 69.79
10,782 11,867 43.72 56.16 61.81
A + B = C 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 Equity Value at Growth Rate of: Per Share Value at Growth Rate of:
Discount Rate Net Debt (1) 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
17. 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?
19. Financials Discounted Cash Flow Analysis for Bed Bath & Byond IncDollars in millions, except per shareHistorical Year Ending December 31,Projected Year Ending December 31,2014-201920122013201420152016201720182019CAGRSales$9,499.9$10,914.6$11,504.0$11,964.1$12,442.7$12,940.4$13,458.0$13,996.34.0% growth#REF!15%5%4%4%4%4%4% EBITDA1,763.11,857.11,833.41,795.81,953.52,031.62,112.92,197.43.7% Less: Depreciation(194.7)(218.8)(218.8)(240.5)(236.4)(245.9)(255.7)(265.9) Less: Amortization0.00.00.00.00.00.00.00.0Plus Capital Lease Obligations237.0279.0296.0206.4214.0214.0214.0214.0Adj. EBIT (1)1,805.31,917.31,910.61,761.81,931.11,999.82,071.22,145.52.3% 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)1,155.41,227.01,222.81,127.51,235.91,279.91,325.61,373.1Plus: Depreciation194.7218.8218.8240.5236.4245.9255.7265.9Plus: Amortization0.00.00.00.00.00.00.00.0Plus: Share-based Compensation47.247.256.258.460.863.265.768.4Less: 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$1,250.0growth-1%10%-17%12%12%4%4% Partial Period62.2%100.0%100.0%100.0%100.0% Stub-Adjusted UFCF$578.2$1,039.1$1,166.1$1,207.2$1,250.0Mid-year Convention9/8/20156/30/20166/30/20176/30/20186/30/2019UFCF per Share$4.84$5.41$6.07$6.29$6.51UFCF yield %8.73%9.75%10.94%11.33%11.73% (1) Adjusted EBIT does not deduct amortization of intangible assets. Growth and MarginsSales growth rate#REF!14.9%5.4%4.0%4.0%4.0%4.0%4.0% Gross margin41.4%40.2%39.7%39.0%39.0%39.0%39.0%39.0% SG&A24.9%25.2%25.7%26.0%25.2%25.2%25.2%25.2% R&D0.0%0.0%0.0%0.0%0.0%0.0%0.0%0.0% EBITDA18.6%17.0%15.9%15.0%15.7%15.7%15.7%15.7% EBIT19.0%17.6%16.6%14.7%15.5%15.5%15.4%15.3% Effective tax rate36.0%36.0%36.0%36.0%36.0%36.0%36.0%36.0% Depreciation2.0%2.0%1.9%2.0%1.9%1.9%1.9%1.9% Amortization0.0%0.0%0.0%0.0%0.0%0.0%0.0%0.0% Cap Ex2.6%2.9%2.8%23.0%21.0%20.0%2.8%2.8% Working Capital Investment17.9%11.7%10.6%31.8%30.4%12.2%12.2%12.2%
20. •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)
22. 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
24. Income Statement Income Statement for Bed Bath & Byond IncDollars in millions, except per share2014 - 2019Historical Year Ending March 01,Projected Year Ending March 01,CAGR20122013201420152016201720182019Sales$9,499.9$10,914.6$11,504.0$11,964.1$12,442.7$12,940.4$13,458.0$13,996.34.0% Cost of sales (excluding depreciation)5,569.06,525.86,938.47,298.17,590.07,893.68,209.48,537.8Gross Profit3,930.94,388.84,565.64,666.04,852.65,046.85,248.65,458.63.6% SG&A expenses (excluding amortization)2,362.62,750.52,951.03,110.73,135.63,261.03,391.43,527.1Other operating (income) / expense (194.7)(218.8)(218.8)(240.0)(240.4)(250.0)(260.0)(270.4) EBITDA1,763.11,857.11,833.41,795.31,957.52,035.82,117.22,201.93.7% Depreciation194.7218.8218.8240.0240.4250.0260.0270.4Operating