Bed Bath & Beyond Beats and Guides Higher. Again.

Wow! Bed Bath & Beyond ($BBBY) did it again.

The company just reported fiscal Q2 earnings of 93 cents per share which was a full nine cents more than Wall Street was expecting. This was another outstanding quarter for them. Three months ago when the last earnings report came out, the company told us to expect Q2 earnings to range between 77 and 82 cents per share (I had expected a range of 80 to 85 cents per share).

Well, they blew that forecast out of the water! For last year’s Q2, they earned 70 cents per share. For this year’s Q2, net sales rose 8.2% to $2.314 billion. The all-important comparable store sales figure was 5.6%. Those are solid numbers. Year-over-year operating and net margins increased for the 10th-straight quarter.

For Q3, the current quarter, Bed Bath & Beyond projects earnings of 82 to 87 cents per share. The Street was at 86 cents. BBBY also raised their full-year guidance to earnings growth of 22% to 25%.

If you’re keeping score at home, this is the second time that BBBY has raised their full-year growth forecast this year. They went from forecasting an earnings increase of 10% – 15% to a revised range of 15% – 20% to the current range of 22% – 25%.

Let’s look at the numbers: For 2010, Bed Bath & Beyond earned $3.07 per share, so the updated forecast translates to a range of $3.74 – $3.84 per share.

Just to give you an example of how strong business has been, let’s compare this past quarter’s numbers with the one from exactly two years ago. In two years, sales are up 20.8%. Net margins have increased from 7.1% to 9.9%. That turns a 20.8% sales increase into a 69.2% profit increase.

Here’s a look at BBBY’s quarterly numbers for the past few years:

Quarter Sales Gross Profit Operating Profit Net Profit EPS
May-99 $356,633 $146,214 $28,015 $17,883 $0.06
Aug-99 $451,715 $185,570 $53,580 $33,247 $0.12
Nov-00 $480,145 $196,784 $50,607 $31,707 $0.11
Feb-00 $569,012 $238,233 $77,138 $48,392 $0.17
May-00 $459,163 $187,293 $36,339 $23,364 $0.08
Aug-00 $589,381 $241,284 $70,009 $43,578 $0.15
Nov-01 $602,004 $246,080 $64,592 $40,665 $0.14
Feb-01 $746,107 $311,802 $101,898 $64,315 $0.22
May-01 $575,833 $234,959 $45,602 $30,007 $0.10
Aug-01 $713,636 $291,342 $84,672 $53,954 $0.18
Nov-02 $759,438 $311,030 $83,749 $52,964 $0.18
Feb-02 $879,055 $370,235 $132,077 $82,674 $0.28
May-02 $776,798 $318,362 $72,701 $46,299 $0.15
Aug-02 $903,044 $370,335 $119,687 $75,459 $0.25
Nov-03 $936,030 $386,224 $119,228 $75,112 $0.25
Feb-03 $1,049,292 $443,626 $168,441 $105,309 $0.35
May-03 $893,868 $367,180 $90,450 $57,508 $0.19
Aug-03 $1,111,445 $459,145 $155,867 $97,208 $0.32
Nov-04 $1,174,740 $486,987 $161,459 $100,506 $0.33
Feb-04 $1,297,928 $563,352 $231,567 $144,248 $0.47
May-04 $1,100,917 $456,774 $128,707 $82,049 $0.27
Aug-04 $1,273,960 $530,829 $189,108 $120,008 $0.39
Nov-05 $1,305,155 $548,152 $190,978 $121,927 $0.40
Feb-05 $1,467,646 $650,546 $283,621 $180,980 $0.59
May-05 $1,244,421 $520,781 $150,884 $98,903 $0.33
Aug-05 $1,431,182 $601,784 $217,877 $141,402 $0.47
Nov-06 $1,448,680 $615,363 $205,493 $134,620 $0.45
Feb-06 $1,685,279 $747,820 $304,917 $197,922 $0.67
May-06 $1,395,963 $590,098 $148,750 $100,431 $0.35
Aug-06 $1,607,239 $678,249 $219,622 $145,535 $0.51
Nov-07 $1,619,240 $704,073 $211,134 $142,436 $0.50
Feb-07 $1,994,987 $862,982 $309,895 $205,842 $0.72
May-07 $1,553,293 $646,109 $154,391 $104,647 $0.38
Aug-07 $1,767,716 $732,158 $211,037 $147,008 $0.55
Nov-08 $1,794,747 $747,866 $203,152 $138,232 $0.52
Feb-08 $1,933,186 $799,098 $259,442 $172,921 $0.66
May-08 $1,648,491 $656,000 $118,819 $76,777 $0.30
Aug-08 $1,853,892 $739,321 $187,421 $119,268 $0.46
Nov-08 $1,782,683 $692,857 $136,374 $87,700 $0.34
Feb-09 $1,923,274 $785,058 $231,282 $141,378 $0.55
May-09 $1,694,340 $666,818 $142,304 $87,172 $0.34
Aug-09 $1,914,909 $773,393 $222,031 $135,531 $0.52
Nov-09 $1,975,465 $812,412 $245,611 $151,288 $0.58
Feb-10 $2,244,079 $955,496 $370,741 $226,042 $0.86
May-10 $1,923,051 $775,036 $225,394 $137,553 $0.52
Aug-10 $2,136,730 $874,918 $296,902 $181,755 $0.70
Nov-10 $2,193,755 $896,508 $305,110 $188,574 $0.74
Feb-11 $2,504,967 $1,076,467 $461,052 $283,451 $1.12
May-11 $2,109,951 $857,572 $288,948 $180,578 $0.72
Aug-11 $2,314,064 $950,999 $371,636 $229,372 $0.93

