Bed Bath & Beyond Inc. (BBBY) reported better-than-expected second-quarter 2011 results on the heels of strong growth in sales and higher margins.
Earnings rose approximately 33% to 93 cents per share from the year-ago quarter earnings of 70 cents a share, handily surpassing its earnings guidance range of 77 cents to 82 cents per share. Bed Bath & Beyond also outpaced the Zacks Consensus Estimate of 84 cents a share.
Quarterly Details
Bed Bath & Beyond's top line jumped almost 8.3% to $2,314.1 million from $2,136.7 million in the year-ago quarter. The company's top line also came marginally ahead of the Zacks Consensus Estimate of $2,313.0 million. 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 5.6%.
Reduction in markdowns and coupons, as a percentage of net sales, has led to a 20 basis-point increase in gross margin to 41.1%. 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 220 basis points to 16.1% compared with the prior-year quarter.
Financial Position
Bed Bath & Beyond ended the quarter with cash and cash equivalents of $1,018.0 million compared with $1,040.5 million in the year-ago quarter. Moreover, the company ended the quarter with shareholders' equity of $3,911.0 million versus $3,784.7 million in the prior-year quarter.
During the reported quarter, the company repurchased $287.0 million worth of shares representing approximately 5.2 million shares. At the end of second-quarter 2011, the company has approximately $1.6 billion remaining under its new share repurchase program of $2.0 billion, authorized in December 2010.
Stores Update
The company currently operates 986 Bed Bath & Beyond stores in all 50 states, the District of Columbia, Puerto Rico and Canada, 70 Christmas Tree Shops stores, 54 buybuy BABY stores and 45 stores under the brands of Harmon or Harmon Face Values, thereby bringing the total store count to 1,155 at the end of the quarter.
The company added 3 Bed Bath & Beyond stores, 7 buybuy BABY stores, 4 Christmas Stores and closed 1 Bed Bath & Beyond store in the reported quarter.
Since, the commencement of the third quarter, the company has opened 3 additional Bed Bath & Beyond store and 2 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".
Since the beginning of fiscal 2011, the company has opened 24 stores, and is planning to increase the total number of new store count to approximately 40 stores across all of its concepts by the end of the year.
Management's Sales Guidance and Comparable-Store Sales Outlook
Management expects comparable-store sales to increase in the range of 2% to 4% in the third and fourth quarter of fiscal 2011. Consequently, the company expects comparable-store sales to trigger net sales in the range of 5% to 7% in the third quarter and 4% to 6% in the fourth of fiscal 2011.
Earnings Guidance
Bed Bath & Beyond expects to deliver third-quarter 2011 earnings per share between 82 cents and 87 cents. Fiscal 2011 earnings per share are expected to increase by 22% to 25%, up from the previous forecast of 15% and 20%.
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 #3 Rank, implying a short-term Hold rating on the stock. The company retains a long-term Neutral recommendation on the stock.
BED BATH&BEYOND (BBBY): Free Stock Analysis Report
TARGET CORP (TGT): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis Report
Get all Zacks Research Reports and be alerted to fast-breaking buy and sell opportunities every trading day.
Be the first to comment