Oppenheimer Comments On Bed Bath & Beyond Following Stellar Earnings

Oppenheimer views Bed Bath & Beyond's BBBY Q4 report Wed. evening as nothing short of stellar. Q4 EPS of $1.12 easily topped a Street figure of $0.97. A further acceleration in sales and a reversal in gross margin trends fueled EPS upside. Citi had been concerned that higher input costs would weigh on margins and dampen management's outlook for 2011. Its assumptions proved too pessimistic. BBBY has a history of accurately assessing market conditions and guiding conservatively. Citi now views moderate gross margin degradation in 2011 as a "worst-case scenario" for the chain. BBBY is approaching peak operating margins, and shares are near the higher end of recent valuation parameters. BBBY's FY11 guidance implies EPS of $3.38-3.53, which is ahead of a consensus figure of $3.33. The company also expects operating margins to remain fairly consistent with the prior year, which suggests limited gross margin degradation. Citi is lifting its FY11 and FY12 forecasts to reflect the much stronger than expected performance in Q4 and management's confidence in maintaining operating margins in the upcoming year. Citi's rating on BBBY is Perform with a $58 PT BBBY is trading higher at $54.70