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Bed Bath & Beyond(NASDAQ:BBBY)
Q2 2021 Earnings Call
Sep 30, 2021, 8:15 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to Bed Bath & Beyond's fiscal 2021 second-quarter earnings briefing call. My proper noun is John. I'll be your operator for today'south call. [Operator instructions] Please note, the conference is existence recorded.

And I will now turn the telephone call over to Susie Kim, VP of investor relations. Susie, you may begin.

Susie Kim -- Vice President, Investor Relations

Thanks, and adept morning, everyone. Welcome to our fiscal 2021 2d-quarter earnings phone call. Joining united states of america today are Marker Tritton, our president and CEO; and Gustavo Arnal, our chief fiscal officer. Before we brainstorm, let me remind yous that our financial 2021 2d-quarter earnings release and slide presentation can exist found in the Investor Relations section of our website, bedbathandbeyond.com, and as exhibits to our related Form 8-K.

This conference phone call and the slides we refer to may contain forrad-looking statements, including statements most or references to our outlook regarding the company'due south performance, our internal models, and our long-term objectives. All such statements are subject to risks and uncertainties that could cause results to differ materially from what nosotros say during the call today. Please refer to our near contempo periodic SEC filings for more than detail on these risks and uncertainties, including the Run a risk Factors section in our annual report on Form 10-Thou and quarterly reports on Form 10-Q. The company undertakes no obligation to update or revise any forrard-looking statements.

Additionally, the information we will hash out today contains certain fiscal measures that exclude amounts or subject to adjustments but at the effect of excluding amounts that are included in the virtually directly comparable measure out prepared in accord with generally accepted bookkeeping principles. For a reconciliation to the most comparable measures presented in accordance with GAAP, please refer to the table in our earnings release available on our website and included as an exhibit to our Form 8-K filed today. It is now my pleasure to turn the phone call over to Marking.

Marker Tritton -- President and Chief Executive Officer

Thank yous, Susie, and good morning, everyone. Afterwards several consecutive quarters of delivering positively on our plans, the 2d quarter represented a confusing moment along our multi-yr transformational journey. While we continue to brand significant progress on our long-term strategies, our firsthand results met challenges stemming from both macroeconomic forces and internal execution factors. Nosotros delivered net sales of approximately $2 billion, resulting in a ane% comp pass up and reflective of a choppy quarter.

Following solid growth in June, nosotros saw an unexpected and substantial shift toward the end of the menstruum, which impacted our financial outcome. In August, the final and largest sales calendar month of Q2, traffic unexpectedly slowed, and therefore, sales did not materialize as we had anticipated. External disruptive forces such as the resurgence of COVID-19 cases and growing Delta fears created a challenging and volatile surround. This is particularly evident in large southern states, such as Florida and Texas equally well as California, which, in aggregate, represent approximately 30% of our total sales.

From July to August, traffic trends evolved in this state and worsened past double-digit percentages. The rapid reject in traffic was particularly detrimental for us given the inclusion and significance of August in our fiscal quarter versus our competitors. We are cognizant of comparisons to our peers who are on a July end reporting bike. As a proxy, our comparable sales grew an estimated 24% based on May, June, July, farther highlighting the importance of the trading month of August on our Q2 performance.

In diagnosing our quarter, in addition to the external forces we faced, we besides saw some internal execution issues that we are now addressing. There were opportunities where we should have been more effective in allocating marketing resources to stimulate and support traffic in stores and online. In an endeavor to diversify and shift our customer engagement toward online and social media channels, nosotros overcorrected and bid besides far from the cadre fundamental historical and current traffic drivers. For example, we disproportionately reduced the distribution of our printed circulars, which are a continuous and disquisitional store and digital traffic commuter for our Bed Bath & Beyond business.

Our recently combined brand and digital teams are quickly correcting class to rectify these issues for the end of the tertiary quarter and full year. Equally lower traffic impacted our ability to deliver sales, we operated under unprecedented supply chain weather that have continued to increasingly tighten global trade since last twelvemonth. Every bit the quarter progressed, particularly in August, weather condition worsened relative to our thoughtful preparations. The speed of industry inflation and lead time pressures outpaced our plans to offset these headwinds and as a result, we did non pivot fast enough, especially on price and margin recovery.

In response, we have leveraged our 2nd quarter experience to increase our agility and swiftly activate offsets to these high input costs and atomic number 82 times. Nosotros've taken several crucial steps to improve our second-one-half functioning, such every bit instituting more constructive margin controls through more than targeted pricing and promotional strategies. Nosotros are too pursuing even greater supply concatenation optimization. Our second-quarter operation, including the factors I've only discussed, take acquired u.s.a. to reframe our outlook for the full year.

The challenges nosotros faced in August have not abated in September. And surprisingly, the media and Wall Street discourse around worldwide freight shortages and port disruptions, things should have been overly chronicled in recent weeks. Yet, we have diagnosed the bug and adult strong plans to change our trajectory, recovering past Nov and delivering a stiff holiday is our key focus. Furthermore, despite this difficult business environs and moderating home category growth, our market share within the quarter remained steady sequentially month past month.

Every bit expected, we continue to exist below last year's level given the planned overall net sales decline due to our strategic closure of 200 stores under our fleet optimization initiative. Nosotros have a new baseline from which to grow, which farther emphasizes the importance of executing on our long-term objectives in improver to driving our near-term performance. At present turning to our central long-term initiatives. Our omni-always principle remains a cornerstone of our development.

For the group, we proceed to leverage our enhanced digital channel, which delivered a significant sales increment above 2019 at nearly double the proportion of sales. We are too edifice on the underlying foundation of the business. Equally part of our delivery to enhancing the client experience, we instituted cross-banner browsing across our unabridged grouping of concepts, including Bed Bath & Beyond, buybuy Infant, and Harmon. We wait forrard to further enabling cross-banner shopping and checkout soon.

