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Bed Bath ups profit, store count in Q2

Breezing through a soft economy that's grounded most other American retailers, Bed Bath & Beyond parlayed rapid expansion, stronger margins and lower costs into a big 28.8 percent jump in second-quarter profits, to $97.2 million from $75.5 million last year.

Driven by new store openings, sales at the home furnishings superstore ramped up by 23.1 percent, to $1.1 billion from $903.0 million, fueling most of the earnings growth. Same-store sales rose by 5.9 percent during the second quarter, but were somewhat held in check by the same malaise that's stung virtually all of its peers, and were modestly off the stronger year-ago pace of 8.0 percent.

Earnings came in at 32 cents per share on a fully diluted basis, besting a consensus Wall Street forecast of 30 cents per share. Looking to the back half of the year, the company forecasts full-year earnings of $1.25 a share, in line with Wall Street estimates. Sales for the current third quarter and for all of this year are expected to grow in the low-20-percent range, while same-store sales are forecast to grow by 3 percent to 5 percent.

Pushing sales higher, Bed Bath opened 16 new stores during the second quarter, and through the first six months of the year had opened 24 new doors. And in the weeks since the start of the current third quarter, the chain has already opened another nine units.

Providing a small uptick to sales were results of the Christmas Tree Shops chain, which the company acquired June 19, as well as the Harmon Stores, acquired earlier.

In a further lift to the bottom line, average gross margin widened by 30 basis points, or three-tenths of a percentage point, to 41.3 percent from 41.0 percent a year ago. Fueled by sales and margin growth, gross margin dollars improved by 24.0 percent, to $459.1 million from $370.3 million.

The retailer pushed expenses down by 50 basis points, or half a percentage point, to 27.3 percent of sales from 27.8 percent during the same period last year.

Bed Bath was especially mindful of inventory levels, which came in well beneath the rate of sales growth. Stockpiles increased by 11.5 percent in value, to $958.8 million from $859.9 million, substantially behind the 19.4 percent top-line growth.

Underlining an unusually strong balance sheet, the retailer continues to owe no money, and actually earns cash off its investments, though less than last year in a low interest-rate environment. Interest income was off by 27.1 percent, to $2.2 million from $3.0 million last year. Short-term investment securities at the end of the quarter totaled $65.3 million, while long-term investment securities totaled $119.8 million, adding up to $185.1 million in current investments. Cash on hand totaled $617.4 million, up 85.1 percent from $333.6 million last year.

Bed Bath & Beyond Inc.

Qtr. 8/30 (x000) 2003 2002 % change
Sales $1,111,445 $903,044 23.1
Oper. income (EBIT) 155,867 119,687 30.2
Net income 97,208 75,459 28.8
Per share (diluted) 0.32 0.25 28.0
Average gross margin 41.3% 41.0%
SG&A expenses 27.3% 27.8%
Six months
Sales 2,005,313 1,679,842 19.4
Oper. income (EBIT) 246,317 192,388 28.0
Net income 154,716 121,758 27.1
Per share (diluted) 0.51 0.40 27.5
Average gross margin 41.2% 41.0%
SG&A expenses 28.9% 29.5%


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