Bed Bath Triumphs Again - Analyst Blog

By Zacks Equity Research,

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Bed Bath & Beyond Inc. ( BBBY ) reported a solid fourth-quarter 2011 with respect to earnings growth, cash flow generation and overall financial strength.

Earnings in the fourth quarter rose 32% to $1.48 per share from the year-ago earnings of $1.12 a share, handily surpassing its earnings guidance range of $1.28 and $1.33 per share. Bed Bath & Beyond also outpaced the Zacks Consensus Estimate of $1.33 per share.

In fiscal 2011, Bed Bath's earnings jumped 32% year over year to $4.06 per share, beating the Zacks Consensus Estimate of $3.91 per share.


Bed Bath & Beyond's top line jumped almost 9.1% to $2,732.3 million in the fourth quarter from $2,505.0 million in the year-ago quarter. The company's top line also outdid the Zacks Consensus Estimate of $2,659 million.

Full-year sales at Bed Bath leaped 8.5% to $9,499.9 million from $8,758.5 million reported last year. Yearly sales also swept past the Zacks Consensus Estimate of $9,430 million.

The company has been witnessing incremental trends in comparable-store sales for the past several quarters, with the last notable downside in comps dating back to the second quarter of fiscal 2009. In the current quarter, comparable-store sales rose 6.8% compared with an 8.5% rise in the previous-year quarter. For the whole of 2011, Bed Bath's comps registered an increase of 5.9% versus a 7.8% rise recorded in fiscal 2010. This upside in comp store sales for both periods came mainly from an increase in both the number of transactions as well as average transaction amount.

Quarterly Synopsis

Gross profit margin for the quarter declined 40 basis points to 42.6% from 43.0% in fourth-quarter 2010. Margins suffered a downside mainly due to a rise in inventory acquisition overheads, coupons, shrink and a shift in the mix of merchandise sold to lower margin categories, partially offset by a reduction in markdowns.

During the quarter, Bed Bath's lower payroll and occupancy expenses coupled with reduction in advertising expenses led to lower selling, general and administrative expenses as a percentage of net sales, which eventually resulted in operating margin expansion of about 180 basis points to 20.2% compared with the prior-year quarter.

Financial Position

Bed Bath & Beyond ended the year with cash and cash equivalents of $1,003.2 million compared with $1,183.6 million in the year-ago quarter. Moreover, shareholders' equity at year-end stood at $3,922.5 million versus $3,931.7 million in the prior-year quarter.

During the fourth quarter, the company repurchased nearly 5.9 million of its outstanding shares, valued at about $359 million. Therefore, as of year-end 2011, the company had nearly $919 million remaining under its share repurchase program of $2.0 billion, authorized in December 2010.

Stores Update

In the last quarter of 2011, the company inaugurated about 3 buybuy BABY stores, bringing the company's annual count of store openings, across all concepts, to 38 stores. Additionally, the company relocated 3 Bed Bath & Beyond stores and closed one Harmon store in the fourth quarter of 2011.

Stepping into 2012, Bed Bath has so far opened 2 Bed Bath & Beyond stores in the first quarter of 2012.

Including the 2 stores opened in 2012, the company currently operates 995 Bed Bath & Beyond stores in all 50 states, the District of Columbia, Puerto Rico and Canada; 71 Christmas Tree Shop stores; 64 buybuy BABY stores and 45 stores under the names Harmon or Harmon Face Values, thereby bringing the total store count to 1,175. Bed Bath & Beyond is also a partner in a joint venture, which operates two stores in the Mexico City market under the name "Home & More".

Management Guidance

Accounting for the additional 53 rd week in fiscal 2012, management forecasts a comparable-store sales increase of 2% to 4% for both first quarter and fiscal 2012. Consequently, the company expects comparable-store sales to boost net sales by 4% to 6% in the first quarter and 5% to 7% in fiscal 2012.

On the cost side, the company expects depreciation in fiscal 2012 to be in the $180 - $190 million range. All this coupled with assumptions of advertising expense similar to fiscal 2011 and continued mix shift toward low-margin categories is expected to keep operating profit margin at par with the year-ago levels in the first quarter and in the flat to deleveraged range in fiscal 2012.

Bed Bath & Beyond expects to deliver first-quarter 2012 earnings per share between 79 cents and 85 cents. Fiscal 2012 earnings per share are projected to increase by a high-single to a low-double-digit percentage, including one additional week this fiscal year.

Further, including the 2 stores opened in 2012, the company expects to open a total of 40 stores across all concepts in fiscal 2012. The company expects the 2012 mix of store openings by concept to remain similar to fiscal 2011.

Bed Bath projects a total capital spending of about $275 - $325 million in fiscal 2012, mainly slated for new stores and existing store refurbishments, information technology enhancements and other important future projects.

Our Take

A strong countrywide network of stores coupled with the strategic effort to align merchandise according to regional climate and demographics offer a strong competitive advantage for Bed Bath & Beyond, while also strengthening its well-established position in the market.

Bed Bath & Beyond operates in a highly fragmented industry and faces competition from larger retailers, such as Target Corporation ( TGT ) and Wal-Mart Stores Inc. ( WMT ) as well as from departmental and specialty stores.

Currently, Bed Bath & Beyond holds a Zacks #2 Rank, implying a short-term 'Buy' rating on the stock. The company retains a long-term 'Neutral' recommendation on the stock.

BED BATH&BEYOND ( BBBY ): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Stocks: BBBY , TGT , WMT

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