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Bed Bath & Beyond in profit doldrums

Union, N.J. -- With its go-go days now far behind it, Bed Bath & Beyond is coming down to earth, pushing-third quarter profits up a respectable 5.8%, while same-store sales advanced by 3.8%, both numbers a shadow of the sky-high gains of earlier years, when profits routinely soared by 30% or more, and comps broke through the double-digit barrier.

As profits for the quarter failed to meet Wall Street expectations -- coming in at $0.50 a share vs. an expected $0.52 – the company said it will buy back another $1 billion worth of its own stock. But investors focused on the key merchandising metrics instead, and pushed the retailer's shares down by 3.4%, or $1.37, to $38.56 a share in unusually brisk trading today, with more than 7.2 million shares changing hands by mid-day, almost three times the normal daily trading volume.

Bed Bath & Beyond stock is trading about 8.3% beneath its 12-month high of $41.98 a share.

Helped by new store openings, overall sales climbed higher by 11.8%. But even with wider margins, profits at the big-box pioneer advanced a moderate 5.8%, to $143.4 million from $134.6 million during the same period a year ago – and $10.6 million was interest income. BedBathgrew its operating profit just 2.7%, to $211.1 million from $205.5 million. Through the first nine months of the year, operating profits edged up 0.9%.

Average gross margin widened by 100 basis points, or 1.0 percentage points, to 43.5% from 42.5% a year ago. But costs jumped 210 basis points, or 2.1 percentage points, to 30.4% of sales from 28.3% the preceding year. And inventories breezed past the 11.8% growth in sales, expanding by 15.1%, to $1.6 billion from $1.4 billion last year.

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