Bed Bath & Beyond Beats Estimate - Analyst Blog

Bed Bath & Beyond, Inc. (BBBY) reported better-than-expected third-quarter 2010 results on the heels of double-digit growth in sales and higher margins. Earnings rose 28% to 74 cents per share from the year-ago quarter earnings of 58 cents a share and handily surpassed its earnings guidance range of 61 cents to 65 cents per share.

Bed Bath & Beyond also outpaced the Zacks Consensus Estimate of 66 cents a share. The company has reported seven consecutive quarters of improving trends.

Quarterly Details

Bed Bath & Beyond's top line jumped 11.1% to $2,194 million from $1,975 million in the year-ago quarter. The company has been witnessing increasing trends in comparable-store sales. After falling 0.6% in the second quarter of fiscal 2009, comparable-store sales increased in the subsequent quarters. In the quarter under review, comparable-store sales climbed 7.0%. The company also beat the Zacks Consensus Estimate of $2,107 million.

Higher inventory acquisition cost coupled with a change in the mix of merchandise sold, which included lower-margin categories, led to a 20 basis-point decrease in gross margin to 40.9%. However, this was partially offset by a fall in coupon redemption. Bed Bath & Beyond's cost containment efforts led to lower selling, general and administrative expenses and advertising expenses, which eventually resulted in operating margin expansion of 150 basis points year over year.

Financial Position

Bed Bath & Beyond ended the quarter with cash and cash equivalents of $840.3 million compared with $854.6 million in the year-ago quarter. Bed Bath & Beyond repurchased $211 million worth of shares and ended the quarter with shareholders' equity of $3,798.9 million versus $3,398.4 million in the prior-year quarter.  

The company has also initiated a new share repurchase program of $2 billion which will start in early fiscal 2011 after the completion of the current share repurchase authorization. 

Stores Update

The company currently operates 976 Bed Bath & Beyond stores in 50 states, the District of Columbia, Puerto Rico and Canada, 66 Christmas Tree Shops stores, 40 buybuy BABY stores and 45 stores under the brands of Harmon or Harmon Face Values, thereby bringing the total store count to 1,127. The company added five Bed Bath & Beyond stores, five Christmas Tree shops and seven buybuy BABY stores in the reported quarter.  

Since November 28, 2010, the company has opened two additional Bed Bath & Beyond store and two buybuy BABY stores. Also, the company is a partner in a joint venture, which operates two stores in the Mexico City market under the name "Home & More."

Management Guided Sales and Comparable-Store Sales Outlook

Management now expects comparable-store sales to increase by a low single-digit percentage in the fourth quarter of fiscal 2010 due to tough comparisons in the second half. For fiscal 2010, the company expects comparable-store sales to increase in the mid single-digit percentage.

The company expects comparable-store sales to trigger net sales by a mid single-digit percentage in the fourth quarter of fiscal 2010 and a high single-digit percentage for fiscal 2010.  

Earnings Guidance

Bed Bath & Beyond expects to deliver fourth-quarter 2010 earnings per share between 91 cents and 95 cents. Fiscal 2010 earnings per share are expected to be in the range of $2.86 to $2.90.  

Zacks Estimate Trend

The Zacks Consensus Estimate on Bed Bath & Beyond's earnings for the fiscal year ending February 2011 is currently pegged at $2.80 per share and for the fourth quarter of fiscal 2010 at 93 cents a share.

Our Take

We believe that Bed Bath & Beyond's prudent inventory management, good customer service, continuous efforts to spur profitability and robust market share with a debt free balance sheet indicate that it is well poised for future growth.

However, Bed Bath & Beyond operates in a highly fragmented market and faces intense competition from department stores, discounters and mass merchandisers, national chains and specialty stores such as Hibbett Sports, Inc. (HIBB) and Sally Beauty Holdings Inc. (SBH).

Bed Bath & Beyond shares maintain a Zacks #3 Rank, which translates into a short-term Hold rating. Our long-term recommendation on the stock remains Neutral.

 
BED BATH&BEYOND (BBBY): Free Stock Analysis Report
 
HIBBET SPORTS (HIBB): Free Stock Analysis Report
 
SALLY BEAUTY CO (SBH): Free Stock Analysis Report
 
Zacks Investment Research