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Bed bath continues to go beyond in 3Q

Don Hogsett -- Home Textiles Today, December 24, 2001

UNION, NJ — Bulletproof, recession-proof and seemingly immune to the all the various ills afflicting most American retailers in a treacherous economic environment, superstore retailer Bed Bath & Beyond — and "super" may be the operative word — drove third-quarter profits up by more than 30 percent, while sales climbed higher by more than 26 percent.

Perhaps even more surprising, the retailer managed to improve every key performance metric in the midst of the most difficult retail environment in well more than a decade, with sales, profits, margins, costs and inventories all gaining strength.

Ramping up even further an already aggressive expansion program, the retailer built its sales by 26.2 percent, to $759.4 million from $602.0 million last year. Remarkably, it improved its same-store sales by 5.8 percent, actually besting its performance during the first six months of the year. And creating a new milestone, nine-month sales broke past the $2 billion mark, up from $1.7 billion the preceding year. Same-store sales for the nine months improved by 5.0 percent.

Building its sales, widening its margins and thinning out its costs, Bed Bath & Beyond pushed its profits higher by 30.2 percent, to $53.0 million from $40.7 million last year. Driving the bottom-line improvement, in addition to the stronger sales, the retailer whittled down its costs by 20 basis points, to 29.9 percent of sales from 30.1 percent a year ago. At the same time, margins gained strength modestly, rising by 10 basis points, to 41.0 percent from 40.9 percent.

Operating profits improved by 29.7 percent, to $83.7 million from $64.6 million, generating a double-digit operating margin of 11.0 percent, compared with 10.7 percent the prior year.

With its balance sheet still unburdened by any debt, not only does the company not pay any interest expense on debt, it's making a profit on the money it parks in the bank — $2.4 million in the third quarter, up 14.4 percent from $2.1 million last year. For the nine months year-to-date, its interest income shot up by 57.7 percent, to $8.6 million from $5.5 million.

And even as it opened new stores at an increasingly rapid rate, it held its stockpiles in check, with inventories rising by 23.6 percent, beneath the 26.2 percent increase in sales.

Strengthening every aspect of its operations over the past nine months, in a brutally punishing environment for most other chains, the retailer more than doubled its cash on hand, to $321.3 million from $140.9 million a year ago.

Looking ahead, the retailer said it plans to open about 88 new stores next year, as it continues to roll across the map. And it remains bullish about its ability to meet Wall Street's earnings expectations. In a conference call with investors last Thursday, president Steven Temares said, "We remain comfortable in our ability to achieve all of our performance and growth objectives for this year." A consensus forecast of Wall Street analysts pegs fourth-quarter earnings at 26 cents per share, and full-year earnings at 72 cents. For the first quarter of next year, earnings are forecast at 12 cents a share, and at 88 cents for all of 2002.

Bed Bath & Beyond Inc.

Qtr. 12/1 (x000) 2001 2000 % CHG
Sales $759,438 $602,004 26.2
Oper. income (EBIT) 83,749 64,592 29.7
Net income 52,964 40,665 30.2
Per share (diluted) (0.18) (0.14) 28.6
Average gross margin 41.0% 40.9%
SG&A expenses 29.9% 30.1%
Nine months
Sales 2,048,907 1,650,548 24.1
Oper. income (EBIT) 214,023 170,940 25.2
Net income 136,925 107,607 27.2
Per share (diluted) 0.46 0.37 24.3
Average gross margin 40.9% 40.9%
SG&A expenses 30.4% 30.5%

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