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Bed Bath goes beyond with 4Q profit surge

UNION, NJ — Blasting past Wall Street estimates and rushing to the head of the class in a dismal holiday season for most of American retailing, big-box pioneer Bed Bath & Beyond drove fourth-quarter profits up a palmy 33 percent, with sales climbing almost as fast.

Clearly dazzled by the better-than-expected performance, Wall Street rewarded the stock, sending it up by more than 8 percent in value in unusually heavy midday trading on the New York Stock Exchange last Thursday, hours after the news came out on the wire. Bed Bath & Beyond stock advanced by 8.4 percent, climbing by $2.06 to $26.69 per share. In an unusually strong performance in an otherwise battered retail sector, Bed Bath drove its profits up by 32.9 percent, to $64.3 million from $48.4 million last year.

Impressively, the retailer earned almost 9 cents in profit on every dollar of sales, generating a return on sales — profits measured as a percentage of sales — of 8.6 percent, managing to improve upon last year's 8.5 percent.

Measured against Wall Street's crucial yardstick, earnings came in at 22 cents per share, sailing past the 20 to 21 cents forecast by analysts canvassed by Thomason Financial/First Call.

Sales in the all-important Christmas quarter ended March 3 shot up by almost a third, rising by 31.1 percent, to $746.1 million from $569.0 million last year, fueled mostly by the chain's continued rapid expansion. Just as impressive, same-store sales advanced by 4.9 percent, after increasing by 9.6 percent in the year-ago period.

Cheered by the stronger than expected performance, Bank of America Securities stepped up the retailer's rating to a "buy" from a "market perform." In a morning research note, Bank of America took note of the retailer's "exceptionally strong quarter," with "comps up 4.9 percent against 9.6 percent last year, arguably the strongest in all of retail."

With margins holding relatively steady and costs down modestly, the retailer pushed its operating profits up by 29.8 percent, to $209.9 million from $161.1 million last year. Average gross margin came in at 41.8 percent, down slightly from 41.9 percent the prior year. Leveraging the stronger sales, costs declined by 20 basis points, to 28.1 percent of sales from 28.3 percent the previous year.

And doing better with its investments than most Americans these days, the company increased its interest income by 61.2 percent, to $3.5 million from $2.2 million a year ago. The retailer still owes no money, and instead of paying interest on debt actually makes money by investing some of its cash. The company's already strong cash position increased by 66.2 percent, to $239.3 million from $144.0 million a year ago.

Keeping a tight rein on its stockpiles, the retailer grew its stockpiles at a slower pace than sales, with inventories up by 29.0 percent, to $606.7 million, compared with the 31.1 percent increase in total sales.

For all of last year, Bed Bath & Beyond pushed earnings up by 31.0 percent, to $171.9 million from $131.2 million last year. Sales increased by 29.0 percent, to $2.4 billion from $1.9 billion, as same-store sales moved up by 5.0 percent, on top of 9.2 percent the prior year.

Gearing up to drive sales still higher during the company's 30th anniversary year, Len Feinstein, co-chairman and co-ceo, said the retailer plans to open about 80 new stores in 2001, up from the 70 stores and 2.4 million square feet opened this year. And placing a cheerful shot across the bows of the competition, Feinstein observed, "We continue to widen the performance gap between ourselves and our nearest competition."

Indeed, Bed Bath's profits soared up by 32.9 percent during the holiday quarter, compared to the strong 20.3 percent increase at rival Linens 'N Things. Sales improved by 31.1 percent vs. the 19.6 percent gain at Linens. A same-store sales gain of 4.9 percent was twice as strong as the 2.4 percent increase recorded at Linens 'N Things.

For all of last year, Bed Bath & Beyond profits climbed by 31 percent, compared with the robust 24.8 percent gain at Linens 'N Things. And Bed Bath's sales advanced by 29.0 percent vs. a 20.9 percent gain at Linens. Same-store sales at Bed Bath & Beyond rose by 5.0 percent vs. a 3.7 percent increase at Linens.

BED BATH BEYOND INC.

Qtr. 3/3 (x000) 2001 2000 %CHG
Sales $746,107 $569,012 31.1
Oper. income (EBIT) 101,898 77,138 32.1
Net income 64,315 48,392 32.9
Per share (diluted) 0.22 0.17 29.4
Average gross margin 41.8% 41.9%
SG&A expenses 28.1% 28.3%
12 months 2001 2000 %CHG
Sales 2,396,655 1,857,505 29.0
Oper. income (EBIT) 713,621 557,461 30.0
Net income 171,922 131,229 31.0
Per share (diluted) 0.59 0.46 28.3
Average gross margin 41.2% 41.3%
SG&A expenses 29.8% 30.0%

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