David Phillips on Bed Bath & Beyond

David Phillips, the 10-Q Detective, takes a look at Bed Beth & Beyond (BBBY) and likes what he sees:

On its 4Q:05 Earnings Conference Call, management was comfortable—based on its most recent real-estate analysis—in updating the store openings [square footage] that will fuel this growth: “We now anticipate that we can grow to approximately 1,300 Bed Bath & Beyond stores in the United States [ed. note. before saturation becomes a concern], in addition to continuing the expansion and integration of our Christmas Tree and Harmon store concepts…. expanded information technology capabilities, new merchandising initiatives and developing concepts significantly adds to our potential to create a much larger, more successful retailing business.”
Corporate has issued guidance calling for FY 2006 EPS to grow by approximately 13% to about $2.17 per share, based on the following planning assumptions:
1. The Company’s fiscal 2006 store opening program is expected to include approximately 80 BBB stores, six CTS stores and the continuing development of its Harmon concept. The Company’s new store openings are expected to add approximately 2.5 million square feet of store space.
2. Bed Bath & Beyond new stores are expected to generate net sales of between $160-185 per square foot in the first 12 months of operation. Consolidated comp sales are expected to increase from 3-5% and net sales, including the 53rd week, are expected to increase between 13% and 14%.
3. Based on the current interest rate environment, interest income is expected to be somewhat higher than in FY ’05.
4. The effective income tax rate for FY 2006 is presently being estimated at about 36.6 percent.
5. Average diluted shares outstanding for full FY ’06 is estimated to be 288 million.
6. FY ’06 will be a 53-week year.
The Company has deployed a total of $950 million for share repurchases since December 2004. In our opinion, this demonstrates the impressive cash generating ability of the Company. Aside from initiating a cash dividend payout, the trailing twelve-month ROE of 25.65% suggests that management believes that share buybacks are a prudent investment—and will probably continue as a practical course of action in coming months.
In our opinion, now may be a good time to start accumulating shares in Bed Bath & Beyond. The stock price has already discounted any potential retail slowdown, with the forward P/E of 14 times 2007 consensus estimates of $2.49 is near the stock’s historic trough. Any sales or EPS guidance nudged upward by management will serve as the necessary catalyst to expand the P/E multiple and push the stock to a target value of $45.00 per share.

Posted by Eddy Elfenbein on May 30th, 2006 at 2:18 pm

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