Archive for June, 2007

• Bed Bath & Beyond Earns 38 Cents a Share
  Eddy Elfenbein, June 27th, 2007 at 4:18 pm

  Bed Bath & Beyond (BBBY) just reported earnings of 38 cents a share (technically, 37.6 cents). Sales were up 11.3% to $1.553 billion.

  Steven H. Temares, Chief Executive Officer and Member of the Board of Directors of Bed Bath & Beyond Inc. stated, “While we continue to see that the overall retailing environment, especially sales of merchandise related to the home, is challenging, we have taken a long-term approach to our business and work to continue to distance ourselves from our competitors by remaining focused on being our customers’ first choice for the products we offer, domestically, interactively, and over the long-term, internationally. Consistent with this, we were very pleased to have recently executed a lease for our first international store, located in Richmond Hill, Ontario, north of Toronto.”

  This is a decent report. Without the warning, the company barely missed previous expectations. Think of it this way, BBBY came in 1.4 cents below the Street’s expectations, yet the market chopped off 291 cents in share. So that miss in effect has a price/earnings ratio of 207.
  Fine, I’ll take the other side of that trade.

  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-99	$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-00	$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-01	$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-02	$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-03	$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-04	$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-05	$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-06	$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

• Georgetown Photo Gallery
  Eddy Elfenbein, June 27th, 2007 at 11:59 am

  I’ll take a quick break from stock talk. On Sunday, I strolled down to Georgetown with my camera. Here are a few shots.

  (more…)

• BBBY Below $37
  Eddy Elfenbein, June 27th, 2007 at 10:47 am

  C’mon!
  Earnings for Bed Bath & Beyond (BBBY) are due later today and the Street obviously expects lousy news. The company already said to expect 36 cents to 38 cents a share. But a $37 share price seems to be discounting really lousy news.

• The Put Write Index
  Eddy Elfenbein, June 27th, 2007 at 10:09 am

  I learned something interesting from Roger Nusbaum’s site, as I usually do.
  The CBOE has created a Put Write Index, which you can see quoted at Yahoo Finance under ^PUT.
  Here’s S&P’s description:

  The new index, called the CBOE S&P 500 PutWrite Index (PUT) tracks the performance of a hypothetical investment strategy (PUT strategy) that overlays short S&P 500 puts over a money market account. The number of puts is set to collateralize the exposure to S&P 500 downturns. This design provides higher leverage than the BXM strategy, and it can also capture the potentially “rich” premia of S&P 500 put options documented in several academic studies. These studies have found that short option strategies, and especially short put strategies, appear to generate high risk-adjusted returns.

  The ^BXM index is for Buy Write Index. Roger thinks this is another development in a larger trend that allows individual investors to use sophisticated investment products that were previously reserved for professionals. I think he’s exactly right. This is what the future will look like.

• Quote of the Day
  Eddy Elfenbein, June 26th, 2007 at 4:21 pm

  Bill Gross from the PIMCO Web site:

  Well prudence and rating agency standards change with the times, I suppose. What was chaste and AAA years ago may no longer be the case today. Our prim remembrance of Gidget going to Hawaii and hanging out with the beach boys seems to have been replaced in this case with an image of Heidi Fleiss setting up a floating brothel in Beverly Hills. AAA? You were wooed Mr. Moody’s and Mr. Poor’s by the makeup, those six-inch hooker heels, and a “tramp stamp.” Many of these good looking girls are not high-class assets worth 100 cents on the dollar. And sorry Ben, but derivatives are a two-edged sword. Yes, they diversify risk and direct it away from the banking system into the eventual hands of unknown buyers, but they multiply leverage like the Andromeda strain. When interest rates go up, the Petri dish turns from a benign experiment in financial engineering to a destructive virus because the cost of that leverage ultimately reduces the price of assets. Houses anyone?

  Bess Levin has more.

• U.S. Home Prices Fell for the 17th Month in a Row
  Eddy Elfenbein, June 26th, 2007 at 12:24 pm

  Wow.

