Bed Bath breezes by competition

Don Hogsett, April 8, 2002

Union, NJ — Breezing easily past Wall Street expectations — and saying it plans to do so once again during the current first quarter — rocket-hot retailer Bed Bath & Beyond drove fourth-quarter profits sharply higher, by 28.5 percent, to $82.7 million from $64.3 million last year.

Sales in the all-important holiday quarter jumped up by 17.8 percent, to $879.1 million from $746.1 million, in a lackluster period for most other American retailers. The lofty sales number was all the more remarkable given that this year's fourth-quarter contained one less week of shopping this year — 13 weeks vs. the 14-week season a year ago.

And blasting past virtually all of its peers in U.S. retailing, same-store sales at the home fashions superstore surged by 11.9 percent.

In an uncommonly strong performance in a bruising environment for U.S. retailers, especially full-price retailers, Bed Bath & Beyond sailed past Wall Street's expectations with earnings of $0.28 per share, easily besting a consensus forecast of $0.26. Not stopping there, the retailer said it expects first-quarter profits to come in at $0.13 a share, $0.01 ahead of expectations. And earnings for all of this year should total $0.91 a share, topping Wall Street's target by $0.02.

Driving the heady earnings gain was a win-win combination of stronger sales, stronger margins and lower costs.

In addition to the stronger same-store sales, the bottom line benefited from a solid gain in average gross margin, which increased by 40 basis points, to 42.1 percent from 41.8 percent the prior year. And leveraging stronger sales and the rollout of new units, the retailer chopped its costs by 100 basis points, to 27.1 percent of sales from 28.1 percent a year ago.

Given the strong improvement in operations, operating profits shot up by more than a third, rising by 33.5 percent, to $132.1 million from $101.9 million. That remarkably strong performance yielded an almost unheard-of operating margin — operating costs measured as a percentage of sales — of 15.0 percent, up 130 basis points from 13.7 percent the previous year.

Taking a tiny bite out of the bottom line, the company's interest income — the money it earns on the money it puts in the bank — slipped by 33.5 percent in today's low interest-rate environment, to $2.4 million from $3.5 million. But the nick was only cosmetic, and even so the specialty retailer scored a profit of $82.7 million.

That formidable bottom line performance generated a phenomenal return on sales — net income as a percentage of sales — of 9.4 percent for the fourth quarter.

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