Our omnichannel presence continues to grow equally well. During the quarter, we expanded our same-twenty-four hour period delivery reach by our new partnership with Roadie which is in addition to our existing capabilities with both DoorDash and Shipt. Nosotros keep to make significant progress against our store remodel plans. Our bold new remodels are showing early signs of cracking success.

We currently take approximately 70 stores remodeled out of our plan 130 to 150 to 2021, and they are performing higher up plan. The July reopening of our reimagined New York City flagship shop in Chelsea was a celebratory milestone for usa on our transformational journeying. Our Chelsea store serves equally a beacon for the overall redefinition of the new Bed Bath & Beyond. We've enhanced the client experience on many fronts, including fundamental national brand shopping shops and upgraded mobile shopping capability.

Operation at our Chelsea flagship is exceeding expectations on many levels, and it is now our nearly productive store in the chain per square foot. Momentum inside our own brands is growing in this showtime year of evolution. With the second quarter, we've now exceeded our own brand penetration goal for fiscal 2021 in total at more than 20% of overall sales, well ahead of schedule. Penetration is fifty-fifty higher in our new store remodels.

These new higher-margin owned brands are driving differentiation for Bed Bathroom & Across. In these early on stages, nosotros are attracting, engaging, converting new and existing customers and also seeing lower coupon zipper rate. Our next two owned brands are slated to launch in early October and November, marking our seventh and 8th brands for 2021. Also, encouragingly, buybuy Baby was a shining star for the group this quarter.

Edifice on several periods of consecutive positive momentum, baby comparable sales grew once again consistently by a loftier-teens per centum for the second quarter, signaling its fourth consecutive month of share gains versus last year. This functioning has been driven past particular growth in apparel and travel gear similar to the trends we're currently seeing across the retail sector. We are proud to be answering the needs of our customers along their parenting journey and plan to build our strengths through our key transformational pillars, including differentiated production strategies such as owned brands. Finally and importantly, our operational transformation remains on track.

We entered the adjacent phase of our supply concatenation modernization through our partnership with Ryder, which nosotros appear at the cease of July. In September, we opened our new Northeast regional distribution middle. These developments are instrumental to our end-to-end transformational strategy and will assist in the long-term control and protection from supply chain stress, such as those we are facing today. I will now turn the call over to Gustavo Arnal, our principal financial officer, to review both our 2nd-quarter financial results and our outlook for the third quarter and full year.

Mr. Arnal?

Gustavo Arnal -- Chief Fiscal Officer

Thanks, Mark, and good morning, everyone. To exist along with what Mark just discussed, I would like to underscore that we're acting speedily to offset and navigate the most-term macro supply chain challenges the entire industry is facing. It is also important to understand that even our current size and margin profile, the pocket-sized relative changes in cost, pricing and margin tin have a magnified impact on our earnings results. For perspective, 100 footing points of margin variation, which could stand from one% in cost changes or 1% of improvement from pricing or production mix are worth $80 million in EBITDA for the yr and approximately $0.50 EPS.

These exist on the upside, but also on the downside. As evident in our Q2 results, significantly higher than predictable and unprecedented trade increases led to our performance falling below expectation. Therefore, the actions we're implementing are of import as we manage cost pressures, specifically pricing, freight optimization and marketing intervention. With these in listen, I will cover our second-quarter results also as our third-quarter guidance and revised full-year outlook.

Every bit a reminder, every bit an expected, reported net sales connected to reverberate the touch from expected noncore imprint divestitures completed last year as well as our ongoing planned store armada optimization plan. Full internet sales were $1.985 billion and represented a small comp sales decline of 1%. Core banners were down 11%, which included a x% impact from our ongoing trade system program. Our digital channel represented 34% of full net sales, and we're pleased to see that our digital base continues to be a meaningful portion of our results with double the penetration versus pre-pandemic levels.

Shop comps delivered growth of 3%, given solid functioning in June, but lower in subsequent months due to slower traffic every bit the quarter progressed. In our Bed Bath & Across banner, comparable sales decreased 4% versus last year. While Back to College performance of 12% growth was solid on tiptop of strong growth last twelvemonth, we had expected to see even higher growth. As Marking noted, our buybuy Baby banner delivered exceptional results for the quarter, delivering comparable sales growth in the loftier teens percent versus last year exceeding our expectations.

Adjusted gross margin was 34%, 190 ground points lower than last year. This was driven by a 360 ground point drag from increased freight costs compared to last year, given the unprecedented supply chain challenges, particularly in July and August. This touch on far exceeded the significant 240 footing points increase nosotros had built into our plan. For example, we had anticipated container rates to increment more 100% relative to final twelvemonth, notwithstanding we ultimately incurred rates 150% higher as we acted with agility to ensure supply availability.

Increases similar these unfortunately first 170 basis points of positive merchandise margin expansion, especially fueled by own brand penetration. Worth noting, even with these outsized freight costs, gross margin is higher up 2019. SG&A dollar expense was in line with our original plan, but therefore, college as a pct of sales given our lower-than-expected revenue base of operations tardily in the quarter. As we go on to navigate the volatile operating environment for the balance of the year, we're focused on managing expenses appropriately while non sacrificing the strategic investments we must make to back up and drive our business transformation.

We delivered adjusted EBITDA of $85 million beneath our expectations, driven by the lower sales and gross margin performance of the quarter. We reported a GAAP EPS loss of $0.72 per diluted share. These results include approximately $77 million of specialized related to planned restructuring and intensive transformation initiatives. These are excluded from adjusted results to provide a more than authentic picture show of the underlying performance of our business organisation.

