Bed Bath & Beyond Inc. (BBBY) has been riding on its strategic initiatives, including store expansion, enhancement of eCommerce capabilities and improvisation of customer services. Alongside, the company’s solid financial status provides it with the required flexibility to drive future growth.
In conjunction with its store-growth strategy, Bed Bath & Beyond is on track to complete its targeted opening of 22 stores across all concepts in fiscal 2014. Moreover, the company remains focused on expanding, renovating and relocating stores to adapt to the changing market conditions. These initiatives are likely to go a long way in retaining existing customers, while attracting new ones.
Further, the company consistently reviews and prioritizes its capital needs, making the right investments to help position itself for long-term success. Going forward, it is focused on major information technology projects including the upgrade of apps, enhancement of network communications in stores, implementation of point-of-sale improvements and development of its new IT Data Center to support the ongoing moves.
Coming to Bed Bath & Beyond’s financials, the company had a debt-free balance sheet, along with cash and equivalents of $1,043.8 million at the end of third-quarter fiscal 2014. Moreover, the company has returned nearly 90% of its cash flows to shareholders through share repurchases in the past 2 years, thus underscoring its commitment to boost shareholder value.
However, the company’s margins remained soft during the quarter due to a rise in coupon expenses, stemming from higher redemptions and an increase in net direct-to-customer shipping expense. This was partly offset by a decline in average coupon amount. Going forward, we expect this weakness to continue due to the persistence of the aforementioned factors, which may impact results.
Additionally, Bed Bath & Beyond’s customers remain sensitive to macroeconomic factors. Also, the seasonal nature of the company’s business exposes it to significant risks if the seasons fail to deliver favorably, compelling us to remain on the sidelines.
Bed Bath & Beyond currently carries a Zacks Rank #3 (Hold).
Key Picks from the Sector
Better-ranked retail stocks include Build-A-Bear Workshop Inc. (BBW), with a Zacks Rank #1 (Strong Buy), Dick's Sporting Goods Inc. (DKS) and ULTA Salon, Cosmetics & Fragrance, Inc. (ULTA), with a Zacks Rank #2 (Buy) each.
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