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Management's Discussion of Results of Operations (Excerpts)

For purposes of readability, Zenith attempts to strip out all tables in excerpts from the Management Discussion. That information is contained elsewhere in our articles. The idea of this summary is simply to review how well we believe Management does its reporting. Also, this highlights what Management believes is important.

In our Decision Matrix at the end of each article, a company with 0 to 2 gets a "-1", and 3 to 5 gets a "+1."

On a scale of 0 to 5, 5 being best, Zenith rates this company's Management's Discussion as a 5.


Overview



Bed Bath & Beyond Inc. and subsidiaries (the “Company”) is an omnichannel 
retailer selling a wide assortment of domestics merchandise and home 
furnishings which operates under the names Bed Bath & Beyond (“BBB”), Christmas 
Tree Shops, Christmas Tree Shops andThat! or andThat! (collectively, “CTS”), 
Harmon, Harmon Face Values, or 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 
either in-store, online, with a mobile device or through a customer contact 
center. The Company generally has the ability to have customer purchases picked 
up in-store or shipped direct to the customer from the Company’s distribution 
facilities, stores or vendors. In addition, the Company operates Of a Kind, an 
e-commerce website that features specially commissioned, limited edition items 
from emerging fashion and home designers; One Kings Lane, an authority in home 
décor and design, offering a unique collection of select home goods, designer 
and vintage items; PersonalizationMall.com (“PMall”), an industry-leading 
online retailer of personalized products; Chef Central, a retailer of 
kitchenware, cookware and homeware items catering to cooking and baking 
enthusiasts; and Decorist, an online interior design platform that provides 
personalized home design services. 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, healthcare and other 
industries. Additionally, the Company is a partner in a joint venture which 
operates eight retail stores in Mexico under the name Bed Bath & Beyond.



The Company accounts for its operations as two operating segments: North 
American Retail and Institutional Sales. The Institutional Sales operating 
segment, which is comprised of Linen Holdings, does not meet the quantitative 
thresholds under U.S. generally accepted accounting principles and therefore is 
not a reportable segment.



The Company offers an extensive selection of high quality domestics merchandise 
and home furnishings across all channels, concepts and countries in which it 
operates and strives to provide a noticeably better shopping experience through 
best-in-class services and solutions.




The Company’s mission is to be trusted by its customers as the expert for the 
home and heart-felt life events. These include certain life events that evoke 
strong emotional connections such as getting married, moving to a new home, 
having a baby, going to college and decorating a room, which the Company 
supports through its wedding and baby registries, mover and student life 
programs, and its design consultation services. The Company’s ability to 
achieve its mission is driven by three broad objectives: first, to present a 
meaningfully differentiated and complete product assortment for the home, of 
the right quality product, at the right value; second, to provide services and 
solutions that enhance the usage and enjoyment of its offerings; and third, to 
deliver a convenient, engaging, and inspiring shopping experience that is 
intelligently personalized over time. The Company is undertaking a number of 
strategic initiatives to support each of these objectives, as well as to drive 
change across the organization in order to improve operational efficiencies and 
to create future growth. Through this focused approach, the Company believes it 
will further strengthen its competitive position to be the customer’s first 
choice for the home and heart-felt life events.




The integration of retail store and customer facing digital channels allows the 
Company to provide its customers with a seamless shopping experience. In-store 
purchases are primarily fulfilled from that store’s inventory, or may also be 
shipped to a customer from one of the Company’s distribution facilities, from a 
vendor, or from another store. Online purchases, including web and mobile, can 
be shipped to a customer from the Company’s distribution facilities, directly 
from vendors, or from a store. The Company’s customers can also choose to pick 
up online orders in a store, as well as return online purchases to a store. 
Customers can also make online purchases through one of the Company’s customer 
contact centers and in-store through The Beyond Store, the Company’s 
proprietary, web-based platform. These capabilities allow the Company to better 
serve customers across various channels.



