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Updated from 4:32 p.m. EDT

Second-quarter earnings at

Bed Bath & Beyond

(BBBY) - Get Bed Bath & Beyond Inc. Report

grew 28% on a strong increase in revenue, the company reported Wednesday.

In its quarter ended Aug. 30, the household goods retailer earned $97.2 million, or 32 cents a share, on $1.11 billion in sales. In the year-ago period, the company earned $75.5 million, or 25 cents a share, on revenue of $903 million.

The results surpassed Wall Street's estimates. Analysts surveyed by Thomson First Call were expecting the company to earn 30 cents a share on $1.1 billion in revenue.

In a conference call, Ron Curwin, Bed Bath & Beyond's CFO, raised the company's guidance for the rest of the year. The company now expects to earn $1.25 a share in fiscal 2003. Analysts surveyed by First Call were expecting the company to earn $1.24 a share this year. In June, the company projected that it would earn $1.23 a share.

The company's shares closed regular trading on the Nasdaq down 77 cents, or 1.9%, to $39.42. In after-hours trading, the company's shares were up 58 cents, or 1.5%, to $40 a share.

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Although Bed Bath & Beyond's overall revenue grew by 23% in the quarter, its same-store sales slowed compared with the company's year-ago pace. Same-store sales, which compare results of like outlets open for more than one year, are widely viewed as an indicator of a company's market share gains. In the second quarter, the retail chain's comparable store sales grew by 5.9%, down from the 8% pace it posted in the year-ago period.

Some analysts have expressed

concern that Bed Bath & Beyond is slowing its expansion. If the company opens fewer or smaller stores in the future, it will depend increasingly on same-store sales gains for revenue growth.

At the end of the second quarter, the retail chain operated 514 of its namesake stores, up 19% from the end of the second quarter last year. The company did not immediately release the amount of square feet it operates. The company also operates 24 stores under the Christmas Tree Shops brand and another 29 under the Harmon Stores name.

Regardless of the slide in the company's same-store sales and potential expansion slow down, Bed Bath & Beyond gained traction in the second quarter on its expenses.

The company's gross profit margin, for instance, increased 30 basis points to 41.3% of sales. Gross profit margin represents the difference between what a retailer charges for its products and what its pays for them.

Meanwhile, Bed Bath & Beyond narrowed its operating expenses as a portion of sales in the quarter. Such expenses, which include marketing and administrative costs, decreased by 47 basis points to 27.3% of sales.

Bed Bath & Beyond's strong bottom line helped it generate a significant amount of cash this year. The company posted free cash flow of $217.3 million for the first half of the year. Free cash flow represents the difference between operating cash flow and capital expenditures. In the year-ago period, Bed Bath & Beyond generated $93.1 million in free cash flow.

Even after spending a net $175.5 million in June to

acquire Christmas Tree Shops, Bed Bath & Beyond ended the quarter with $617.4 million in cash and cash equivalents. That was up from $333.6 million in cash the company held at the end of the second quarter last year.