Bed Bath Finds it Must Go Beyond Just Good

Don Hogsett, January 2, 2006

Union, N.J. — Helped by wider margins and a big chunk of change it earned on money it has in the bank, Bed Bath & Beyond recorded a third-quarter profit of $134.6 million, up 10.4 percent from $121.9 million last year.

But that wasn't enough for antsy investors who've come to expect more. So when same-store sales came in lower than expected last week — gaining 3.1 percent — investors headed for the exits, triggering a stampede in the stock and a 12-plus percent drop in its price.

Overall sales at the company climbed higher by 11.0 percent, to $1.4 billion, driven by continued expansion. And profits were in line with Wall Street expectations, at $0.45 per share.

Helping to fuel the earnings gain, average gross margin improved by 50 basis points, or half a percentage point, to 42.5 percent from 42.0 percent the prior year.

Costs rose 70 basis points to 28.3 percent of sales from 27.4 percent a year ago, largely from stock-based compensation costs due to early adoption of a new accounting standard. Pull that item out of the equation and operating costs actually declined by 10 basis points, or a tenth of a percentage point.

Earned interest on cash and investments was $9.6 million — slightly more than 7 percent of the total third-quarter profit.

At the close of the third quarter, the retailer had $1.3 billion in cash and securities — without taking on any debt.

Bed Bath & Beyond

Qtr. 11/26 (x000) 2005 2004 % change
a. Third-quarter results include interest income of $9.6 million, compared with $4.9 million during the same period a year ago. Results also include incremental stock-based compensation expense of $14.6 million due to the early adoption of an accounting standard.
b. Nine-month results include interest income of $24.7 million, compared to $11.7 million; an incremental stock-based compensation expense due to the early adoption of an accounting standard.
Sales $1,148,680 $1,305,155 11.0
Oper. income (EBIT) 205,493 190,978 7.6
Net income 134,620a 121,927a 10.4
Per share (diluted) 0.45 0.40 12.5
Average gross margin 42.5% 42.0%
SG&A expenses 28.3%b 27.4%
Nine months
Sales 4,124,283 3,680,032 12.1
Oper. income (EBIT) 574,254 508,793 12.9
Net income 374,925b 323,984b 15.7
Per share (diluted) 1.25 1.06 17.9
Average gross margin 42.1% 41.7%
SG&A expenses 28.2% 27.9%

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