Specialty retailer Bed Bath & Beyond Inc. (BBBY) recently announced financial results for the second quarter of fiscal 2011.
Street analysts had a week to ponder on the news. In the subsequent paragraphs, we cover the recent earnings announcement, analysts’ estimate revisions as well as the Zacks Rank and long-term recommendation on the stock.
Earnings Review
Bed Bath & Beyond Inc. 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.
(Read our full coverage on this earnings report: Bed Bath & Beyond Beats on Both)
Agreement of Estimate Revisions
The company’s out performance in second-quarter 2011 has led 12 out of 19 analysts to revise their estimates in the upward direction over the past one week, with no downward estimate revision for the third quarter of fiscal 2011. For fiscal 2011, all 21 analysts have revised their estimates in the upward direction in the last 7 days.
Magnitude of Estimate Revisions
As a result of upward movement in estimates witnessed in the last week, the Zacks Consensus Estimate for the third quarter of fiscal 2011 inched up by 2 cents to 88 cents a share. For fiscal 2011, the estimate moved up sharply by 18 cents to $3.85 per share.
Our Recommendation
Currently, Bed Bath & Beyond holds a Zacks #2 Rank, implying a short-term 'Buy' rating on the stock. However, in the long term, we have a 'Neutral' recommendation on the stock.
Bed Bath & Beyond represents a strong brand with solid growth opportunities. Industry consolidation, cross merchandising opportunities, future growth potential for newer concepts, and strong balance sheet and cash flow should continue to augur well for the company. Further, Bed Bath & Beyond is well positioned to benefit from the recent positive housing turnover trends, which should facilitate sales of home furnishing retailers in fiscal 2011.
Bed Bath & Beyond, however, 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. Despite its strong fundamentals, Bed Bath may find it difficult to execute and implement new business strategies which, in turn, will impact its operations adversely.
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