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Bed Bath & Beyond Coming Down to Earth?

Showing signs of coming down to Earth after a quarter century of explosive growth, and entering a new cycle of slowing earnings growth, Bed Bath & Beyond reported its most disappointing quarterly results since going public. First-quarter costs rocketed higher, operating profits actually fell, and overall earnings were up a skimpy 1.5%.

Indeed, if it weren't for the money it earned on what it put in the bank — $9.7 million, up 35.9% from $7.1 million during the prior-year quarter — earnings in the opening quarter would actually have declined, underscoring the growing importance of the retailer's investing activity as a profit center that creates a comfortable buffer during a transition period of plateauing growth.

Giving investors even less to cheer about, the retailer said in a conference call, it expects full-year earnings could come in slightly shy of expectations, at about $2.17 a share, beneath a consensus forecast of $2.19.

Wall Street and investors didn't take the news lightly and headed for the exit after the company put the news out after the closing bell on June 21, pushing the stock down more than 6% by mid-day. Within a week, traders had driven the stock down 10.7% to a 52-week low of $32.79 on June 28.

The stock has lost 29.8% of its value after sliding from a 12-month high of $46.99.

Sales continued to grow as the company continues to open new doors, rising by 12.2%, to $1.4 billion from $1.2 billion last year, and same-store sales remain strong, rising by 4.9%. On another strong note, BBB grew its margins by 50 basis points, or one half of a percentage point, to 42.3%.

The characteristically quiet retailer didn't have much to say publicly about the results, and pointed instead to a growing store base, with 10 new units opened during the quarter, giving it 819 stores, including 751 core Bed Bath & Beyond stores in addition to a smaller base of specialty doors, including Harmon Stores and Christmas Tree stores. Since the start of the second quarter, the retailer has opened three new Bed Bath & Beyond stores and a Christmas Tree Shops store, bringing the total number of doors to 823.

Warren Eisenberg, co-chairman of the board, focused on outright growth, saying the company sees the potential to grow its total store count to 1,300 units.

BED BATH & BEYOND

QTR. 5/27 (x000) 2006 2005 % chg
Sales $1,395,963 $1,244,421 12.2%
Oper. Income (EBIT) 148,750 150,884 -1.4
Net income 100,431 98,903 1.5
Per share (diluted) 0.35 0.33 6.1
Average gross margin 42.3% 41.8%
SG&A expenses 31.6% 29.7%


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