Lease Obligations0.00.00.0206.4214.0214.0214.0214.0EBIT 1,568.31,638.31,614.61,761.71,931.11,999.82,071.22,145.55.9% Interest expense0.04.21.1206.4214.0214.0214.0214.0Interest (income)0.00.00.00.00.00.00.00.0Other (income)/expense0.00.00.00.00.00.00.00.0Pretax Income1,568.31,634.11,613.51,555.31,717.11,785.81,857.21,931.5Income taxes580.0596.3591.2559.9618.2642.9668.6695.3Net Income$988.4$1,037.8$1,022.3$995.4$1,098.9$1,142.9$1,188.6$1,236.23.9% Diluted weighted average shares (in millions)243.9227.8213.4198.0184.1171.3159.3148.1Earnings Per Share$4.05$4.56$4.79$5.03$5.97$6.67$7.46$8.3511.7% Ratios & AssumptionsSales growth rate14.9%5.4%4.0%4.0%4.0%4.0%4.0% Gross margin41.4%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) / expense2.0%2.0%1.9%2.0%1.9%1.9%1.9%1.9% Effective tax rate37.0%36.5%36.6%36.0%36.0%36.0%36.0%36.0%
25. Balance Sheet Balance Sheet for Bed Bath & Byond IncDollars in millions, except per shareHistorical Year Ending December 31,Projected Year Ending December 31,20122013201420152016201720182019Cash$1,003.2$565.0$366.5$237.9$254.4$379.4$445.1$553.1Accounts receivables, net756.4449.9489.3498.5518.4539.2560.8583.2Inventories2,298.22,466.22,579.02,827.52,940.63,058.23,180.63,307.8Other current assets311.5386.4379.8406.8410.6427.0444.1461.9Total Current Assets:4,369.23,867.53,814.63,970.74,124.04,403.84,630.54,905.9PP&E, net1,198.31,466.71,579.81,690.31,798.31,910.62,027.42,148.9Definite life intangibles, net0.00.00.00.00.00.00.00.0Indefinite life intangibles0.00.00.00.00.00.00.00.0Goodwill198.7483.5486.3486.3486.3486.3486.3486.3Other long-term assets287.6868.5874.24,575.74,517.64,468.74,469.94,471.4Total Assets:$6,053.7$6,686.1$6,754.9$10,722.9$10,926.2$11,269.4$11,614.2$12,012.5Accounts payable$752.1$913.4$1,104.7$1,155.5$1,098.4$1,142.4$1,188.1$1,235.6Accrued liabilities329.2393.1386.0425.7442.7460.4478.8498.0Other current liabilities587.1721.8735.3783.3814.7847.3881.2916.4Total Current Liabilities:1,668.32,028.32,226.02,364.62,355.82,450.12,548.12,650.0Revolver0.00.00.00.00.00.00.00.0Long-term debt: Deferred Rent & other Liabilities462.9565.0574.84,300.54,300.54,300.54,300.54,300.5Other long-term liabilities0.013.112.912.912.912.912.912.9Total Liabilities:2,131.22,606.42,813.66,677.96,669.26,763.46,861.46,963.3Total equity3,922.54,079.73,941.34,045.04,257.04,506.04,752.85,049.2Total Liabilities and Equity:$6,053.7$6,686.1$6,754.9$10,722.9$10,926.2$11,269.4$11,614.2$12,012.5Parity check (A = L+E)0.0000.0000.0000.0000.0000.0000.0000.000
26. NWC Working Capital Schedule for Bed Bath & Byond IncDollars in millions, except per shareHistorical Year Ending December 31,Projected Year Ending December 31,20122013201420152016201720182019Sales$9,499.9$10,914.6$11,504.0$11,964.1$12,442.7$12,940.4$13,458.0$13,996.3Cost of sales (excluding depreciation)5,569.06,525.86,938.47,298.17,590.07,893.68,209.48,537.8Working Capital BalancesAccounts receivables, net$756.4$449.9$489.3$498.5$518.4$539.2$560.8$583.2Inventories2,298.22,466.22,579.02,827.52,940.63,058.23,180.63,307.8Other current