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BBBY's Earnings Surge Y/Y, Meet Ests - Analyst Blog

By: Zacks.com
Posted: 4/11/2013 9:50:00 AM
Referenced Stocks: BBBY;COST;M;SHLD

Bed Bath & Beyond Inc. ( BBBY ) reported earnings of $1.68 per share for fourth-quarter fiscal 2012, up 13.5% from the year-ago quarter's earnings of $1.48 as well as came ahead of the company's guidance range of $1.60-$1.67. The company's earnings remain in line with the Zacks Consensus Estimate. Bed Bath & Beyond's earnings per share include the performances of World Market (Cost Plus Inc.) and Linen Holdings, which were acquired in June last year.

Quarter in detail

The Zacks Rank #3 (Hold) company's top line jumped almost 24.5% to $3,401.4 million in the fourth quarter from $2,732.3 million in the year-ago quarter. The year-over-year rise in sales was primarily driven by the acquisitions made last year as well as an increase in comparable-store sales (comps) and new store openings. Moreover, Bed Bath & Beyond's top line almost touched the Zacks Consensus Estimate of $3,402.0 million.

Comps rose 2.5%, primarily driven by an increased average transaction amount partially offset by the decline in number of transactions. Comps for the quarter exclude the results from the acquisitions of World Market and Linen Holdings.

Gross profit came at $1,394.9 million, up 19.9% from the comparable year-ago level. However, gross profit margin for the quarter declined 160 basis points (bps) to 41.0% from 42.6% in fourth-quarter fiscal 2011. Margins suffered a downside mainly due to increased coupons and their redemption, increased markdowns and shift in the mix of merchandise sold to lower margin categories.

Selling, general and administrative (SG&A) expenses surged 30.0% year over year to $796.8 million and as a percentage of sales it expanded 100 bps to 23.4%. During the quarter, Bed Bath & Beyond's higher payroll and occupancy expenses as well as higher advertising expenses led to an increase in SG&A expenses as a percentage of net sales.

Consequently, operating margin contracted about 260 bps to 17.6% from the prior-year quarter. However, in dollar terms, operating profit increased 8.6% to $597.8 million.

Fiscal 2012 Results

For fiscal 2102, Bed Bath & Beyond reported earnings of $4.56 per share, up nearly 12% from $4.06 per share earned in fiscal 2011, and surpassed the Zacks Consensus Estimate by a penny. Net sales for the fiscal escalated 14.9% to $10,914.6 million but missed the Zacks Consensus Estimate of $10,918.0 million.

Financial Position

Bed Bath & Beyond ended fiscal 2012 with cash and cash equivalents of $565.0 million compared with $1,003.2 million in fiscal 2011. Moreover, shareholder equity at fiscal-end stood at $4,097.7 million versus $3,922.5 million in the previous fiscal.

During the quarter, the company repurchased nearly 5.3 million of its outstanding shares, valued at about $305.0 million. Therefore, as of fourth-quarter end, the company had nearly $2.4 billion remaining under its share repurchase program of $2.5 billion, authorized in Dec 2012.

Stores Update

In the fourth quarter, Bed Bath & Beyond inaugurated 1 Bed Bath & Beyond store and 4 buybuy BABY stores. As of Mar 2, 2013, the company operated 1,004 Bed Bath & Beyond stores in all 50 states, the District of Columbia, Puerto Rico and Canada; 264 World Market, Cost Plus World Market, and World Market Stores; 74 Christmas Tree Shop or andThat! stores; 82 buybuy BABY stores and 47 stores under the names Harmon or Harmon Face Values, thereby bringing the total store count to 1,471.

Bed Bath & Beyond is also a partner in a joint venture, which operates 2 stores in the Mexico City market under the name "Home & More."

Stepping into the first quarter of fiscal 2013, Bed Bath has so far opened 2 Bed Bath & Beyond stores and 1 buybuy BABY store.

Management Guidance

Including the newly acquired businesses, management expects net sales to increase by 17% to 19% in the first quarter and by 5% to 7% for fiscal 2013. Further, the company projects a comparable store sales increase of 2% to 4% for both the first quarter and fiscal 2013.

On the cost side, the company expects depreciation in fiscal 2013 to be nearly $220.0 million. Additionally, the consolidation of World Market and Linen Holdings' financial results, the company's major capital initiatives, assumptions of an increase in coupons and continued mix shift toward low-margin categories is expected to deleverage operating profit margin for the first quarter of fiscal 2013.

Bed Bath & Beyond expects to deliver first-quarter fiscal 2013 earnings per share between 88 cents and 94 cents. Moreover, the company projects fiscal 2013 earnings per share to increase in the mid-single-digit to low-double-digit percentage range.

Moreover, Bed Bath & Beyond projects a total capital spending, including that of World Market and Linen Holdings, of about $350 million in fiscal 2013, mainly slated for new stores and existing store refurbishments, information technology enhancements and other important future projects. The company intends to open 45 new stores across all concepts in fiscal 2013.

Other Stocks to Consider

Bed Bath Beyond currently holds a Zacks Rank #3 (Hold). Other stocks worth considering in the retail industry are Macy's Inc. ( M ), Sears Holdings Corp. ( SHLD ) and Costco Wholesale Corp. ( COST ). Macy's and Sears hold a Zacks Rank #1 (Strong Buy), while Costco has a Zacks Rank #2 (Buy).



BED BATH&BEYOND (BBBY): Free Stock Analysis Report

COSTCO WHOLE CP (COST): Free Stock Analysis Report

MACYS INC (M): Free Stock Analysis Report

SEARS HLDG CP (SHLD): Free Stock Analysis Report

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