Troy Wolverton

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Bed Bath & Beyond Posts 32% Jump in Earnings

Troy Wolverton

Bed Bath & Beyond (BBBY Quote) posted a 32% gain in earnings per share in the third quarter, but the company warned analysts not to expect an encore in the current period.

In its quarter ended Nov. 29, the home-products retailer earned $100.5 million, or 33 cents a share, compared to $75.1 million, or 25 cents a share, in the year-ago period. The company's sales rose 25.5% to $1.17 billion on the year.

The retailer's results topped Wall Street's estimates. Analysts polled by Thomson First Call were expecting Bed Bath & Beyond to earn 31 cents a share on sales of $1.16 billion.

The company raised its full-year guidance from $1.25 to $1.27 a share, topping analysts' projections of $1.26 a share. But if the company's outperformance in the third quarter is taken away, the guidance implies that Bed Bath & Beyond officials see the company's fourth-quarter earnings falling a penny short of analysts' estimates of 44 cents a share.

Company officials did say, however, that they are comfortable with Wall Street's projections of $1.51 per share in earnings in fiscal 2004.

Investors shrugged off the company's fourth-quarter outlook, which came after the close Wednesday. In after-hours trading, the company's stock rose $1.04, or 2.6%, to $41. Bed Bath & Beyond shares closed regular trading up 96 cents, or 2.5%, at $39.96.

In its just-completed quarter, the company's bottom line benefited from cost controls as well as robust results at its older stores.

The company's same-store sales, which compare results at outlets open for more than one year, increased 6.4% in the quarter. During the same period last year, Bed Bath & Beyond's same-store sales increased 8%.

Meanwhile, the company recorded a 19-basis-point increase in its gross profit margins as a portion of sales. Gross margin represents the difference between what a company charges customers for its products and its direct costs of selling those products, including occupancy and vendor expenses. In the third quarter, Bed Bath & Beyond posted a gross margin of about $487 million, or 41.45% of sales.

On a conference call, company officials attributed the rise in the retailer's gross margin to higher markups on its products. The benefit from those markups outweighed the effect of lower margins at the company's recently acquired Christmas Tree Shops division, company officials said.

The company also saw gains on its operating expenses. Such costs, which typically include advertising, administrative and store payroll expenses, fell 81 basis points to 27.71% of sales.

In the quarter, Bed Bath & Beyond benefited from cost controls on its store opening expenses, company officials said. Those cost controls outweighed increased payroll and advertising costs, they said.

The company plans to open 80 to 90 new Bed Bath & Beyond stores next year, which would represent growth of 14% to 16% over its expected base of 576 at the end of its fiscal year in February. However, the company's new stores have a smaller average size than its older stores.

Some investors have worried that Bed Bath & Beyond's slowing square footage growth will eventually effect its overall sales and earnings growth.