Here’s a look at the company’s recent trailing four-quarter earnings-per-share trend. As you can see, BBBY has bounced back very well since the recession.

The red lines represents the high and low ends of the company’s forecast. Judging by the trend, today’s forecast seems rather conservative. Earnings for the first half are up 35% so a forecast of 22% – 25% for the entire year seems very doable.

I’m growing slightly cautious about BBBY’s outlook. Not that things are about to go bad. Instead, I think it’s prudent to assume that the company is closer to the top of its business cycle than the bottom. For example, here’s a look at BBBY’s trailing four-quarter net profit margin:

The net margins seem to top off around 10% or so and we’re getting close to that. This means that the enormous tailwind the earnings get from smaller sales increases will start to fade. Also, the company’s sales growth rate, while still healthy, has noticeably decelerated.

Don’t be too afraid of a downturn in the earnings cycle. Bear in mind that the earnings peaked in the last cycle 15 quarters ago. Since then, BBBY’s earnings are up close to 62% which is 13.7% annualized. That’s pretty darn good.

Here’s a key section from the earnings call, courtesy of Seeking Alpha.

The following are our major planning assumptions for the remainder of fiscal 2011: one, including the 24 stores opened so far this year, we anticipate that the total number of new store openings will now be approximately 40 stores across all of our concepts. Currently, we believe our fiscal 2011’s store openings by concept will be substantially similar to fiscal 2010, with a slight shift to several more buybuy BABY stores and slightly fewer Bed Bath & Beyond stores.

As the year progresses, and we gain greater visibility, the total number of stores that we will open may be updated. We will continue to place Harmon Face Values health and beauty care offerings in stores across all of our concepts. As always, we remain flexible to take advantage of real estate opportunities that may arise; two, we expect to continue our program of expanding, renovating and/or relocating a number of our stores in fiscal 2011; three, we are modeling a 2 to 4 percentage increase in comparable store sales for the third and fourth quarters of fiscal 2011; four, based on these comparable store sales assumptions, we are modeling consolidated net sales to increase by 5% to 7% in the third quarter and by 4% to 6% in the fourth quarter; five, assuming these sales levels, in addition to planning the continuation of the shift and the mix of merchandise sold to lower margin categories, we are modeling our operating profit margin to slightly leverage for the fiscal third and fourth quarters; six, the third and fourth quarter tax provisions are estimated in the mid-to high 30s percent range — percentage range, with expected variability as taxable events occur; seven, capital expenditures for fiscal 2011, principally for new stores, existing store refurbishment, information technology enhancements, including increased spending on our interactive platforms and other projects, continue to be planned at approximately $250 million, but may reach as high as $300 million, depending on the composition and ultimate timing of projects; eight, depreciation for fiscal 2011 is now estimated to be in the range of approximately $180 million to $190 million; nine, we expect to generate positive operating cash flow in fiscal 2011 and continue to fund operations entirely from internally-generated sources; 10, we expect to continue our share repurchase program, which may be influenced by several factors, including business and market conditions and continue to model completion of the current authorization to early fiscal 2013.

Based on these and the other planning assumptions, we are now modeling net earnings per diluted share to be in the range of approximately $0.82 to $0.87 for the fiscal third quarter of 2011. For all of fiscal 2011, we are modeling net earnings per diluted share to increase in the range of approximately 22% to 25%, up from the previous model of approximately 15% to 20%.

Before concluding this afternoon’s call, a few additional comments relative to our recently concluded fiscal second quarter. Our balance sheet and cash flows remain strong. We ended the fiscal second quarter with cash and cash equivalents and investment securities of approximately $1.9 billion.

Posted by on September 21st, 2011 at 4:36 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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