Every bit we progress alee through the initial stages of our transformation, we have planned for these charges to decrease over time. On an adjusted basis, EPS was $0.04, reflecting our lower EBITDA and the sensitivity dynamics I described earlier. Turning to our balance sheet and cash flow. We continue to demonstrate strong greenbacks and liquidity.

We generated $75 one thousand thousand in operating greenbacks menstruation during the quarter, driven by working upper-case letter improvement. Consequent with our capital resource allotment principles, we proceed to bulldoze our ongoing transformation initiatives. We invested approximately $76 million of capital in areas such as the store remodels supply chain and IT systems, which led to a neutral gratis cash flow position. Our greenbacks and investment residual remained strong at $1.1 billion.

Solidifying our majuscule availability further, we improved terms and increased our asset-based revolving credit facility to $1 billion in August, bringing our total liquidity to $2 billion. Nosotros continue to follow a balanced data-driven arroyo to render cash to shareholders. During the quarter, we executed approximately $100 million in share repurchases for approximately three million shares. Program to date, we have repurchased approximately $600 million or 20% of our shares outstanding.

Now I will discuss our guidance for the third quarter and revised outlook for the full year. First, on the third quarter, which covers the month of September, October, and Nov. So far in the month of September, we have not seen an improvement from the challenging traffic and sales trends nosotros experienced in Baronial. Having said that, like to final quarter, the terminal month of this quarter, November, is the largest and most impactful.

We are committed to being transparent and want to be explicit. November has historically represented nearly half of the sales for Q3 due to the fans gaming sales period, inclusive of the Blackness Fri selling menstruation. Our 3rd-quarter guidance take into account September trends, including the supply chain challenges we're experiencing every bit well as the importance of the month of Nov. We are expecting approximately flat comparable sales for Q3.

Accordingly, net sales are expected to be in a range of $1.96 billion to $2 billion. Once again, divestitures and fleet optimization will continue to bear upon year-on-twelvemonth comparisons. In terms of macroeconomic factors, nosotros're not anticipating an comeback to the unprecedented global supply chain conditions that exist today. We're exercising caution on the near-term pressures related to rising toll aggrandizement and the ongoing tightening of supply availability.

Visibility across the manufacture remains complex and whatsoever other sudden and dramatic worsening would be difficult to predict or estimate accurately. Nosotros're acutely aware of these factors that are exterior our control, which is why we're hyper-focused on offsetting inflation with the strategic pricing and promo optimization actions. With these factors in mind, nosotros wait adjusted gross margin in the range of 34% to 35%. Given our sales and gross margin expectations, adjusted EBITDA is estimated to exist in a range of $eighty one thousand thousand to $85 million, leading to an adjusted EPS range of $0 to $0.05.

Based on our performance for the first half of the year likewise as our expectations for the tertiary quarter, we feel it is appropriate to revise our guidance for the total yr. We now expect cyberspace sales in the range of $eight.1 billion to $eight.iii billion based on comp sales growth of flat to slightly positive for the 2nd through quaternary quarter. For modeling purposes, this translates to a double-digit total fiscal-year comp. Adjusted gross margin for the twelvemonth is now expected to be in a range of 34% to 35%, compared to our previous expectation of approximately 35%.

SG&A is now expected to exist approximately 32% of total cyberspace sales. In line with our revised sales and gross margin expectations, adjusted EBITDA is at present expected to exist in a range of $425 million to $465 1000000. This translates to an adjusted EPS range of $0.70 to $1.x. Our balance sheet and cash flow assumptions remain largely unchanged, including capex of approximately $400 million, a gross debt-to-EBITDA leverage ratio of approximately three times and plans for a full of $325 million in share repurchase for the full year or approximately $100 meg for the remainder of the year.

We have also provided additional assumptions on depreciation and amortization, interest and taxation charge per unit in today's presentation to assist with EPS modeling. Despite the backdrop of the current operating surround, our guidance reflecting media mitigation plans too as fundamental processes and strategies that are stronger today than in prior years. We take pivoted quickly to meliorate traffic across all channels and implement strategies that can get-go the cost increases that we're experiencing. Additionally, we should benefit from our ongoing initiatives, including the increasing penetration and growth of our new owned brands, better market-based prices, more effective data-driven promotion and markdown strategy and supply concatenation and freight optimization.

Despite the nigh-term turbulence that has led to update our guidance today, we're confident on the systemic progress we have and will keep to brand on our transformation. Even on a lower store and revenue base, peculiarly when because our divestitures, our core profitability for 2021 largely exceeds our profitability in 2019. Our gross margins are projected to be approximately 100 to 200 basis points higher. We are offsetting stranded overheads from divestitures.

Cadre EBITDA is anticipated to be flat or up to nearly ten% higher, again, on a smaller, more than streamlined-based business. This implies that earnings per share will take expanded by 1.5 to ii.5 times, further enabled past our commitment to shareholder return through our share repurchases. We are a healthier, more profitable enterprise today than we have previously been and are amend positioned to overcome the short-term volatility we're currently experiencing. I will now plough the call over to Mark for some closing remarks.

Mark Tritton -- President and Master Executive Officer

So as y'all can meet, we are a company executing a comprehensive turnaround while simultaneously navigating ever-changing macro business conditions, I want to thank our organization for the perseverance, diligence, and progress that is evident daily. I quarter does non define or derail our multi-twelvemonth strategic programme. The steps we are taking will get u.s. back on rail to achieve our near- and medium-term goal. Every bit always, with turnaround, our path volition be dynamic but we are confident and committed to our three-year goals and across.

Our foundation is potent strategically, operationally, and financially. As Gustavo discussed, our cash balance and liquidity provides ample resources in a higher place and beyond our already robust programme. With our strategy in play and the hard learnings from Q2, nosotros are well-positioned to keep delivering on our transformation. We have the plan, the team and the uppercase to unlock our potential.

