Bed Bath Boosts Profits Again

Don Hogsett, September 26, 2005

Union, N.J. — Helped by rising sales, stronger margins and interest on money in the bank — which by itself accounted for almost six percent of the entire second quarter profit at Bed Bath & Beyond — the retailer drove earnings up 17.8 percent, to $141.4 million.

Sales climbed 12.3 percent, to $1.4 billion from $1.3 billion — off its blazing pace of gains as high as 25 to 30 percent in earlier years — but still remarkably strong within the context of rising gas prices, an uncertain economy and eroding consumer confidence. Same-store sales, the tell-all gauge, rose 4.5 percent.

Providing a lift to the bottom line, in addition to the stronger sales, average gross margin widened 30 basis points, or three-tenths of a percentage point, to 42 percent from 41.7 percent during the same period a year ago. At the same time, costs were unchanged, when measured as a percentage of sales, at 26.8 percent.

Always important to the retailer's bottom line has been the absence of any long-term debt, and with it the crushing levels of interest expense that have throttled the earnings of so many other retailers, especially those trying to grow as rapidly as Bed Bath & Beyond.

Now it becomes abundantly clear that the lack of debt and interest expense is a remarkably potent plus for the retailer — the money it's managed to bank or invest is yielding a substantial amount of cash each fiscal quarter. During the second quarter alone, the retailer earned $8 million on long- and short-term investments, more than double the $3.7 million it earned in interest income during the year-ago second quarter. Indeed, that $8 million in interest income amounted to 5.7 percent of the retailer's entire quarterly profit of $141 million.

So just how much cash does Bed Bath & Beyond have lying around in banks generating ever more cash? As of the Aug. 27 close of the second quarter, the retailer reported $703.4 million in short-term investment securities, and another $353.5 million in long-term investment securities — a staggering total $1.1 billion — an amount almost equal to the $1.4 billion that it rang up at the register during the entire three-month period.

Bed Bath & Beyond

Qtr. 8/27 (x000) 2005 2004 % change
a. Second quarter results include $8.0 million in interest income, up 117.8 percent from $3.7 million last year.
b. Six month results include $15.1` million in interest income, up 123.1 percent from $6.8 million during the prior-year period.
Sales $1,431,182 $1,273,960 12.3
Oper. income (EBIT) 217,877 189,108 15.2
Net income 141,402a 120,008a 17.8
Per share (diluted) 0.47 0.39 20.5
Average gross margin 42.0% 41.7%
SG&A expenses 26.8% 26.8%
Six months
Sales 2,675,603 2,374,877 12.7
Oper. income (EBIT) 368,761 317,815 16.0
Net income 240,305b 202,057b 18.9
Per share (diluted) 0.80 0.66 21.2
Average gross margin 42.0% 41.6%
SG&A expenses 28.2% 28.2%

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