BBB Profits Up 25 Percent

Don Hogsett, Staff Staff, April 11, 2005

Still building sales at a double-digit pace, at the same time bulking up margins and hacking away at costs, Bed Bath & Beyond continues to cement its dominant position in home fashions retailing, pushing fourth quarter profits up a heady 25.5 percent, to $181 million from $144.2 million last year.

Pouring it on at the top line, the retailer drove sales up 13.1 percent, to $1.5 billion from $1.3 billion during the same period a year ago. Same-store sales improved 5.1 percent, building on a gain of 8.1 percent during the first quarter of last year.

Driving the earnings improvement, in addition to stronger sales, was a winning combination of fatter margins and thinning costs. Dropping cash to the bottom line at an unexpectedly rapid pace, average gross margin grew at a faster clip that in recent quarters, accelerating 90 basis points, or nine-tenths of a percentage point, to 44.3 percent from 43.4 percent a year ago. At 90 basis points, margin growth during the closing quarter was substantially ahead of the 50 basis point growth recorded during the third quarter of 2004.

At the same time wringing every cent it can out of its overhead, the retailer reduced operating costs 60 basis points, or six-tenths of a percentage point.

Dropping even more dollars straight to the bottom line, the retailer more than doubled the money it made on the cash it has in the bank and short-term investments. Interest income during the fourth quarter jumped 138.4 percent, to $7.1 million from $3 million the preceding year.

Wall Street and investors applauded the performance, pushing Bed Bath & Beyond stock up more than 11 percent in value, or $4.06 per share, to $40.80. Trading was unusually heavy, with almost 14 million shares changing hands, more than five times the average daily trading volume of 2.7 million shares.

For all of 2004, earnings climbed 26.4 percent, to $505 million from $399.5 million. Sales grew 15 percent, to $5.1 billion from $4.5 billion, while same-store sales rose 4.5 percent, compared with 6.3 percent growth the year before.

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