We will at present take questions.

Questions & Answers:

Operator

Give thanks y'all. [Operator instructions] And our kickoff question is from Susan Anderson from B. Riley.

Susan Anderson -- B. Riley FBR Inc. -- Analyst

Hi. Good morning. Cheers for taking my question. I'thousand curious on the owned brands.

And then it sounds like they definitely did well in the quarter, reaching the 20% penetration. While that's a huge positive. I'g curious, are they impacting the pinnacle line at all given they would be lowered ticket versus branded product that you'd normally sell in their place? So also, maybe if you could simply talk about how much they helped with the gross margin in the quarter?

Marker Tritton -- President and Main Executive Officeholder

Yep. Thanks, Susan. Look, we are experiencing some transition in opening price point considering information technology is a completely new addition in our business. So with that and clearance markdowns, we did see AUR slightly lower and that was somewhat expected.

Only it is adding to that profitability disproportionately adding to that profitability that nosotros said 170 footing points of increase in margin bodes well for at present. And as we grow both own brands and the remainder of our initiatives, unfortunately outset by some of those freight charges we saw. And so we're very positive with the foundational strategy, how it'south implemented and we see but further growth from that initiative.

Susan Anderson -- B. Riley FBR Inc. -- Analyst

Groovy. And then if I could just add one more than. I estimate just on the traffic front. I'grand curious merely your thoughts around increasing store traffic kind of during these slower shopping times? And then also, I'm curious what your plans are for holiday to bulldoze traffic into the stores and also the products.

Mark Tritton -- President and Chief Executive Officer

Yes. Look, one of the critical missteps we had during the quarter season was actually that we've called back fundamental vehicles that have been traditionally strong traffic drivers for both digital and stores and engaging our customers fifty-fifty with coupons. And that was really the reduction in circular, which was dramatically cut, and we didn't get clarity on that too much later in the quarter and it had a existent impact on traffic. That, coupled with the COVID issues that we saw, particularly in primal states that we were correlating the increase in the Delta variant growth as creating risk and business for customers was kind of a double dip that was within the quarter.

And so we're looking for issues that are systemic or erstwhile, and we feel similar that we can address both of those by readdressing our investments in marketing accordingly, and we're starting to exercise that as well as reaching out to our customers, engaging in them in those disquisitional geographical states. In terms of the vacation flow, we experience versus -- specially the 4th quarter of last year and the stop of 3rd quarter, we have a lot more tools in our tool chugalug to exist able to challenge that season and really drive growth. We've got array. We've got inventory direction.

We've got a revised marketing program. We'll have a improve balance of our digital and store business organisation. We're at 41% penetration in the 4th quarter final yr, and information technology was an unusual fourth dimension. And so nosotros've really added an -- of even convenience opportunities for our customers to engage with us.

And then we feel strongly about our plans today.

Susan Anderson -- B. Riley FBR Inc. -- Analyst

Great. That's really helpful. Thank you for all the details. Good luck for the rest of the year.

Mark Tritton -- President and Chief Executive Officeholder

Thank yous.

Operator

Our next question is from Simeon Gutman from Morgan Stanley.

Simeon Gutman -- Morgan Stanley -- Analyst

Hey, anybody. Hey, Mark. A high-level question is when you came to the business, in that location were some execution bug. This is right pre-COVID and you started fixing some things and COVID happened.

Y'all accelerated a lot of modify. The category had a big positive shift. And information technology looked like things were going in the correct direction, and so there was stimulus. You're very early on in your turnaround.

And I wanted to ask whether it may merely be a yr or 2 until nosotros start seeing more positive modify. I think there'southward a lot of things that are obscuring the surround, especially with stimulus. And the category doing well and you simply started launching your new brands. And I remember at Target, it took ane year, if not two, for the strategy to really blend.

Then curious if we're setting the expectations a footling too loftier here and possibly the turn in what your engineering may just take a bit longer to materialize.

Marker Tritton -- President and Chief Executive Officeholder

Await, I appreciate the comments, Simeon. Information technology's definitely true. Information technology is an evolutionary transformation and it is extensive. Simply we are making pregnant strides in that.

And again, in terms of setting the bar high, I call back that we believe we could have striking those goals. Nosotros're merely seeing some midterm problems here in terms of the Delta variant and its issue on the business concern, the supply chain pressures. And equally we outlined, some things in terms of our execution, we simply didn't get right. So I think that they are the baby steps of this transformation.

We're two quarters into a 12-quarter transformation plan. I concur with you that we're going to see greater momentum sequentially as we move through. This is just a near-term pain point for us. But I appreciate the annotate very much.

Simeon Gutman -- Morgan Stanley -- Analyst

Yep. And and then tin can y'all tell usa where y'all are, I guess, information technology may be an inning of the make launches of the, what you would call the transformation that you're architecting. What phase is that so we tin appreciate the timing a scrap better?

Marker Tritton -- President and Primary Executive Officer

Yep. Look, I'm not your sports guy, and I become thrown that one then I reframe it quickly, just say there's kind of a couple of central stages here that's established and reestablished, stabilize, optimize and actualize. And we have just launched and are near to launch several boosted owned brands in our kickoff year. Design, develop, ascertain and launch, eight brands within 2021.

So this twelvemonth is definitely our establishment year. And and then nosotros are getting traction with those brands. We're engaging with new and existing customers. We're seeing a lot of positive signs in that location.

We only see that growing. And I'd say we're in our opening stages with evolutionary stages to follow.

Simeon Gutman -- Morgan Stanley -- Analyst

OK. Thanks, everyone. Good luck.

Mark Tritton -- President and Master Executive Officeholder

Thank you.

Operator

Our side by side question is from Chris Horvers from J.P. Morgan.