Operating in the highly competitive retail industry, the Company, along with 
other retail companies, is influenced by a number of factors including, but not 
limited to, general economic conditions including the housing market, 
unemployment levels and commodity prices; the overall macroeconomic environment 
and related changes in the retailing environment; consumer preferences, 
spending habits and adoption of new technologies; unusual weather patterns and 
natural disasters; competition from existing and potential competitors across 
all channels; potential supply chain disruption; the ability to find suitable 
locations at acceptable occupancy costs and other terms to support the 
Company’s plans for new stores; and the ability to assess and implement 
technologies in support of the Company’s development of its omnichannel 
capabilities. The Company cannot predict whether, when or the manner in which 
these factors could affect the Company’s operating results.


The results of operations for the three and nine months ended November 25, 2017 
include Decorist since the date of acquisition, March 6, 2017.



The following represents an overview of the Company’s financial performance for 
the periods indicated:

• Net sales for the three months ended November 25, 2017 were $2.955 billion, 
relatively flat as compared with the three months ended November 26, 2016. Net 
sales for the nine months ended November 25, 2017 were $8.633 billion, a 
decrease of approximately 0.6% as compared with the nine months ended November 
26, 2016.


• Comparable sales for the three months ended November 25, 2017 decreased by 
approximately 0.3%, as compared to a decrease of approximately 1.4% for the 
three months ended November 26, 2016. For the three months ended November 25, 
2017, comparable sales consummated through customer facing digital channels 
continued to have strong growth over the corresponding period in the prior 
year, while comparable sales consummated in-store declined in the 
low-single-digit percentage range.




Comparable sales for the nine months ended November 25, 2017 decreased by 
approximately 1.7%, as compared to a decrease of approximately 1.1% for the 
nine months ended November 26, 2016. For the nine months ended November 25, 
2017, comparable sales consummated through customer facing digital channels 
continued to have strong growth over the corresponding period in the prior 
year, while comparable sales consummated in-store declined in the 
mid-single-digit percentage range.



Comparable sales include sales consummated through all retail channels which 
have been operating for twelve full months following the opening period 
(typically four to six weeks). The Company is an omnichannel retailer with 
capabilities that allow a customer to use more than one channel when making a 
purchase, including in-store, online, with a mobile device or through a 
customer contact center, and have it fulfilled, in most cases, either through 
in-store customer pickup or by direct shipment to the customer from one of the 
Company’s distribution facilities, stores or vendors.



Sales consummated on a mobile device while physically in a store location are 
recorded as customer facing digital channel sales. Customer orders taken 
in-store by an associate through The Beyond Store, the Company’s proprietary, 
web-based platform are recorded as in-store sales. Customer orders reserved 
online and picked up in a store are recorded as in-store sales. In-store sales 
are reduced by sales originally consummated from customer facing digital 
channels and subsequently returned in-store.



Stores relocated or expanded are excluded from comparable sales if the change 
in square footage would cause meaningful disparity in sales over the prior 
period. In the case of a store to be closed, such store’s sales are not 
considered comparable once the store closing process has commenced. One Kings 
Lane is excluded from the comparable sales calculation for the three and nine 
months ended November 25, 2017 and will continue to be excluded until after the 
currently in process re-platforming of One King Lane’s systems and integration 
of its support services have been in place for a period of time such that there 
would be a meaningful comparison in One Kings Lane’s sales over the prior 
period. PMall, Chef Central and Decorist are also excluded from the comparable 
sales calculation for the three and nine months ended November 25, 2017 and 
Chef Central and Decorist will continue to be excluded until after the 
anniversary of the respective acquisition. PMall will be included in the 
comparable sales calculation in the fourth quarter of fiscal 2017 as the 
anniversary of the acquisition passed in November 2017. Linen Holdings is 
excluded from the comparable sales calculations and will continue to be 
excluded on an ongoing basis as it represents non-retail activity.

• Gross profit for the three months ended November 25, 2017 was $1.041 billion, 
or 35.2% of net sales, compared with $1.093 billion, or 37.0% of net sales, for 
the three months ended November 26, 2016. Gross profit for the nine months 
ended November 25, 2017 was $3.110 billion, or 36.0% of net sales, compared 
with $3.233 billion, or 37.2% of net sales, for the nine months ended November 
26, 2016.


• Selling, general and administrative expenses (“SG&A”) for the three months 
ended November 25, 2017 were $932.7 million, or 31.6% of net sales, compared 
with $881.5 million, or 29.8% of net sales, for the three months ended November 
26, 2016. Selling, general and administrative expenses for the nine months 
ended November 25, 2017 were $2.686 billion, or 31.1% of net sales, compared 
with $2.528 billion, or 29.1% of net sales, for the nine months ended November 
26, 2016.


