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BBBY Posts In-Line Earnings

Zacks Equity Research

Bed Bath & Beyond Inc. (BBBY) reported earnings of 93 cents per share for first-quarter fiscal 2013 that came in-line with the Zacks Consensus Estimate, and rose 4.5% from the year-ago quarter’s earnings of 89 cents. Earnings for the quarter and the prior-year quarter included a distinct net tax benefit of a penny and 6 cents, respectively.

However, excluding tax benefit, quarterly earnings came in at 92 cents per share for the quarter, up 10.8% from the year-ago quarter’s earnings of 83 cents.

Quarter in Detail

The company’s top line jumped 17.8% to $2,612.1 million in the first quarter from $2,218.3 million in the year-ago quarter. The year-over-year rise in sales was primarily driven by the inclusion of World Market and Linen Holdings, an increase in comparable-store sales (comps) and new store openings. Moreover, Bed Bath & Beyond’s top line surpassed the Zacks Consensus Estimate of $2,600.0 million.

Comps rose 3.4%, primarily driven by an increase in the transaction count and the average transaction amount.

Gross profit came in at $1,033.0 million, up 16.4% from the comparable year-ago level. However, gross profit margin for the quarter declined 50 basis points (bps) to 39.5% from 40.0% in first-quarter fiscal 2012. Margins suffered a downside mainly due to rise in coupons driven by higher redemptions as well as increase in the average coupon amount, and mix shift in products sold to lower margin categories.

Selling, general and administrative (SG&A) expenses surged 23.7% year over year to $709.9 million and as a percentage of sales it expanded 130 bps to 27.2%. During the quarter, Bed Bath & Beyond’s higher payroll and payroll-related expenses as well as higher advertising costs led to an increase in SG&A expenses as a percentage of net sales.

Consequently, operating margin contracted about 170 bps to 12.4% from the prior-year quarter. However, in dollar terms, operating profit increased 3.1% to $323.1 million.

Financial Position

Bed Bath & Beyond ended the first quarter with cash and cash equivalents of $439.9 million compared with $1,075.2 million at the end of the prior-year quarter. Moreover, shareholders’ equity as of Jun 1, 2013, stood at $4,005.1 million versus $3,874.6 million as of May 26, 2012.

During the quarter, the company repurchased nearly 5.0 million of its outstanding shares, valued at about $324.0 million. Therefore, as of first-quarter end, the company had nearly $2.1 billion remaining under its share repurchase program of $2.5 billion, authorized in Dec 2012.

Stores Update

In the first quarter, Bed Bath & Beyond inaugurated 4 Bed Bath & Beyond store, 2 World Market stores, 1 buybuy BABY store and 1 Harmon Face Values store and closed 1 Christmas Tree Shops store. As of Jun 1, 2013, the company operated 1,008 Bed Bath & Beyond stores in all 50 states, the District of Columbia, Puerto Rico and Canada; 266 World Market or Cost Plus World Market stores; 73 Christmas Tree Shop or andThat! stores; 83 buybuy BABY stores and 48 stores under the names Harmon or Harmon Face Values, thereby bringing the total store count to 1,478.

Bed Bath & Beyond is in a joint venture operating 3 stores in the Mexico City under its namesake brand.

Stepping into the second quarter of fiscal 2013, Bed Bath has so far opened 1 buybuy BABY store.

Taking into account the 9 stores opened so far in fiscal 2013, the company anticipates its total store openings for the year to be in the mid-30s. Additionally, the company expects its joint venture in the Mexico City market to open 2 more stores in fiscal 2013.

Management Guidance

Management expects net sales to increase by 7% to 9% in the second quarter and by 5% to 7% for fiscal 2013. Further, the company projects a comparable store sales increase of 2% to 4% for both the second quarter and fiscal 2013.

On the cost side, the company expects depreciation in fiscal 2013 to be nearly $220.0 million. Additionally, driven by the above mentioned sales projections and the consolidation of World Market and Linen Holdings, the company expects operating profit margin to deleverage for the second quarter and fiscal 2013.

Net interest expense for the second quarter and the full year is expected to include about $2.2 million and $8.7 million, respectively, in World Market net interest expense, mainly due to the addition of sale-leaseback obligations related to its distribution facilities. Further, tax provision for the second quarter is projected in the 35% – 36% range, while the full-year tax provision is estimated to be 36.5% to 37%.

Bed Bath & Beyond expects to deliver second-quarter fiscal 2013 earnings per share between $1.11 and $1.16. Moreover, the company projects fiscal 2013 earnings per share in the range of $4.84 – $5.01, consistent with the previous projection of mid-single-digit to low-double-digit percentage growth.

Additionally, Bed Bath & Beyond projects a total capital spending, including that of World Market and Linen Holdings, of about $350 million in fiscal 2013, mainly slated for new outlets and existing store renovation, information technology advancement and other important future projects.

Other Stocks to Consider

Bed Bath Beyond currently holds a Zacks Rank #3 (Hold). Other stocks worth considering in the retail industry are Big 5 Sporting Goods Corp. (BGFV), Cabela’s Inc. (CAB) and Tractor Supply Company (TSCO). Big 5 and Cabela’s hold a Zacks Rank #1 (Strong Buy), while Tractor Supply carries a Zacks Rank #2 (Buy).

Read the Full Research Report on BBBY

Read the Full Research Report on TSCO

Read the Full Research Report on BGFV

Read the Full Research Report on CAB

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