(BBBY) Bed Bath & Beyond Beats Estimates Yet Again

Bed Bath & Beyond Inc. (BBBY) reported better-than-expected first-quarter 2011 results on the heels of high single-digit growth in sales and higher margins. Earnings rose approximately 38% to 72 cents per share from the year-ago quarter earnings of 52 cents a share, handily surpassing its earnings guidance range of 58 cents to 61 cents per share. Bed Bath & Beyond also outpaced the Zacks Consensus Estimate of 62 cents a share. The company has reported nine consecutive quarters of improving trends.

Quarterly Details

Bed Bath & Beyond’s top line jumped almost 9.7% to $2,110.0 million from $1,923.0 million in the year-ago quarter. The company has been witnessing increasing trends in comparable-store sales. After falling 0.6% in the second quarter of fiscal 2009, comparable-store sales increased in the subsequent quarters. In the quarter under review, comparable-store sales climbed approximately 7.0%.┬áThe company’s top line also beats the Zacks Consensus Estimate of $2,070.0 million.

Reduction in markdowns as a percentage of net sales has led to a 30 basis-point increase in gross margin to 40.6%. However, this was partially offset by a change in the mix of merchandise sold, which included lower-margin categories and higher inventory acquisition cost. Bed Bath & Beyond’s lower payroll and occupancy expenses as a percentage of net sales coupled with reduction in advertising expenses led to lower selling, general and administrative expenses, which eventually resulted in operating margin expansion of 200 basis points year over year to 13.7%.

Financial Position

Bed Bath & Beyond ended the quarter with cash and cash equivalents of $1,229.0 million compared with $1,084.0 million in the year-ago quarter. The company repurchased $245.0 million worth of shares and ended the quarter with shareholders’ equity of $3,935.8 million versus $3,783.2 million in the prior-year quarter.

Bed Bath & Beyond has completed its $1.0 billion share repurchase program authorized in 2007 and has initiated the new share repurchase program of $2.0 billion during the quarter, which was authorized in December 2010. Currently, approximately $1.9 billion is remaining under the new authorization.

Stores Update

The company currently operates 984 Bed Bath & Beyond stores in 50 states, the District of Columbia, Puerto Rico and Canada, 66 Christmas Tree Shops stores, 47 buybuy BABY stores and 45 stores under the brands of Harmon or Harmon Face Values, thereby bringing the total store count to 1,142. The company added 3 Bed Bath & Beyond stores, 2 buybuy BABY stores and closed 1 Bed Bath & Beyond store and 1 Harmon store in the reported quarter.

Since May 29, 2011, the company has opened 1 additional Bed Bath & Beyond store, 1 Christmas Tree Shops stores and 5 buybuy BABY stores. Bed Bath & Beyond is also a partner in a joint venture, which operates two stores in the Mexico City market under the name “Home & More”.

Management’s Sales Guidance and Comparable-Store Sales Outlook

Management now expects comparable-store sales to increase in the range of 2% to 4% in the second quarter of fiscal 2011 and in full fiscal 2011. Consequently, the company expects comparable-store sales to trigger net sales by a mid single-digit percentage in the second quarter of fiscal 2011 and in full fiscal 2011.

Earnings Guidance

Bed Bath & Beyond expects to deliver second-quarter 2011 earnings per share between 77 cents and 82 cents. Fiscal 2011 earnings per share are expected to increase by 15% to 20%, a rise of 5% from the earlier forecast.

Bed Bath & Beyond operates in a highly fragmented industry and faces competition from larger retailers, such as Target Corporation (TGT) and Wal-Mart Stores Inc. (WMT) as well as from departmental and specialty stores. Being in such a highly competitive industry, Bed Bath may find it difficult to execute and implement new business strategies, which in turn, will impact its operations adversely.

Currently, Bed Bath & Beyond holds a Zacks #2 Rank, implying a short-term ‘Buy’ rating on the stock. Besides, the company retains a long-term ‘Neutral’ recommendation on the stock.

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