• Interest expense, net for the three and nine months ended November 25, 2017 
was $13.6 million and $49.4 million, respectively, compared with $18.3 million 
and $52.8 million for the three and nine months ended November 26, 2016.


• The effective tax rate for the three months ended November 25, 2017 was 
35.3%, as compared with 34.5% for the three months ended November 26, 2016. The 
tax rates included other discrete tax items resulting in net benefits of 
approximately $3.3 million and $6.0 million for the three months ended November 
25, 2017 and November 26, 2016, respectively.




The effective tax rate for the nine months ended November 25, 2017 was 38.4%, 
as compared with 36.2% for the nine months ended November 26, 2016. For the 
nine months ended November 25, 2017, the effective tax rate included the effect 
of the adoption of ASU 2016-09, Compensation – Stock Compensation (Topic 718): 
Improvements to Share-Based Payment Accounting, (“ASU 2016-09, Stock 
Compensation”), which increased income tax expense by approximately $9.4 
million. Also, the tax rates included other discrete tax items resulting in net 
benefits of approximately $8.5 million and $9.4 million, respectively, for the 
nine months ended November 25, 2017 and November 26, 2016.

• For the three months ended November 25, 2017, net earnings per diluted share 
were $0.44 ($61.3 million), as compared with net earnings per diluted share of 
$0.85 ($126.4 million) for the three months ended November 26, 2016. The 
decrease in net earnings per diluted share for the three months ended November 
25, 2017 is the result of the decrease in net earnings due to the items 
described above, partially offset by the impact of the Company’s repurchases of 
its common stock.




For the nine months ended November 25, 2017, net earnings per diluted share 
were $1.64 ($230.8 million), as compared with net earnings per diluted share of 
$2.76 ($416.4 million) for the nine months ended November 26, 2016. The 
decrease in net earnings per diluted share for the nine months ended November 
25, 2017 is the result of the decrease in net earnings due to the items 
described above, partially offset by the impact of the Company’s repurchases of 
its common stock. For the nine months ended November 25, 2017, net earnings per 
diluted share included the unfavorable impacts of the cash restructuring 
charges associated with the acceleration of the realignment of its store 
management structure of approximately $0.08, and the adoption of ASU 2016-09, 
Stock Compensation of approximately $0.07.



Capital expenditures for the nine months ended November 25, 2017 and November 
26, 2016 were $264.0 million and $276.4 million, respectively. In the first 
nine months of fiscal 2017, more than 40% of the capital expenditures were for 
technology projects, including investments in the Company’s digital 
capabilities, and the development and deployment of new systems and equipment 
in its stores. The remaining capital expenditures were primarily related to 
investments in stores, the Company’s new Las Vegas distribution facility, which 
began shipping to customers during the third quarter of fiscal 2017, and its 
new customer contact center in Florida. The Company continues to review and 
prioritize its capital needs and remains committed to making the required 
investments in its infrastructure to help position the Company for continued 
growth and success.



The Company continues to make the investments and add the resources necessary 
to position itself for long-term success. Key areas of investment include: 
continuing to improve the presentation and content as well as the 
functionality, general search and navigation across its customer facing digital 
channels; improving customer data integration and customer relations management 
capabilities; continuing to enhance service offerings to its customers; 
continuing to strengthen and deepen its information technology, analytics, 
marketing and e-commerce groups; and creating more flexible fulfillment options 
that will improve the Company’s delivery capabilities and lower the Company’s 
shipping costs. These and other investments are expected to, among other 
things, provide a seamless and compelling customer experience across the 
Company’s omnichannel retail platform.


