Disappointment surrounded third-quarter fiscal 2013 results of
the home-furnishing retailer,
Bed Bath & Beyond Inc.
), which sent the stock rolling down by 8.4% in the afterhours
trading session yesterday. Factors that impacted the reaction of
the market include lower-than-expected top and bottom line
performances, along with an unfavorable fourth-quarter and
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The company's after market results depicted a 3 cents miss as
earnings of $1.12 per share for third-quarter fiscal 2013
compared to the Zacks Consensus Estimate of $1.15. Top line of
$2,864.8 million also skidded from the Zacks Consensus Estimate
of $2,885.0 million.
Further deterring market sentiments, the company lowered its
fourth quarter and fiscal year forecasts for almost every
component of the income statement. Management now projects a
sales decline of 3.9% to 5.7% in the fourth quarter compared to
its prior expectations of a 2% to 4% decline. On a 13-weeks
comparable basis, excluding the effect of the additional 14th
week in fiscal 2012, net sales are now expected to range between
a 0.3% decline to 1.6% increase, while the company had earlier
expected a 1% to 3% rise.
Net sales for fiscal 2013 are expected to rise 5.4% to 6.0%,
while on a 52-weeks comparable basis it should register about
7.2% to 7.8% growth.
Comparable store sales (comps) for the upcoming quarter are
expected to reflect 2% - 4% growth compared to growth of 3.5% to
5.5% projected earlier. Comps projections for the second half of
fiscal 2013 are lowered to about 1.7% to 2.7% growth compared to
the previous forecast of 2% - 4% rise. For fiscal 2013,
comps are expected to increase in the 2.5% to 3.1% range.
On the cost side, the company retained its forecast for
depreciation in fiscal 2013 at $220.0 million. However, the
company altered its operating profit margin forecast, expecting
it to deleverage for both the fourth quarter and fiscal year.
Earlier, the company had projected flat operating margin for the
fourth quarter with only marginal deleverage in fiscal 2013.
Net interest expense for the fourth quarter is expected to
include about $2.2 million in World Market net interest expense,
mainly due to the addition of sale-leaseback obligations in
connection to its distribution facilities. Further, tax
provisions for the fourth quarter and full year are now projected
to be in the mid to high 30% range, compared to 37% guided
As a result, Bed Bath & Beyond now expects to deliver
fourth-quarter fiscal 2013 earnings per share between $1.60 and
$1.67 compared to $1.70 to $1.77 projected earlier. Moreover, the
company trimmed its fiscal 2013 earnings forecast to $4.79 to
$4.86 compared to $4.88 from $5.01 projected earlier.
Additionally, Bed Bath & Beyond slightly tweaked its capital
spending forecast, including that of World Market and Linen
Holdings, to $340 million for fiscal 2013 versus the prior
guidance of about $350 million. Capital expenditures for the year
are mainly slated for new outlets and existing store renovation,
information technology advancement and other important future
Quarter in Detail
Though top and bottom line results for the quarter remained below
expectations, they surpassed prior-year quarter results with
earnings rising 8.7% and sales growing 6.0% on a year-over-year
basis. The year-over-year rise in sales was primarily driven by
the inclusion of World Market and Linen Holdings, an increase in
comparable-store sales (comps) and new store openings.
Comps rose 1.3%, primarily driven by an increase in average
transaction amount, slightly offset by a decline in the number of
Gross profit came in at $1,121.7 million, up 4.4% from the
comparable year-ago level. However, gross profit margin for the
quarter declined 60 basis points (bps) to 39.2% from 39.8% in
third-quarter fiscal 2012. Margins suffered a downside mainly
driven by higher inventory acquisition costs, a rise in coupons
due to higher redemptions and average coupon amount, and mix
shift in products sold to lower margin categories, offset by
Selling, general and administrative (SG&A) expenses increased
4.9% year over year to $747.0 million and as a percentage of
sales it contracted 30 bps to 26.1%. The contraction in SG&A
expense as a percentage of sales was due to lower occupancy &
payroll and payroll-related costs, partially offset by higher
other store expenses, including depreciation as a percentage of
Consequently, operating margin contracted about 30 bps to 13.1%
from the prior-year quarter. However, in dollar terms, operating
profit increased 3.6% to $374.6 million.
Bed Bath & Beyond ended the third quarter with cash and cash
equivalents of $471.1 million compared with $672.3 million at the
end of the prior-year quarter. Moreover, shareholders' equity as
of Nov 30, 2013, stood at $4,129.8 million versus $3,977.1
million as of Nov 24, 2012.
During the quarter, the company repurchased nearly 2.3 million of
its outstanding shares, valued at about $171.0 million.
Therefore, as of third-quarter end, the company had nearly $1.7
billion remaining under its share repurchase program of $2.5
billion, authorized in Dec 2012.
In the third quarter, Bed Bath & Beyond inaugurated 5 Bed
Bath & Beyond stores, 2 Christmas Tree Shops or andThat!
stores and 3 World Market stores. As of Nov 30, 2013, the company
operated 1,011 Bed Bath & Beyond stores in all 50 states, the
District of Columbia, Puerto Rico and Canada; 269 World Market or
Cost Plus World Market stores; 76 Christmas Tree Shop or andThat!
stores; 86 buybuy BABY stores and 49 stores under the names
Harmon or Harmon Face Values, thereby bringing the total store
count to 1,491.
Additionally, Bed Bath & Beyond is in a joint venture
operating 4 stores in Mexico City under its namesake brand,
including 1 store opened so far in the fourth quarter of fiscal
Taking into account the 24 stores opened so far in fiscal 2013,
the company anticipates its total store openings for the year to
be nearly 33. Additionally, the company continues to renovate and
relocate its stores across all concepts.
Other Stocks to Consider
Bed Bath Beyond currently holds a Zacks Rank #4 (Sell).
Better-ranked stocks in the retail - Miscellaneous space include
Barnes & Noble Inc.
Big Five Sporting Goods Corp.
Tractor Supply Company
). Of these, Barnes & Noble carries a Zacks Rank #1 (Strong
Buy), while Big Five and Tractor Supply have a Zacks Rank #2