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Jennifer Marks

One step Beyond

You have got to hand it to Bed Bath & Beyond. Cash-rich and close-mouthed, it still manages to surprise.

Late last Wednesday afternoon, the company reported a heck of a good set of numbers for the first quarter: profits up nearly 24 percent and sales up 15 percent during a period that left many other retailers wheezing like asthmatics in a dust cloud.

Although it beat its own expectations, the specialty superstar stuck to a conservative earnings forecast for the remainder of the fiscal year, and the next morning got slapped around on Wall Street for its prudence. Its stock price dropped to a session low of $39.50 before working back Thursday afternoon to a close of $40.57, down $1.86, or 4.4 percent.

And then just after the closing bell, Bed Bath & Beyond threw a curveball by announcing the acquisition of a small, New England-based seasonal goods chain — and immediately boosted its earnings projections for the year. Exclamation point!

I'm not sure if the good folks in Union, NJ, have a perverse sense of humor or an impeccable sense of timing — or both.

It's been just 15 months since Bed Bath & Beyond announced the acquisition of bargain-oriented, regional health & beauty aid chain of Harmon Stores, so last week's acquisition of bargain-oriented, regional seasonal décor chain Christmas Tree Shops was not the head-scratcher that it might have been.

Like 27-unit Harmon, Christmas Tree Store is large enough to serve as a laboratory and small enough to manage as is for quite some time. Bed Bath & Beyond maintains its long-term target of operating "at least" 950 BBB stores in the U.S. — more than double the 409 it currently operates — so it isn't under the gun to find alternative formats for growth any time soon.

But clearly, the retailer is seeding for long-term growth in an approach that has worked so brilliantly for Wal-Mart — launch new ventures on a small scale, experiment with them rather quietly, and apply the best of the lessons learned to the core chain immediately. A full-blown roll out of either Harmon or Christmas Tree Shops — if that is on the agenda — can reasonably be put off for five or six years.

In the meantime, BBB's $200 million cash purchase will add more than $370 million in Christmas Tree Shops revenues to its ledger. And those are apparently some margin-rich dollars. The 23-unit chain is expected to add 2 cents per share to 2003 fiscal year earnings.

The acquisition also signaled that Bed Bath intends to aggressively stretch the definition of what it can encompass "beyond." Up until last week, the Harmon deal could have been classified as an interesting side project. But now a pattern begins to suggest itself.

It can only get more interesting from here.

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