During the nine months ended November 25, 2017, the Company opened 20 new 
stores and closed eight stores. The Company plans to continue to actively 
manage its real estate portfolio in order to permit store sizes, layouts, 
locations and offerings to evolve over time to optimize market profitability 
and will renovate or reposition stores within markets when appropriate. Over 
the past several years, the Company’s pace of its store openings has slowed, 
and the Company has increased the number of store closings. If the Company 
cannot reach acceptable terms with its landlords as leases come up for renewal, 
the Company would expect the pace of store closings to increase as a result of 
its assumptions regarding bricks and mortar store traffic in future years as 
well as the continuation of the Company’s market optimization strategy. As of 
November 25, 2017, the Company has opened 20 new stores, with the potential of 
two or so more openings before the end of fiscal 2017. Also, the Company plans 
to close approximately 15 stores, all of which would result in a net reduction 
of five BBB stores in fiscal 2017. Additionally, the Company expects to 
continue to invest in technology related projects, including the deployment of 
new systems and equipment in its stores, enhancements to the Company’s customer 
facing digital channels, ongoing investment in its data warehouse and data 
analytics and the continued development and deployment of a new point of sale 
system.




During fiscal 2016, the Company’s Board of Directors authorized a quarterly 
dividend program. During the nine months ended November 25, 2017 and November 
26, 2016, quarterly dividends totaling $0.45 and $0.375 per share were declared 
by the Company’s Board of Directors, of which $0.30 and $0.25 per share was 
paid, respectively. Subsequent to the end of the third quarter of fiscal 2017, 
on December 20, 2017, the Company’s Board of Directors declared a quarterly 
dividend of $0.15 per share to be paid on April 17, 2018 to shareholders of 
record as of the close of business on March 16, 2018. The Company expects to 
pay quarterly cash dividends on its common stock in the future, subject to the 
determination by the Board of Directors, based on an evaluation of the 
Company’s earnings, financial condition and requirements, business conditions 
and other factors.



During the three and nine months ended November 25, 2017, the Company 
repurchased approximately 0.9 million and 6.0 million shares, respectively, of 
its common stock at a total cost of approximately $23.6 million and $207.3 
million, respectively. During the three and nine months ended November 26, 
2016, the Company repurchased approximately 1.8 million and 8.3 million shares, 
respectively, of its common stock at a total cost of approximately $76.0 
million and $375.5 million, respectively. The Company’s share repurchase 
program may be influenced by several factors, including business and market 
conditions. The Company reviews its alternatives with respect to its capital 
structure on an ongoing basis.



Results of Operations



Net Sales



Net sales for the three months ended November 25, 2017 were $2.955 billion, 
relatively flat as compared with net sales for the corresponding quarter last 
year, primarily due to a decrease of approximately 0.3% in comparable sales, 
offset by an increase in the Company’s non-comparable sales including One Kings 
Lane, PMall and new stores.



Net sales for the nine months ended November 25, 2017 were $8.633 billion, a 
decrease of $48.8 million or approximately 0.6% compared with net sales of 
$8.682 billion for the corresponding nine months last year, due to a decrease 
of approximately 1.7% in comparable sales, partially offset by an increase of 
approximately 1.1% in non-comparable sales including One Kings Lane, PMall and 
new stores.



The decrease in comparable sales for the three and nine months ended November 
25, 2017 was approximately 0.3% and 1.7%, respectively, as compared to a 
decrease of approximately 1.4% and 1.1% for the three and nine months ended 
November 26, 2016. The decrease in comparable sales for the three and nine 
months ended November 25, 2017 was due to a decrease in the number of 
transactions in stores, partially offset by an increase in the average 
transaction amount.



The Company’s comparable sales metric considers sales consummated through all 
retail channels – in-store, online, with a mobile device or through a customer 
contact center. Customers today may take advantage of the Company’s omnichannel 
environment by using more than one channel when making a purchase. The Company 
believes in an integrated and seamless customer experience. A few examples are: 
a customer may be assisted by an in-store associate to create a wedding or baby 
registry, while the guests may ultimately purchase a gift from the Company’s 
websites; or a customer may research a particular item, and read other customer 
reviews on the Company’s websites before visiting a store to consummate the 
actual purchase; or a customer may reserve an item online for in-store pick up; 
or while in a store, a customer may make the purchase on a mobile device for in 
home delivery from either a distribution facility, a store or directly from a 
vendor. In addition, the Company accepts returns in-store without regard to the 
channel in which the purchase was consummated, therefore resulting in reducing 
store sales by sales originally consummated through customer facing digital 
channels. As the Company’s retail operations are integrated and it cannot 
reasonably track the channel in which the ultimate sale is initiated, the 
Company can however provide directional information on where the sale was 
consummated.


