We reaffirmed our Neutral stance on specialty retailer,
Bed Bath & Beyond Inc.
), based on the company's strong quarterly performance,
impressive outlook and store growth initiatives. However,
company's margin performance is a cause of concern, given the
soft trends witnessed of late.
Bed Bath & Beyond - a leading operator of merchandise and
home furnishing stores in the U.S. - enjoys a strong countrywide
network of more than 1,100 stores and has a focus on offering
merchandise to suit consumer preferences.
We remain impressed by 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
evinced by its first-quarter fiscal 2013 earnings that rose 4.5%
to 93 cents per share, benefiting from the performances of World
Market (Cost Plus Inc.) and Linen Holdings. Moreover, the
company's earnings were in line with the Zacks Consensus
This Zacks Rank #3 (Hold) company also witnessed sales growth
of 17.8% 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 $4.84-$5.01, while second-quarter fiscal 2013 earnings
per share are estimated to range from $1.11-$1.16. Net sales are
expected to rise 7% to 9% in the second quarter and 5% to 7% for
On the flip side, the company's margins remained soft during
the first 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
KAR Auction Services, Inc.
Five Below, Inc.
). All the stocks carry a Zacks Rank #2 (Buy).
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