Chris Horvers -- J.P. Morgan -- Analyst

Thanks. Good morning. So my first question is about September. Delta infections have moderated and you lot're hearing rebounds in the back half of September and in categories similar airlines and restaurants.

Then the commentary that September is not getting improve. Is it that the other states are deteriorating in the large three are improving? Or do you recall that maybe the abode furnishings category is moderating?

Mark Tritton -- President and Chief Executive Officer

We've definitely seen data around home finishings moderating. I think that nosotros're upwardly confronting some big -- peculiarly in the kitchen appliance surface area, some big LY comparisons with Q2 even going through into September. We are seeing some buoyancy in other markets and that's definitely effectually the markets didn't exist last year and we're performing like apparel and footwear and at that place's a diversification of spend in that location, including travel. And so I think the midterm spend is moderating out.

We're seeing traffic and search on domicile furnishing, slightly suppressed versus our expectations. That's full manufacture. Nosotros encounter that really sort of settling downward more into the end of third and through the quaternary quarter.

Chris Horvers -- J.P. Morgan -- Annotator

Got it. So maybe could y'all share what August and September comps were more than specifically? And then understanding November is a large part of the -- biggest part of the quarter, what -- similar what changes such that you tin can get back to a positive comp to flatten out the entire quarter.

Mark Tritton -- President and Chief Executive Officer

Well, I think one of the central changes, and I'll allow Gustavo weigh in on some of the more specifics. Simply one of the large changes in the back end of the third quarter is actually readdressing our drivers toward cardinal traffic. And really engaging the right amount of customers over again in our key venues like circular and electronic mail in the right way, which nosotros recognize was a cocky-inflicted wound. So that's completely different in its approach from what we're seeing in Q2.

Gustavo?

Gustavo Arnal -- Chief Fiscal Officer

Yes. Chris, to your question on August and September. In the month of Baronial, we saw mid-single digits to loftier single-digit comp pass up, and that'southward what brought the quarter down to minus 1%. For the month of September, we're seeing so far, similar trend.

Again, the plans that we have in Oct and Nov is what requite united states of america the confidence to deliver on what we're projecting now for the third quarter.

Chris Horvers -- J.P. Morgan -- Analyst

Understood. Thanks so much.

Operator

Our next question is from Cristina Fernandez from Telsey Advisory.

Cristina Fernandez -- Telsey Advisory Group -- Annotator

Yeah. Skillful morning. I wanted to see if yous could expand on the mitigation efforts that you accept in identify, like maybe more details on what are y'all doing to offset some of the supply chain costs and other areas of the business you have more flexibility to rightsize the expenses of the investment.

Gustavo Arnal -- Primary Financial Officeholder

Cristina, Gustavo here. Look, we're taking several actions to mitigate the affect on gross margin, equally you saw, it was a significant herd year on year. Nosotros had planned for a large portion of that, just was higher. And then when y'all look sequentially from the second quarter into the tertiary quarter, nosotros're actioning pricing interventions.

We're also doubling downward in our promo and promotional optimization. And the team is also looking at optimizing freight routes, looking for alternating ports to minimize the impact from freights. And then those are two or three of the critical intervention to ameliorate margins, along with what Mark has described in terms of revenue.

Cristina Fernandez -- Telsey Advisory Group -- Analyst

And and then going a question, can y'all talk about your inventory flow with the supply chain challenges we're seeing in appurtenances taking longer to arrive. How practise you lot experience about the flow of inventory, the seasonal goods volition you lot take and then in time here for -- in Nov and the holiday season?

Mark Tritton -- President and Chief Executive Officeholder

Yes. I hateful, we definitely saw it through the quarter, Cristina, like acceleration of pressure in that location. Lead times and menstruation moving out 30 to 45 days. And we come across that really continuing into the beginning half of 2022, and we've taken steps to correct that.

Our in-stock rates are very solid. Nosotros're kind of at the same in stock charge per unit in September pretty much that nosotros were in June. So our teams take been working with their key national brand vendors remembering that while 20% of our penetration is owned brand, 80% is great national brands and so our partnerships there come into play. We're seeing some -- a couple of categories that are lagging due to raw material availability and, of grade, some of the shipping and freight problems.

But in general, in-stock rates are looking proficient. And then if you talk about recovery in the end of third and fourth, we did have some disquisitional out-of-stocks last yr that we've built plans around to recover, and that's one of our upside opportunities with -- still taking into consideration these lead time drags that are industrywide.

Cristina Fernandez -- Telsey Advisory Group -- Analyst

Thank yous.

Operator

Our next question is from Bobby Griffin from Raymond James.

Bobby Griffin -- Raymond James -- Analyst

Practiced morning, everybody. Thanks for taking my questions. I guess, beginning, Marker, I just wanted to talk about some of the underlying drivers there in gross margin, in particular, BOPIS. And now that stores are reopening, we're moving a fiddling bit more toward normal.

How is the BOPIS share of e-commerce correct at present? Is it staying pretty sticky? Or have yous seen whatsoever meaningful changes in that as stores are reopening and all that stuff?

Mark Tritton -- President and Chief Executive Officer

Yes. Look, they take remained steady and strong, Bobby. The other thing is nosotros've added an excellent same-twenty-four hour period delivery opportunities, which has really helped us and the customers really leaning into. And and so we experience very strongly that the ease and convenience that we've created throughout the last 12 months and most recently is as well one of our opportunities and strength going into this fourth quarter.

It's going to be a fight for getting the goods to the client and for the customer, and we think we take the correct menu to provide that. Only nosotros're very happy with how our customers are engaging digitally with us and using both BOPIS and same-day delivery.

Bobby Griffin -- Raymond James -- Analyst

OK. Then as a follow-up, Gustavo, just quickly on SG&A, it looks like if we take the midpoint dollar-wise of the prior guidance and the midpoint of the new guidance of SG&A on dollars, it picked up about $50 million. I was just curious, is that labor or what some of the underlying drivers of the cyberspace dollar increase in the SG&A guidance?

