Bed Bath & Beyond Cleans Up Without Competition

For Rothbort's preview of Bed Bath & Beyond before the earnings call, click here.

Bed Bath & Beyond (BBBY - commentary - Trade Now) reported EPS of 34 cents on net sales of $1.694 billion for the company's fiscal first quarter. Same-store sales for the quarter declined by 1.6%.

During the quarter, BBBY opened six new stores including its fifth Canadian unit. The company ended the quarter with 1,044 stores: 935 Bed Bath & Beyond (BB&Y), 53 Christmas Shops, 16 Buy Buy Babys and 40 Harmons. Two net new Bed Bath & Beyond units have opened so far in the 2nd quarter. BBBY expects to open 57 new stores in fiscal 2009. In addition, the Harmon department will be added in more BB&Y stores. Management believes that there is room for another 400 BB&Y stores across the U.S.

Gross profits margins were 39.4% vs. 39.8% a year ago. The decline was attributed to several factors including inventory acquisition costs, coupon redemption and merchandise mix. SG&A expenses rose 120 basis points year over year. The effective tax rate was 39.5% vs. 37.8% a year ago.

Guidance for the remainder of 2009 was provided on a macro basis:

• Low single-digit comp declines;
• Operating profit margins will deleverage in second quarter and fiscal 2009;
• Interest income will decline due to lower interest rates; and
• BBBY will generate positive cash flow and fund operations from cash generation.

BBBY held $1.1 billion in cash and equivalents with no outstanding debt at the end of the quarter. The company holds $212 million of auction rate securities with a current negative mark of $24 million. Inventories were $1.7 billion or $52.90 per square foot, a decline of 6.7% on a per square foot basis vs. last year. During the quarter $13 million of common stock was repurchased.

I can find several reasons why BBBY performed so well during the quarter. To begin with we cannot underestimate the absence of Linens 'n' Things from the home goods retail market. When it comes to one's home, people are less likely to trade down and substitute products at Wal-Mart (WMT - commentary - Trade Now) and Target (TGT - commentary - Trade Now) are less desirable while those at Macy's (M - commentary - Trade Now) may be too expensive given the relative quality.

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At the time of publication, Rothbort had no positions in the stocks mentioned, although positions can change at any time.

Scott Rothbort has over 20 years of experience in the financial services industry. In 2002, Rothbort founded LakeView Asset Management, LLC, a registered investment advisor based in Millburn, N.J., which offers customized individually managed separate accounts, including proprietary long/short strategies to its high net worth clientele. He also is the founder and manager of the social networking educational Web site TheFinanceProfessor.com.

Immediately prior to that, Rothbort worked at Merrill Lynch for 10 years, where he was instrumental in building the global equity derivative business and managed the global equity swap business from its inception. Rothbort previously held international assignments in Tokyo, Hong Kong and London while working for Morgan Stanley and County NatWest Securities.

Rothbort holds an MBA in finance and international business from the Stern School of Business of New York University and a BS in economics and accounting from the Wharton School of Business of the University of Pennsylvania. He is a Term Professor of Finance and the Chief Market Strategist for the Stillman School of Business of Seton Hall University.

For more information about Scott Rothbort and LakeView Asset Management, LLC, visit the company's Web site at www.lakeviewasset.com. Scott appreciates your feedback; click here to send him an email.