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Bed Bath & Beyond Reiterated at Neutral

Zacks Equity Research

We reaffirmed our Neutral stance on specialty retailer, Bed Bath & Beyond Inc. (BBBY). On the one hand, while we remain buoyed by the company’s strong quarterly performance, impressive outlook and store growth initiatives, on the other hand, falling margins remain a cause of concern.


Why Reiterate?

Bed Bath & Beyond – a leading operator of merchandise and home furnishing stores in the U.S. – enjoys a strong countrywide network of more than 1,400 stores and has a focus on offering merchandise to suit consumer preferences.

We commend the company’s initiatives of expanding and renovating stores, boosting online presence, incorporating technological advancements and revivifying its merchandise mix to enhance productivity. Such measures bode well for future sales.

Bed Bath & Beyond’s efforts are paying off well, as reflected in its second-quarter fiscal 2013 earnings that rose 18.4% to $1.16 per share, benefiting from the performances of World Market (Cost Plus Inc.) and Linen Holdings. Moreover, the company’s earnings came ahead of the Zacks Consensus Estimate.

This Zacks Rank #3 (Hold) company also witnessed sales growth of 8.9% year over year, driven by the aforesaid acquisitions as well as increase in comparable store sales and new store openings.

Management projects fiscal 2013 earnings per share in the range of $4.88–$5.01, while the third quarter earnings per share are estimated to range from $1.11–$1.16. Currently, the Zacks Consensus Estimates for third quarter and fiscal 2013 are $1.14 and $5.00 per share, respectively. Net sales are expected to rise 6% to 8% in the third quarter and 3.5% to 5.5% for fiscal 2013.

On the flip side, the company’s margins remained soft during the second quarter due to higher operating costs, increase in coupons and their redemption, higher markdowns and shift in the mix of merchandise sold to lower margin categories.

Going forward, we expect this weakness to continue due to persistence of the above factors in fiscal 2013 as well as the ongoing consolidation of World Market and Linen Holdings.

Other Stocks to Consider

Apart from Bed Bath & Beyond, other stocks that are worth a look in the specialty retail sector include Cabela’s Incorporated (CAB), Five Below, Inc. (FIVE) and Ross StoresInc. (ROST). All of these carry a Zacks Rank #2 (Buy).

Read the Full Research Report on CABRead the Full Research Report on ROSTRead the Full Research Report on BBBYRead the Full Research Report on FIVEZacks Investment Research