Mark Tritton -- President and Principal Executive Officer

Yep, Bobby, a big portion of that, the largest portion of that is some updates we've made on our depreciation and amortization guess. So no significant impact from EBITDA on that front. We feel good on how we're managing our SG&A. And if you compare to 2019 mail all of the divestitures, we've eliminated or we accept plans to eliminate all of the stranded overhead.

And so no significant motion in that location. We have seen some inflation to your question, and we've been working to showtime information technology to the best of our ability.

Bobby Griffin -- Raymond James -- Annotator

Thanks. Capeesh the details, and best of luck to your [Inaudible].

Marking Tritton -- President and Master Executive Officeholder

Thanks.

Operator

Our next question is from Brad Thomas from KeyBanc Uppercase.

Brad Thomas -- KeyBanc Capital Markets -- Analyst

How-do-you-do. Skillful forenoon. Thanks for taking my question. The investor deck highlights a long-term 2-twelvemonth gross margin target of 38% and Gustavo and Marking, I was wondering if you could just talk a little scrap more about the drivers of that and your confidence in getting to that with some of the underlying initiatives y'all accept that are obviously very, very positive versus this backdrop where we are seeing a lot of inflationary pressures.

Gustavo Arnal -- Chief Financial Officeholder

Thank you lot, Brad. Await, we were very intentional on showing a 38% gross margin by 2023 as we said in Investors Mean solar day. If nosotros go on committed to that, nosotros tin go on to see in the line of sight of that. Our algorithm has not inverse in terms of driving own brand penetration, optimizing costs to become at least to that level.

What we're seeing now in the 2d quarter is, wait, significant freight cost increases well above what we had predictable. We had anticipated 240 basis points. Nosotros got 360 basis points. Nosotros're notwithstanding projecting some sequential increase in freight costs as we get from Q2 to Q3.

Only that'due south temporary in the long run as we recover it with price. We were -- nosotros could have been faster in our price recovery in the second quarter. We recognize that simply that's taking hold now in the third quarter and the fourth quarter. So our mid- to long-term plan remains intact and we feel expert about the transformation.

Marker Tritton -- President and Main Executive Officer

I'd just add there, Brad, I think that the sum of the role of that iii-yr plan actually come to fruition sequentially, as Gustavo mentioned. For example, every bit we see in our remodel stores, they are more profitable as we go into seeing college ain brand penetration and better shopping environments really contributing to higher sales. And then some of the parts comes to fruition as we move through '22 and beyond, and nosotros experience very confident about that 38% number.

Brad Thomas -- KeyBanc Capital Markets -- Analyst

That's great. And, Mark, if I could just follow up quickly on the competitive environment. It seems that the consumer is relatively salubrious. The competitive surround seems to be a bit more benign in terms of promotions.

I was just curious if that aligns with your observations and your data on competitors and mayhap if that creates a properties where you could have some opportunities if you get a petty more selective and targeted with some marketing and promotions.

Mark Tritton -- President and Chief Executive Officer

Yes, we do, Brad. I mean the data we look at the moment is, as we've talked about, is taking into consideration, we have had share declines, but that be natural and accounted for based on the shop closures. And so we had about an fourscore% drop in our revenue out of those. Nosotros've retained nigh 20% and and then our share has been stable and sequential.

That tells us the customer believes is nevertheless shopping up and we have category authorization that we can ignite farther. I do remember in the interim, based on these pressures that you come across with COVID, we are seeing some shift to interim shift to single-betoken destination shopping. So food and essentials driving choices at the outset. We think that that is a moment in time, and we think at that place's further opportunity to grow with the right targeted marketing equally you say.

Brad Thomas -- KeyBanc Capital Markets -- Annotator

Very helpful. Thank you so much.

Operator

Our next question is from Jenna Giannelli from Goldman Sachs. And we'll go to our adjacent question, Michael Lasser from UBS.

Atul Maheswari -- Goldman Sachs -- Analyst

Good morning. This is Atul Maheswari on for Michael Lasser. Thanks a lot for taking the questions. And so on the guidance, which is implying really an improvement in trends over the remainder of the third quarter into the holidays.

I only want to better understand as to what speak into that guidance, you lot did cite a slowdown in the category. And so are you expecting the reacceleration in the category for the rest of the year? And are y'all also expecting supply concatenation pressures to ease?

Marking Tritton -- President and Chief Executive Officer

So we're non expecting supply concatenation pressures to ease. Nosotros're only all-around the ameliorate cease to our plans. Merely for the states, nosotros see category growth and opportunity in the back quarters. Nosotros besides see that we can rectify in cocky-inflicted wounds that actually impacted our traffic drivers in Q2, and that'south rectified in the back end of Q3 through Q4.

We feel like we're amend positioned with inventory despite the challenges that nosotros've seen. Our assortment is stronger. The margin profile is stronger and we have a suite of date to make it easy and convenient for customers to shop that we didn't have concluding yr. So we have some upside potential in that.

And it's actually -- it's a unlike environment than the i we're facing at present or that we competed with in Q4 of last year outside of the fact that we do run across supply chain pressure level continuing, both in cost and lead time and build accountability for that.

Atul Maheswari -- Goldman Sachs -- Analyst

OK. And then equally my follow-upward, just circumvoluted back on freight hither. So a lot of your peers accept been calling out freight every bit a pressure indicate, but it merely seems like the magnitude of the touch on is significantly more [Inaudible]. So a, why is that the case? And so b, why would non corrective actions merely raising prices or some of the other cost-out measures that others are taking.

Why would they not taking earlier?

