Bed Bath pushes 2Q sales, profits up

Don Hogsett, September 30, 2002

Still riding the crest of Americans' continuing preoccupation with sprucing up their homes, superstore retailer Bed Bath & Beyond drove third-quarter profits up a heady 39.9 percent while growing same-store sales a robust 8.0 percent.

Even in the midst of a prolonged slump in retail sales that has put the squeeze on most American retailers, the rapidly expanding home furnishings chain swelled its overall sales by 26.5 percent, to $903.0 million from $713.6 million last year. Even more importantly, the acid test of same-store sales rose by 8.0 percent. The superstore retailer is now well on its way to its first billion-dollar quarter.

And widening its margins while cutting its costs, Bed Bath pushed its profits higher by almost 40 percent, to $75.5 million from $54.0 million last year, or $0.26 a share, ahead of a consensus forecast of $0.23 per share.

Wall Street loves nothing more than earnings that beat expectations, and it rewarded the retailer by pushing up its stock by 2.9 percent in value, or $0.99 a share, to $34.67 in unusually heavy volume after the news came out. Cheering analysts and investors even more, the retailer said it expects to beat Wall Street earnings forecasts for the balance of this year.

The good news even spilled over on to a somewhat weaker rival, Linens 'n Things, whose stock price moved up by 4.4 percent, or $0.83 a share, to $19.68.

Helping to fuel the strong rise in profits, Bed Bath & Beyond engineered a steep decline in overhead costs, by 120 basis points, to 27.8 percent from 29.0 percent a year ago. At the same time, average gross margin was strengthened modestly, by 20 basis points, to 41.0 percent from 40.8 percent the prior year. Lifted by the two key performance metrics, operating profits climbed higher by 41.4 percent, to $119.7 million from $84.7 million. The retailer's operating margin — operating profits measured as a percentage of sales — climbed to an impressive level of 13.3 percent from 11.9 percent a year ago.

Despite adding one more link to a long chain of impressive financial performance, the superstore retailer showed that it's not immune to the same economic bug that's bitten most other U.S. retailers — it's just weathering the storm far better than its peers. While its performance remained impressive, it's somewhat off an even faster pace of growth achieved during the first quarter of the year, when profits shot up by 54.3 percent, sales climbed by 34.9 percent and same-store sales grew by 13.2 percent.

Keeping an eye on the overall retail environment, the retailer is clearly playing it safe and hedging its bets when it comes to building its stockpiles. Inventories rose by just 17.3 percent in the quarter, well behind the rate of sales growth of 26.5 percent.

Bed Bath & Beyond Inc.

Qtr. 8/31 (x000) 2002 2001 % change
Sales $903,044 $713,636 26.5
Oper. income (EBIT) 119,687 84,672 41.4
Net income 75,459 53,954 39.9
Per share (diluted) 0.25 0.18 38.9
Average gross margin 41.0% 40.8%
SG&A expenses 27.8% 29.0%
Six months
Sales 1,679,842 1,289,469 30.3
Oper. income (EBIT) 192,388 130,274 47.7
Net income 121,758 83,961 45.0
Per share (diluted) 0.40 0.28 42.9
Average gross margin 41.0% 40.8%
SG&A expenses 29.5% 30.7%

Featured Video

  • The Countdown to the ICON Honors Continues featuring Christophe Pourny

    Camera Icon More Videos