For the three months ended November 25, 2017, comparable sales consummated 
through customer facing digital channels continued to have strong growth over 
the corresponding period in the prior year, while comparable sales consummated 
in-store declined in the low-single-digit percentage range. For the nine months 
ended November 25, 2017, comparable sales consummated through customer facing 
digital channels continued to have strong growth over the corresponding period 
in the prior year, while comparable sales consummated in-store declined in the 
mid-single-digit percentage range.



For the three and nine months ended November 25, 2017, comparable sales 
represented $2.825 billion and $8.257 billion of net sales, respectively. For 
the three and nine months ended November 26, 2016, comparable sales represented 
$2.843 billion and $8.367 billion of net sales, respectively.



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. Sales of domestics 
merchandise and home furnishings for the Company accounted for approximately 
35.7% and 64.3% of net sales, respectively, for the three months ended November 
25, 2017 and approximately 36.4% and 63.6% of net sales for the three months 
ended November 26, 2016. Sales of domestics merchandise and home furnishings 
for the Company accounted for approximately 37.0% and 63.0% of net sales, 
respectively, for the nine months ended November 25, 2017 and approximately 
37.3% and 62.7% of net sales for the nine months ended November 26, 2016.



Gross Profit



Gross profit for the three months ended November 25, 2017 was $1.041 billion, 
or 35.2% of net sales, compared with $1.093 billion, or 37.0% of net sales, for 
the three months ended November 26, 2016. The decrease in the gross profit 
margin as a percentage of net sales for the three months ended November 25, 
2017 was primarily attributed to, in order of magnitude: a decrease in 
merchandise margin; an increase in coupon expense, resulting from increases in 
redemptions and the average coupon amount; and an increase in net direct to 
customer shipping expense.



Gross profit for the nine months ended November 25, 2017 was $3.110 billion, or 
36.0% of net sales, compared with $3.233 billion, or 37.2% of net sales, for 
the nine months ended November 26, 2016. The decrease in the gross profit 
margin as a percentage of net sales for the nine months ended November 25, 2017 
was primarily attributed to, in order of magnitude: a decrease in merchandise 
margin; an increase in net direct to customer shipping expense; and an increase 
in coupon expense, resulting from increases in redemptions and the average 
coupon amount.



Selling, General and Administrative Expenses



SG&A for the three months ended November 25, 2017 was $932.7 million, or 31.6% 
of net sales, compared with $881.5 million, or 29.8% of net sales, for the 
three months ended November 26, 2016. The increase in SG&A, as a percentage of 
net sales was primarily attributable to, in order of magnitude: an increase in 
advertising expenses, due in part to the growth in digital advertising; an 
increase in technology expenses and related depreciation and an increase in 
payroll and payroll related items (including medical insurance).



SG&A for the nine months ended November 25, 2017 was $2.686 billion, or 31.1% 
of net sales, compared with $2.528 billion, or 29.1% of net sales, for the nine 
months ended November 26, 2016. The increase in SG&A, as a percentage of net 
sales was primarily attributable to, in order of magnitude: an increase in 
advertising expenses, due in part to the growth in digital advertising; an 
increase in payroll and payroll related items (including salaries); an increase 
in technology expenses and related depreciation; and the store management 
restructuring charges.



Operating Profit



Operating profit for the three months ended November 25, 2017 was $108.4 
million, or 3.7% of net sales, compared with $211.3 million, or 7.1% of net 
sales, during the comparable period last year. For the nine months ended 
November 25, 2017, operating profit was $424.2 million, or 4.9% of net sales, 
compared with $705.3 million, or 8.1% of net sales, during the comparable 
period last year. The changes in operating profit as a percentage of net sales 
were the result of the reductions in gross profit margin and the increases in 
SG&A as a percentage of net sales as described above.




The Company believes operating margin compression is likely to continue in 
fiscal 2017 as a result of several items, including, as a percentage of net 
sales, a decrease in merchandise margin and increases in, net direct to 
customer shipping expense; coupon expense; payroll and payroll-related expense; 
advertising expense; cash restructuring charges associated with the 
acceleration of the realignment of its store management structure; and 
technology expenses, including depreciation related to the Company’s ongoing 
investments. In addition, operating margin compression is likely to continue 
due to increases in the overall expense structure for the accelerated spending 
associated with the Company’s organizational changes and transformational 
initiatives, as well as the unfavorable impacts of Hurricanes Harvey, Irma and 
Maria.