Marking Tritton -- President and Primary Executive Officer

Yes. Let's break it down. So we actually are announcing a quarter that is inclusive of an Baronial month that our competitors who are preannounced have not commented on, and we've seen a rapid change between the June, July, and August month on those freight pressures and delays, which I think volition give me well chronicled as everyone reaches out and share their full Q3 results. Nosotros, as nosotros stated, did take very assertive activeness to incorporate freight every bit a pressure betoken in our business, 240 basis points.

Simply as we saw it advance in the July to August period, even farther that again, we are noting in our August results that others have not in that location is pressure level across the board, and you will hear more nigh that from others. We did take a number of pricing interventions. I actually think that we weren't agile enough and we paid the price for that. And that's something that we're also correcting for third and fourth quarter, which should help us go forwards.

And then I just wanted to dispel the myth that we were sitting here dormantly and non reviewing any of those impacts. Nosotros have an apples and oranges and visibility to that, that we're sharing today compared to others.

Atul Maheswari -- Goldman Sachs -- Analyst

Thank you. Got information technology. Good luck with the remainder of the year. Give thanks you.

Operator

Our next question is from Seth Basham.

Seth Basham -- Wedbush Securities -- Analyst

Cheers a lot, and adept morning. I'd also like to touch on freight, if you lot don't mind. Just regarding how much of your entering ocean freight through you or through suppliers is contracted and what the outlook is in that location for freight costs over the next year.

Marker Tritton -- President and Primary Executive Officer

Seth, we're not going to get into the portion of what'south contracted, what's not constructed. We congenital our estimates looking at import freight, container costs, inbound freight and so outbound freight. We've seen increases beyond the board. It's been much, much more pronounced in the latter part of the quarter to Mark's bespeak effectually August, particularly in import costs.

And looking ahead, looking forward, we're seeing the cost now. We await them to remain high, though again, we look to optimize and where we cannot optimize the price recover with pricing. It's just gotten significantly tougher the terminal couple of months late into the quarter.

Seth Basham -- Wedbush Securities -- Analyst

OK. And as it relates to your ability to change pricing through represent what'due south happening with freight costs. Are y'all concerned, Marker, that toll increases will impact demand? How do you feel about the competitiveness of your pricing? Did competitors move upwardly on price and y'all stayed behind. And why didn't volume amend if that's the case?

Mark Tritton -- President and Chief Executive Officer

Yes. Expect, the data we're showing is that we were actually hypercompetitive on price, both in terms of mix and that first moving ridge opportunity. So our pricing alphabetize was actually beneath our competitors during the quarter. And I call back that that's a -- two points, Seth, one, is that we did enter into a lot of new price points and in a lot of new growth areas for us that really drove a lot of units and we saw very potent unit share across the board in the marketplace.

And we did not react fast enough to those prices and we're going to absorb those through. And we call back that's merely going to be a natural competitive environment. This is the new base plate, and then we're going to be competing on an equal ground that have been slightly backside and slightly slower and some of the pressure we involved and that nosotros don't run across going frontwards for third and 4th.

Seth Basham -- Wedbush Securities -- Analyst

All correct. Not bad. Thank you.

Operator

Our next question is from Justin Kleber from Baird.

Justin Kleber -- Robert Due west. Baird -- Analyst

Yes. Good morning, guys. Thanks for taking the question. Wanted to first ask only on the category disclosures and the debt.

The destination categories lagged the others for the beginning fourth dimension, I think, since you guys have been reporting those numbers. Is that merely a role of easier comparisons? Or are you seeing more of an impact within the destination categories as y'all transition to the endemic brands?

Marking Tritton -- President and Primary Executive Officer

Yes. It's a double dip hither. I recollect there are some key areas like kitchen nutrient prep that you lot run across that were actually impacted because of the size and the belt and the forcefulness of last twelvemonth. You lot're seeing areas like in door decor down that are actually in very potent transition every bit we move into our room resets for those spaces so that's a moment in fourth dimension.

And I think the other function of the reject were actually downward to us non reaching out to the customer in an effective way with the right girth and strength during the quarter. So probably three key factors there that take affected that, which we believe is a moment in time. We've besides seen some suppression in some of these categories versus LY because of the strength of dwelling category. Only we're doubling downward on our efforts to improve our ain performance in each of those categories.

Justin Kleber -- Robert W. Baird -- Annotator

OK. If I could but follow up on the BEYOND+ the trajectory of enrollment you lot're seeing there. I know correct now, the membership fee is being subsidized. So perhaps talk most the rationale behind doing so and how that influences sign-ups? And then just more than broadly, thinking back to the investor meeting last Oct, there were some discussions around piloting a new loyalty program.

Just curious if is at that place annihilation yous tin can share on that front?

Mark Tritton -- President and Chief Executive Officeholder

Yes. We've seen a lot of stability in the BEYOND+ membership profile. It is a strength for u.s.. It does pay dividends, simply we are continuing to look at a different bill of fare for everything from registry to loyalty to credit card because nosotros think we tin engage with the customer in a refreshed way.

Our new leadership under Rafeh Masood is taking that under his belt. We're not in test pilot mode. Nosotros're yet financing that, but we look forward to introducing something in '22.

Justin Kleber -- Robert W. Baird -- Analyst

Thank you.

Operator

Our next question is from Anthony Chukumba from Loop Capital.

Anthony Chukumba -- Loop Capital Markets -- Analyst

Proficient morning time. Thanks for taking my question. And so I understand the point about the fact that you practice accept that Baronial quarter cease. So in that location were some trends that you saw that some of your competitors did not see.

But I guess I'yard just trying to sympathize where y'all guys are from a market place share perspective because evidently, the housing marketplace is as stiff as it'south been in quite some fourth dimension, and you sell products for the home. So I would have thought that sort of the rising tide would lift all boats. So would just love some perspective maybe if yous can address this on looking at the three months comparable to the other retailers, where yous stood from a market share perspective?

