Don't Fall Asleep On Bed Bath & Beyond

7/11/2011


  Recent Price
$59
  Dividend
$0.00
  Yield
0.0%
  P/E Ratio
18
  Shares (millions)
250
  Long-Term Debt as % of Capital
0%
  52-Week Price Range
$59.53 - $35.55

With the aftermath of the recession still weighing on many retailers, Bed Bath & Beyond ($59; BBBY) has extended its outstanding track record. It has grown free cash flow in 10 of the last 11 quarters, while revenue has climbed more than 9% for seven consecutive quarters. Same-store sales increased 7.0% in the May quarter, on top of an 8.4% year-earlier gain. Annual same-store sales have declined just once since the company went public in 1992.

A leader among consumer-discretionary stocks, Bed Bath & Beyond earns at least 99 in both the Reranked Overall and 12-Factor Sector scores. Bed Bath & Beyond is a Buy and a Long-Term Buy.

Business breakdown

Bed Bath & Beyond was founded in 1971 by a pair of retail veterans who still serve as co-chairmen. It operates 1,142 retail locations in the U.S. and Canada, including 984 namesake stores. In the past decade, Bed Bath & Beyond has expanded beyond its core merchandise of linens and home furnishings by acquiring the following retail chains:

• Christmas Tree Shops, which sells giftware and household items (66 stores as of May 28).

• Harmon and Harmon Face Value, health and beauty care (45 stores).

• Buybuy BABY, infant and toddler merchandise (47 stores).

The company plans to open a total of 40 to 45 stores across all four chains in fiscal 2012 ending February. Looking further out, management sees an opportunity for more than 1,300 Bed Bath & Beyond stores in the U.S. and Canada. Bed Bath & Beyond's sales peak in August, November, and December, though the company says it sees less seasonality than most other retailers.

In fiscal 2012, the company faces plenty of challenges, including rising cotton prices, high unemployment, a fragile U.S. consumer, and difficult comparisons (same-store sales have risen at least 7.0% in the last seven quarters). But management remains bullish.

On June 22, Bed Bath & Beyond raised its full-year guidance for per-share-earnings growth to 15% to 20%, with same-store sales up 2% to 4%. The company should benefit from any recovery in the housing market, as consumers typically fill new homes with furnishings and housewares.

Shares aren't especially cheap at 18 times trailing earnings, a 6% premium to their five-year average. But the stock's valuation falls roughly in line with its peer group despite superior growth potential. Consistent free-cash-flow growth has stuffed the balance sheet with $1.83 billion in cash, versus no long-term debt. Excluding that $7.34 per share in cash, the stock's trailing P/E is below 16.

Conclusion

Management has said nothing about a dividend but trimmed the share count 5% in the past year. During the May quarter, Bed Bath & Beyond began a fresh $2 billion share-buyback program, which it expects to complete in the next two years. At current prices, that buyback could reduce shares outstanding by nearly 14%. An annual report for Bed Bath & Beyond can be obtained at 650 Liberty Ave., Union, New Jersey 07083; (908) 688-0888; www.bedbathandbeyond.com.

BED BATH & BEYOND
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
May '11
0.72
vs.
052
+ 10%
57.90
-
44.79
19 - 15
Feb '11
1.12
vs.
0.86
+ 12%
50.95
-
44.22
18 - 16
Nov '10
0.74
vs.
0.58
+ 11%
45.74
-
36.19
17 - 14
Aug '10
0.70
vs.
0.52
+ 12%
45.96
-
35.55
19 - 14
Year
(Feb.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2011
8.76
3.07
0.00
50.95
-
26.50
17 - 9
2010
7.83
2.30
0.00
43.42
-
19.11
19 - 8
2009
7.21
1.64
0.00
34.73
-
16.23
21 - 10
2008
7.05
2.10
0.00
41.90
-
24.49
20 - 12
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
96
82
57
88
92
99
85

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


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