We reaffirmed our Neutral stance on specialty retailer,
Bed Bath & Beyond Inc.
). On the one hand, while we remain buoyed by the company's
strong quarterly performance, impressive outlook and store growth
initiatives, on the other hand, falling margins remain a cause of
Bed Bath & Beyond - a leading operator of merchandise and
home furnishing stores in the U.S. - enjoys a strong countrywide
network of more than 1,400 stores and has a focus on offering
merchandise to suit consumer preferences.
We commend the company's initiatives of expanding and
renovating stores, boosting online presence, incorporating
technological advancements and revivifying its merchandise mix to
enhance productivity. Such measures bode well for future
Bed Bath & Beyond's efforts are paying off well, as
reflected in its second-quarter fiscal 2013 earnings that rose
18.4% to $1.16 per share, benefiting from the performances of
World Market (Cost Plus Inc.) and Linen Holdings. Moreover, the
company's earnings came ahead of the Zacks Consensus
This Zacks Rank #3 (Hold) company also witnessed sales growth
of 8.9% year over year, driven by the aforesaid acquisitions as
well as increase in comparable store sales and new store
Management projects fiscal 2013 earnings per share in the
range of $4.88-$5.01, while the third quarter earnings per share
are estimated to range from $1.11-$1.16. Currently, the Zacks
Consensus Estimates for third quarter and fiscal 2013 are $1.14
and $5.00 per share, respectively. Net sales are expected to rise
6% to 8% in the third quarter and 3.5% to 5.5% for fiscal
On the flip side, the company's margins remained soft during
the second quarter due to higher operating costs, increase in
coupons and their redemption, higher markdowns and shift in the
mix of merchandise sold to lower margin categories.
Going forward, we expect this weakness to continue due to
persistence of the above factors in fiscal 2013 as well as the
ongoing consolidation of World Market and Linen Holdings.
Other Stocks to Consider
Apart from Bed Bath & Beyond, other stocks that are worth
a look in the specialty retail sector include
Five Below, Inc.
). All of these carry a Zacks Rank #2 (Buy).
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