assets311.5386.4379.8406.8410.6427.0444.1461.9Total 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$4,352.8Accounts payable$752.1$913.4$1,104.7$1,155.5$1,098.4$1,142.4$1,188.1$1,235.6Accrued liabilities329.2393.1386.0425.7442.7460.4478.8498.0Other current liabilities587.1721.8735.3783.3814.7847.3881.2916.4Total 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$2,650.0NET 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)($65.5) Ratios and AssumptionsNumbers of days in the period360 cell is named "Days" Accounts receivables, net (collection period in days)28.714.815.315.015.015.015.015.0Inventories (days outstanding)148.6136.0133.8139.5139.5139.5139.5139.5Other current assets (as % of sales)3.3%3.5%3.3%3.4%3.3%3.3%3.3%3.3% Accounts payable (days outstanding)48.650.457.357.052.152.152.152.1Accrued liabilities (as % of cost of sales)5.9%6.0%5.6%5.8%5.8%5.8%5.8%5.8% Other current liabilities (as % of cost of sales)10.5%11.1%10.6%10.7%10.7%10.7%10.7%10.7%
27. WACC Armstrong World IndustriesWeighted Average Cost of Capital Analysis($ in millions) Target Capital StructurePredictedMarket Market Debt/MarginalUnleveredDebt-to-Total Capitalization 39.6%CompanyLevered BetaValue of DebtValue of EquityEquityTax RateBetaEquity-to-Total Capitalization 60.4%STAPLES INC1.0$1,000.2 $6,951.2 14.4% 35.0%0.95 ULTA SALON COSMETICS & FRAGR1.1- $5,905.0 - % 35.0%1.10 DICK'S SPORTING GOODS INC1.1$6.5 $5,652.9 0.1% 35.0%1.10 AUTOZONE INC0.6$4,013.3 $17,306.8 23.2% 35.0%0.56 OFFICE DEPOT INC1.8$696.0 $2,973.2 23.4% 35.0%1.56 HOME DEPOT INC0.9$14,691.0 $110,366.7 13.3% 35.0%0.85 LOWE'S COS INC1.0$10,086.0 $46,993.5 21.5% 35.0%0.86 PIER 1 IMPORTS INC1.5$9.5 $1,440.7 0.7% 35.0%1.54 TJX COMPANIES INC0.8$1,274.2 $36,440.7 3.5% 35.0%0.83 Cost of DebtWILLIAMS-SONOMA INC1.1$2.0 $6,656.8 0.0% 35.0%1.10 Cost of Debt 4.8%LUMBER LIQUIDATORS HOLDINGS1.2- $2,075.79 - % 35.0%1.22 Tax Rate 35.0%RESTORATION HARDWARE HOLDING0.2$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 Median1.07 3.0%1.02 Cost of EquityRisk-free Rate 2.7%MeanTargetTargetMarket Risk Premium 6.0%UnleveredDebt/MarginalReleveredLevered Beta1.41 BetaEquityTax RateBetaSize Premium - % Relevered Beta0.99 65.7% 35.0%1.41 Cost of Equity 11.2% WACC 8.0%0.13.5%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% Debt-to-Total Capitalization WACC CalculationComparable Companies Unlevered BetaValueCo Relevered BetaWACC Sensitivity AnalysisPre-tax Cost of Debt
28. Sensitivity Analysis
A + B = C Terminal 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% $ 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
- D = E F Terminal Equity Value at Growth Rate of: Per Share Value at Growth Rate of:
Discount Rate Net Debt (1) 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 Inc
Dollars in millions, except per share
A + B = C Terminal 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% $ 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
- D = E F Terminal Equity 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 $ 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