Interest Expense, net



Interest expense, net for the three months ended November 25, 2017 was $13.6 
million compared to $18.3 million for the three months ended November 26, 2016. 
For the three months ended November 25, 2017 and November 26, 2016, interest 
expense, net primarily related to interest on the senior unsecured notes issued 
in July 2014. The decrease in interest expense, net was primarily the result of 
a $4.7 million favorable change in the value of the Company’s nonqualified 
deferred compensation plan (“NQDC”) investments. This favorable change was 
fully offset by a corresponding unfavorable change in the NQDC liability 
recorded in SG&A. These changes resulted in no net impact to the consolidated 
statement of earnings.



Interest expense, net for the nine months ended November 25, 2017 was $49.4 
million compared to $52.8 million for the nine months ended November 26, 2016. 
For the nine months ended November 25, 2017 and November 26, 2016 interest 
expense, net primarily related to interest on the senior unsecured notes issued 
in July 2014. The decrease in interest expense, net was primarily the result of 
a $2.6 million favorable change in the value of the Company’s NQDC investments. 
This favorable change was fully offset by a corresponding unfavorable change in 
the NQDC liability recorded in SG&A. These changes resulted in no net impact to 
the consolidated statement of earnings.



Income Taxes



The effective tax rate for the three months ended November 25, 2017 was 35.3% 
compared with 34.5% for the three months ended November 26, 2016. The tax rate 
for the three months ended November 25, 2017 and November 26, 2016 included net 
benefits of approximately $3.3 million and $6.0 million, respectively, due to 
discrete tax events occurring during these quarters.



The effective tax rate for the nine months ended November 25, 2017 was 38.4% 
compared with 36.2% for the nine months ended November 26, 2016. For the nine 
months ended November 25, 2017, the effective tax rate included the effect of 
the adoption of ASU 2016-09, Stock Compensation, which increased income tax 
expense by approximately $9.4 million. The effect of this adoption in fiscal 
2017 is expected to vary by quarter, and as anticipated, was heavily weighted 
toward the first quarter. The adoption of the standard does not affect the 
Company’s cash outflows for income taxes. Also, the tax rate for the nine 
months ended November 25, 2017 and November 26, 2016 included net benefits of 
approximately $8.5 million and $9.4 million, respectively, due to discrete tax 
events occurring during the first nine months of fiscal 2017 and 2016.



Potential volatility in the effective tax rate from year to year may occur as 
the Company is required each year to determine whether new information changes 
the assessment of both the probability that a tax position will effectively be 
sustained and the appropriateness of the amount of recognized benefit.




On December 22, 2017, H.R.1 - An Act to provide for reconciliation pursuant to 
titles II and V of the concurrent resolution on the budget for fiscal year 
2018, also known as the Tax Cuts and Jobs Act, (the “Act”) was enacted. The 
Company is currently reviewing the components of the Act and evaluating its 
impact, which could be material on the Company’s fiscal year 2017 consolidated 
financial statements and related disclosures, including a one-time, non-cash 
expense related to a decrease in the value of the Company’s net deferred tax 
assets.



Net Earnings



As a result of the factors described above, net earnings for the three and nine 
months ended November 25, 2017 were $61.3 million and $230.8 million, 
respectively, compared with $126.4 million and $416.4 million, respectively, 
for the corresponding period in fiscal 2016.



Growth



In the 24-year period from the beginning of fiscal 1992 to the end of the third 
quarter of fiscal 2017, the chain has grown from 34 stores to 1,558 stores plus 
the Company’s interactive platforms, including websites and applications, and 
distribution facilities. Total store square footage, net of openings and 
closings, grew from approximately 0.9 million square feet at the beginning of 
fiscal 1992 to approximately 43.8 million square feet at the end of the third 
quarter of fiscal 2017.



In addition, as of November 25, 2017, the Company has distribution facilities 
totaling approximately 7.2 million square feet, supporting the growth of its 
customer facing digital channels as well as its stores and its institutional 
sales segment. During the third quarter of fiscal 2017, the Company’s newest 
distribution facility in Las Vegas, Nevada began shipping to customers. The new 
facility will replace a smaller distribution facility in that area, which will 
close in late 2017, and provide additional capacity to support the growth of 
the Company’s customer facing digital channels.

