Bed Bath & Beyond’s Earnings

Bed Bath & Beyond (BBBY) just reported earnings for their third quarter. This is the one that ended in November so the holiday sales aren’t included.
I’ve been a defender of BBBY—and I still like and own it—but this report isn’t a good one. Sales rose by 10.8%. Operating and net earnings are down from last year, but thanks to share buybacks, the per-share numbers are up slightly. EPS rose 4.6% from 49.86 cents to 52.16 cents. The market was expecting 52 cents a share.
BBBY has been pouring money heavily into share buybacks. The number of diluted shares has dropped by 7.2% over the past four quarters. Although sales rose by 10.8%, sales-per-share rose by 19.5%. That’s the good part. The bad part is they’re paying for those sales with lower margins. This is the ninth straight quarter of lower net profit margins, although margins are still higher then they were in 2001.
Decreasing margins are rough for any business. To show you what I mean, let’s compare this past quarter with the Q3 from two years ago.
Net margins dropped from 9.29% to 7.70%. That’s a rate drop of 17.12%, which means that you have to increase sales by over 20% just to stay flat. Total sales rose 23.89% and diluted shares dropped 11.98%. Put it all together and you get an EPS increase of 16.66%. That’s the kind of headwind they’re running against.
Now for the bad news. Wall Street was expecting Q4 earnings of 78 cents a share. BBBY said it will be between 64 and 67 cents a share.

For the fiscal fourth quarter of 2007, ending March 1, 2008, the Company estimates it will earn approximately $.64 to $.67 per diluted share based, in part, upon a projected flat comparable store sales percentage for the quarter. This would bring the Company’s full year earnings estimate to a range from approximately $2.08 to $2.11 per diluted share. The fiscal 2007 fourth quarter and full year have one less week than last year’s corresponding periods, as fiscal 2006 was a fifty-three week year.

Here are the earnings results going back a 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-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
Aug-07 $1,767,716 $732,158 $211,037 $147,008 $0.55
Nov-07 $1,794,747 $747,866 $203,152 $138,232 $0.52

From the conference call, here’s Senior of Investor Relations Ronald Curwin discussing Q4:

As we said in September the business environment remains challenging particularly in areas most affected by housing market issues. Concerns about the economy, consumer spending, energy prices, housing and credit availability in particular persist. Recall that in last year’s fourth quarter we reported earnings per share of $0.72 per share which included a $0.07 per share non recurring charge. Excluding this non recurring charge earnings per share for the fourth quarter fiscal 2006 would have been reported at $0.79 per share. Also affecting the comparability of our fourth quarter 2007 earnings is that last year’s fourth quarter include 14 weeks of sales including the week after Thanksgiving versus this year’s fourth quarter that will have 13 weeks of sales excluding the week after Thanksgiving. The exclusion of the week after Thanksgiving in this year’s fourth quarter will have a negative impact on net sales of approximately $175 million when compared to the fourth quarter of last year.
Assuming a relatively flat comp stores sales percentage for the fiscal fourth quarter and concerting one less week of sales a year ago resulting from the current year calendar shift we anticipate a 2 to 4% percentage decrease in net sales and we would now estimate fourth quarter earnings in the range of from $0.64 to $0.67 per diluted share which would bring the full year’s earnings estimate in the range of from $2.08 to $2.11 per diluted share.

By the way, BBBY doesn’t take questions during their calls. C’mon fellas, remember who owns the company!

Posted by on January 3rd, 2008 at 5:56 pm


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