Mark Tritton -- President and Chief Executive Officer

Yes. Look, market share for August is only only leaching in now. It is a slight lag, but we've been able to review that. What we saw over the period of time is like a slight decline -- pitiful, a very moderate growth across the sector and a failing growth by month within our June, July, and August flow.

What we mentioned earlier, Anthony, is that nosotros've seen stability in each of the key categories in terms of our share that does involve a level of understood decline because nosotros've exited a number of doors and reduced our overall growth sales profile. So we're seeing sales stabilization and getting our strategies in identify to really build back share growth every bit a key strategy. So expected share turn down, market relatively stable and apartment out send per calendar month very, very sequentially stable, but nosotros've got opportunities to ignite that further going frontward.

Anthony Chukumba -- Loop Capital Markets -- Analyst

That's very helpful. Good luck with the rest of the year. Thanks.

Mark Tritton -- President and Principal Executive Officer

Give thanks you, Anthony.

Operator

Our next question is from Carla Casella from JPMorgan.

Carla Casella -- JPMorgan Chase & Co. -- Analyst

Hi. One question. Your capex guide implies a big dorsum one-half pickup. Can you lot talk about the decline of that or maybe any major projects where that nosotros could see lumpy capex?

Gustavo Arnal -- Principal Financial Officeholder

Aye, Carla. It's in line with our programme in terms of accelerating our store remodels. I mean we're halfway through the store remodel programme this financial yr as nosotros accelerate and get into the crux of the ERP and Information technology system implementation as well as some of the supply chain plans equally we outset up our RDC. So is the capex profile by semester is in line with our plan.

Mark Tritton -- President and Master Executive Officer

Yep. I'd but say it's been pretty consequent forth, Carla. I call back that what you're seeing is like hockey stick at that place because we practise accept a period that we go dark to focus on our central holiday period. And that was congenital into our plans from 24-hour interval i, and and so we resume things like store remodels, IT, and supply concatenation.

And then full year remains the same every bit planned.

Operator

Our next question is from Jonathan Matuszewski from Jefferies.

Jonathan Matuszewski -- Jefferies -- Analyst

Great. Thank you for taking my question. Offset 1 was simply on back to school. It sounds like it was solid for you lot guys, but simply below expectation.

And then curious how much of the shortfall do you remember was maybe tied to some execution missteps versus potentially just the consumer non spending as much to the occasion potentially beyond all retailers in the industry. Just thoughts there.

Mark Tritton -- President and Chief Executive Officer

Yes. I recall that's a really good call, Jonathan. I remember that's the right summation. Nosotros were upward 12%, but nosotros had higher plans, and we expected a better consequence.

And and then we've learned a lot from that, and we recollect that our offers were solid. We tin can meliorate even further, but we accept to exercise a better job of outreach to the customer through marketing that we've discussed. I think the second part of it is, I think that spend in the quarter was after, and we actually were watching that, and we signaled that in July that we were seeing a delay. And we thought it was going to materialize much stronger in August and across, but it didn't.

And we saw a lot of -- back some figures around that there was super loftier determine into key discretionary categories like apparel and accompaniment that didn't occur concluding year. And therefore, people are getting those bumps in growth with dwelling was fairly moderate. And then plus 12 on a last year plus '21 is good. Nosotros could have and should take gained more growth and therefore more share, that'due south an opportunity for us going forward.

Jonathan Matuszewski -- Jefferies -- Annotator

Cracking. And and so just a quick follow-up on some of the pricing actions. I think you made a comment that maybe you lot guys didn't pivot quick enough on price during the quarter. I retrieve you did reference multiple pricing interventions during the quarter.

So just trying to understand, did you endeavour and get incrementally promotional to drive traffic? Or did y'all kind of heighten prices to offset the freight headwinds? Just trying to sympathise kind of where some of the issues resulted in terms of pricing.

Mark Tritton -- President and Main Executive Officer

Yes. I would say it'south very unlike to that, Jonathan. I think that we had a high charge per unit of action as we transitioned our rooms and our assortment that hit united states in the quarter. Simply more than importantly, we are non more promotional and we don't intend to be more promotional.

We tend to be more targeted with our promotions. And again, we've been doing that well over the last year, and we're doubling downwardly on that. I recall the opportunity for usa that we didn't exercise in full is the market started moving. If we expect at toll scraping and ensuring that we're in line with the market, nosotros were nether our competitors in some fundamental categories because we hadn't moved fast plenty to adjust our pricing accordingly based on some price inflation every bit well as freight inflation, and those started coming through thick and fast and a lot later than we expected with the velocity.

We're taking that into consideration as nosotros build in our plans for third and fourth and the deportment that we've taken.

Operator

[Operator signoff]

Duration: 58 minutes

Telephone call participants:

Susie Kim -- Vice President, Investor Relations

Mark Tritton -- President and Chief Executive Officer

Gustavo Arnal -- Master Financial Officer

Susan Anderson -- B. Riley FBR Inc. -- Analyst

Simeon Gutman -- Morgan Stanley -- Analyst

Chris Horvers -- J.P. Morgan -- Annotator

Cristina Fernandez -- Telsey Informational Group -- Analyst

Bobby Griffin -- Raymond James -- Analyst

Brad Thomas -- KeyBanc Capital Markets -- Analyst

Atul Maheswari -- Goldman Sachs -- Analyst

Seth Basham -- Wedbush Securities -- Analyst

Justin Kleber -- Robert Due west. Baird -- Annotator

Anthony Chukumba -- Loop Capital letter Markets -- Analyst

Carla Casella -- JPMorgan Chase & Co. -- Annotator

Jonathan Matuszewski -- Jefferies -- Analyst

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