The Company plans to continue to invest in its infrastructure and its 
operations, including its digital, web and mobile capabilities, to reach its 
long-term objectives, including providing a better omnichannel experience for 
its customers. As of November 25, 2017, the Company has opened 20 new stores, 
with the potential of two or so more openings before the end of fiscal 2017. 
Also, the Company plans to close approximately 15 stores, all of which would 
result in a net reduction of five BBB stores in fiscal 2017. Also, the Company 
is committed to the continued growth of its merchandise categories and channels 
and is growing the number of items it is able to have shipped directly to 
customers from a vendor. The continued growth of the Company is dependent, in 
part, upon the Company’s ability to execute these and other key initiatives 
successfully.




The Company has built its management structure with a view towards its growth 
and believes that, as a result, it has the necessary management depth.




Liquidity and Capital Resources



The Company has been able to finance its operations, including its growth and 
acquisitions, substantially through internally generated funds. For fiscal 
2017, the Company believes that it can continue to finance its operations, 
including its growth, cash dividends, planned capital expenditures, debt 
service obligations and share repurchases, through existing and internally 
generated funds. The Company believes it will end fiscal 2017 with 
approximately the same or slightly higher cash and investment balances than 
fiscal 2016. In addition, if necessary, the Company could borrow under its $250 
million revolving credit facility or the available balances under its lines of 
credit. Capital expenditures for fiscal 2017 are planned to be approximately 
$350 million to $400 million, subject to the timing and composition of 
projects, with approximately half for information technology projects in 
support of the Company’s growing omnichannel capabilities. In addition, the 
Company reviews its alternatives with respect to its capital structure on an 
ongoing basis.



Fiscal 2017 compared to Fiscal 2016



Net cash provided by operating activities for the nine months ended November 
25, 2017 was $491.8 million, compared with $744.2 million in the corresponding 
period in fiscal 2016. Year over year, the Company experienced a decrease in 
net earnings, and an increase in cash used by the net components of working 
capital (primarily accounts payable, partially offset by merchandise 
inventories and other current assets).



Retail inventory was approximately $3.1 billion as of November 25, 2017, a 
decrease of approximately 2.2% compared to retail inventory as of November 26, 
2016.



Net cash used in investing activities for the nine months ended November 25, 
2017 was $270.1 million, compared with $394.0 million in the corresponding 
period of fiscal 2016. For the nine months ended November 25, 2017, net cash 
used in investing activities was primarily due to $264.0 million of capital 
expenditures. For the nine months ended November 26, 2016, net cash used in 
investing activities was primarily due to $276.4 million of capital 
expenditures and $200.5 million of payments related to acquisitions, net of 
acquired cash, partially offset by $86.2 million of redemptions of investment 
securities.



Net cash used in financing activities for the nine months ended November 25, 
2017 was $257.6 million, compared with $392.6 million in the corresponding 
period of fiscal 2016. The decrease in net cash used in financing activities 
was primarily due to a decrease in common stock repurchases of $168.3 million, 
partially offset by an increase in the amount paid for dividends of $22.7 
million.



Seasonality



The Company’s business is subject to seasonal influences. Generally, its sales 
volumes are higher in the calendar months of August, November and December, and 
lower in February.



Quantitative and Qualitative Disclosures about Market Risk



The Company’s exposure to market risk for changes in interest rates relates 
primarily to the Company’s investment securities. The Company’s market risks at 
November 25, 2017 are similar to those disclosed in Item 7A of the Company’s 
2016 Form 10-K.



As of November 25, 2017, the Company’s investments include cash and cash 
equivalents of approximately $453.1 million and long term investments in 
auction rate securities of approximately $19.5 million at weighted average 
interest rates of 0.54% and 0.15%, respectively. The book value of these 
investments is representative of their fair values.



The Company’s senior unsecured notes have fixed interest rates and are not 
subject to interest rate risk. As of November 25, 2017, the fair value of the 
senior unsecured notes was $1.380 billion, which is based on quoted prices in 
active markets for identical instruments compared to the carrying value of 
approximately $1.500 billion.