Zacks_Analysts' Blog : Bed Bath & Beyond Beats Estimate - Analyst Blog

Bed Bath & Beyond Inc. (BBBY) reported better-than-expected fourth-quarter 2010 results on the heels of double-digit growth in sales and higher margins. Earnings rose 30.2% to $1.12 per share from the year-ago quarter earnings of 86 cents a share, handily surpassing its earnings guidance range of 91 cents to 95 cents per share. Bed Bath & Beyond also outpaced the Zacks Consensus Estimate of 97 cents a share. The company has reported eight consecutive quarters of improving trends.

For full fiscal 2010, earnings rose 33.5% to $3.07 per share from the prior fiscal earnings of $2.30 a share, easily outshining its earnings guidance range of $2.86 to $2.90 per share. Bed Bath & Beyond also outpaced the Zacks Consensus Estimate of $2.92 a share.

Quarterly Details

Bed Bath & Beyond's top line jumped 11.6% to $2,505.0 million from $2,244.0 million in the year-ago quarter. The company has been witnessing increasing trends in comparable-store sales. After falling 0.6% in the second quarter of fiscal 2009, comparable-store sales increased in the subsequent quarters. In the quarter under review, comparable-store sales climbed 8.5%. The company also beats the Zacks Consensus Estimate of $2,387.0 million.

Decline in coupon expenses coupled with reduction in markdowns as a percentage of net sales, led to a 40 basis-point increase in gross margin to 43.0%. However, this was partially offset by a change in the mix of merchandise sold, which included lower-margin categories. Bed Bath & Beyond's lower payroll and occupancy expenses as a percentage of net sales led to lower selling, general and administrative expenses, which eventually resulted in operating margin expansion of 150 basis points year over year to 18.4%.

Financial Position

Bed Bath & Beyond ended the quarter with cash and cash equivalents of $1,183.6 million compared with $1,096.1 million in the year-ago quarter. Bed Bath & Beyond repurchased $199.0 million worth of shares and ended the quarter with shareholders' equity of $3,931.7 million versus $3,652.9 million in the prior-year quarter.

The company will initiate the new share repurchase program of $2.0 billion in early fiscal 2011, which was authorized in December 2010 after the completion of the current share repurchase authorization.

Stores Update

The company currently operates 982 Bed Bath & Beyond stores in 50 states, the District of Columbia, Puerto Rico and Canada, 66 Christmas Tree Shops stores, 45 buybuy BABY stores and 46 stores under the brands of Harmon or Harmon Face Values, thereby bringing the total store count to 1,139. The company added six Bed Bath & Beyond stores, five buybuy BABY stores and one Harmon Face Values store in the reported quarter.

Since February 27, 2011, the company has opened two additional Bed Bath & Beyond store. Bed Bath & Beyond is also a partner in a joint venture, which operates two stores in the Mexico City market under the name "Home & More".

Management's Sales Guidance and Comparable-Store Sales Outlook

Management now expects comparable-store sales to increase in the range of 2% to 4% in the first quarter of fiscal 2011 and in full fiscal 2011.

The company expects comparable-store sales to trigger net sales by a mid single-digit percentage in the first quarter of fiscal 2011 and in full fiscal 2011.

Earnings Guidance

Bed Bath & Beyond expects to deliver first-quarter 2011 earnings per share between 58 cents and 61 cents. Fiscal 2011 earnings per share are expected to increase by 10% to 15%.

Bed Bath & Beyond operates in a highly fragmented industry and faces competition from larger retailers, such as Target Corporation (TGT) and Wal-Mart Stores Inc. (WMT) as well as from departmental and specialty stores. Being in such a highly competitive industry, Bed Bath may find it difficult to execute and implement new business strategies, which in turn, will impact its operations adversely.

Currently, Bed Bath & Beyondholds a Zacks #3 Rank, implying a short-term 'Hold' rating on the stock. Besides, the company retains a long-term 'Neutral' recommendation on the stock.