  U.S. home prices fell for the 17th month in a row with all regions showing the effect of the housing slowdown, according to a housing index released Tuesday by Standard & Poor’s.
  For April, the S&P/Case-Shiller index that covers 10 U.S. cities fell 2.7 percent from a year ago. It was the steepest decline since 1991.
  The S&P’s 20-city index showed a 2.1 percent drop in the price for sales of existing single-family homes across the U.S.
  The April sales figures show that 14 of 20 cities reported prices had dropped or remained flat compared to 2006, S&P said.
  “No region is immune to the weakening price returns,” MacroMarkets Chief Economist Robert Shiller said in a statement.

  

• Lennar’s Earnings
  Eddy Elfenbein, June 26th, 2007 at 11:09 am

  This morning, Lennar (LEN) reported earnings (or lack thereof). The company lost 22 cents a share and that doesn’t include a huge $1.33 a share charge. Sales dropped 37%.
  Here’s a look at Lennar’s sales and earnings for the past few years. The last number is my estimate for this year.
  

• The Fed Should Cut Rates By 0.25%
  Eddy Elfenbein, June 26th, 2007 at 10:00 am

  The Federal Reserve is meeting this week, as it’s almost universally expected that nothing will happen. I agree, the Fed won’t raise or lower rates, but I think it’s time that the Fed should lower interest rates. I’m not pushing for a big cut, just a small 25-basis-point cut for now, and we can see where that leads us.
  Historically, there have been “fine tuning” measures from the Fed. Ten years ago, the Fed bumped up rates from 5.25% to 5.5%. That was the only move in nearly two-and-half years.
  The main reason for my outlook is the sudden drop in short-term interest rates. The 90-day T-bill and the Fed Funds rates almost always track each, but not lately. Last week, the yield on short-term Treasuries dropped below 4.4%. That’s a difference of over 85 basis points from the Fed, and it’s the widest such spread in six years.
  Clearly, the market wants a cut. I think the Fed has been most effective when it has given the market what it wants instead of trying to push it where it doesn’t want to go.
  The other reason is that inflation seems to be cooling off. Last October, the core rate of inflation got to 2.9% and now it’s backed off to just 2.2%. Most surprisingly, that’s exactly what the Fed said will happen (here’s my exclusive coverage of Bernanke’s testimony from last July).
  I know there are many concerns about the government’s measure of inflation, and the use of the core rate. I think these arguments are correct, however, my concern here isn’t the level of inflation but the direction. Inflation maybe higher than they’re telling us, but it’s lower than where it was. This means that the “real” Fed Funds rate, meaning the difference between the Fed’s target rate and inflation, has been increasing. So in effect, as inflation has cooled off, it’s been as if the Fed has continued to raise rates.
  The real Fed Funds rate is now slightly over 3%. Historically, anything more than that is trouble for the economy. I also don’t get how gold can be around $650. With 3% real rates, that seems massively overpriced.
  Here’s a chart of 90-day T-bills (yellow), the Fed Funds rate (blue), core inflation (black) and the real Fed Funds rate (red) going back to 1991.
  

• That Was Quick
  Eddy Elfenbein, June 25th, 2007 at 3:14 pm

  Blackstone (BX) is about 10% below today’s open.
  

• News Items
  Eddy Elfenbein, June 25th, 2007 at 1:17 pm

  Here are a few news items over the past few days:
  I’ll start with a positive article on Jos. A. Bank (JOSB). JOSB has been, by far, our best stock this year.
  Medtronic (MDT) raised its dividend from 11 cents a share to 12.5 cents a share. The company has increased its dividend every year since 1978. Medtronic also increased its stock buyback plan by 50 million shares, which is about 4.4 % of the outstanding shares.
  Shares of Harley-Davidson (HOG) got a boost on Friday due to rumors of a buyout from Honda. Please. There’s no way that would have happened. Honda officially squashed the rumor, and HOG is lower today.
  Finally, Bed Bath & Beyond (BBBY) reports earnings on Wednesday. Earlier this month, the company issued its first-ever profit warning. The Street was expecting 39 cents a share, but BBBY said it will be between 36 and 38 cents a share. The stock is down over 8% since then. Historically, earnings for the first quarter make up about 15% of the full-year earnings. I wouldn’t be surprised to see EPS of 39 cents.