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Bed Bath profits not enough for the Street

UNION, N.J. — Even though second quarter profits climbed 23.5 percent at superstore retailer Bed Bath & Beyond, rising to $120 million from $97.2 million last year, Wall Street and stock watchers grew suddenly antsy by a slowing rate of sales growth and drove the high-flying stock down 3.5 percent in unusually heavy trading on the New York Stock Exchange in the first trading hours after the company put out the news yesterday.

By mid-afternoon on Thursday, Sept. 23, the stock had slumped $1.39 a share, to $38.19. More than twice as many shares as usual had traded hands on the Big Board, 5.4 million versus 2.6 million on an average trading day.

Raising concerns about whether the retailer can still justify the lofty premiums a growth stock typically commands, Bed Bath & Beyond said sales in the period increased 14.6 percent, to $1.3 billion from $1.1 billion last year — impressive, but still beneath the even more impressive gains of 23.1 percent during the second quarter of last year, or the 26.5 percent increase during the same period of 2002.

More to the point, same-store sales increased 4.8 percent during the second quarter of this year, well beneath the 5.9 percent gain during the same period a year ago, or the 8 percent increase put up during the second quarter of 2002.

During the quarter, BB&B continued to cut costs and fatten its gross margins, which grew 40 poercent to 41.7 thanks to lower inventory acquisition costs. The retailer's story opening schedule is barreling along as well, with 53 new stores planned to open by the fiscal year-end on top of 38 new stores opened through September. The second-half openings include two Christmas Tree Shops and four Harmon units.

Speaking during a conference call to review the results yesterday evening, Co-Chairman Warren Eisenberg said: A successful first half is now on the books. We continue to expect that 2004 will be our best year ever."

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