BB&B: Slower but still strong

Don Hogsett, June 23, 2003

Union, NJ — Still growing profits and sales at a strong double-digit pace, if not quite as fast as before, Bed Bath & Beyond drove first-quarter earnings up by 24.2 percent, to $57.5 million from $46.3 million.

Rolling out at an aggressive pace, the home furnishings superstore pushed sales higher by 15.4 percent, to $893.9 million from $776.8 million. And despite a difficult retail environment, Bed Bath improved its same-store sales by 4.4 percent, even up against last year’s big 13.2 percent increase.

Supporting the bottom line, in addition to stronger sales, the retailer kept hacking away at costs. Operating costs improved by 60 basis points, or six-tenths of a percentage point, to 31.0 percent from 31.6 percent a year ago.

At the same time, average gross margin grew modestly, by 10 basis points, or a tenth of a percentage point, to 41.1 percent from 41.0 percent the preceding year.

Watching its stockpiles carefully, inventories grew at a far slower pace than sales during the quarter, by 9.0 percent, compared with the 15.1 percent increase in sales.

Even though the retailer beat the Street with earnings per share of 19 cents vs. a consensus forecast of 18 cents, the stock took a drubbing the day the news came out when the retailer took a conservative stance on earnings going forward. In a conference call with analysts and investors, cfo Ron Curwin said he’s comfortable with analysts’ profit forecasts of 30 cents a share for the second quarter and $1.21 for all of 2003. He forecast same-store sales for all of 2003 will rise by 3 percent to 5 percent, with overall sales increasing in the mid-teens.

But investors have grown accustomed over the years to big upside surprises from the retailer and clearly hoped for more. In heavy trading, Bed Bath & Beyond stock was knocked down by almost 4 percent in value, or 3.7 percent, to $40.87, from $42.43.

And not all the analysts saw things the same way. Wachovia Securities downgraded the stock to “market perform” from “outperform,” based on valuation, saying the stock had reached a price target of $40.00 to $43.00 a share. At the same time, US Bancorp Piper Jaffrey, encouraged by the quarter, raised its price target for the company’s stock to $50.75 a share from $42, saying the retailer’s consistent profit growth “remains arguably the best in retail.”

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