Earnings Preview: Bed Bath & Beyond

Bed Bath & Beyond Inc. (BBBY), operator of a chain of retail stores, is scheduled to release its second-quarter 2010 results on Wednesday, September 22. The Zacks Consensus Estimate is earnings of 63 cents a share for the second quarter of fiscal 2010.

First Quarter Performance

Bed Bath & Beyond reported better-than-expected first-quarter results on the heels of double-digit growth in sales and higher margins. Earnings rose 53% to 52 cents per share from the year-ago quarter and handily surpassed the earnings guidance range of 44 cents to 48 cents per share. Bed Bath & Beyond also outpaced the Zacks Consensus Estimate of 48 cents a share.

Bed Bath & Beyond’s top line jumped 13.5% to $1,923 million from $1,694 million in the year-ago quarter. The company has been witnessing increasing trends in comparable-store sales. After falling 0.6% in the second quarter of fiscal 2009, comparable-store sales increased in the subsequent quarters. In the quarter under review, comparable-store sales climbed 8.4% compared with a decrease of 1.6% in the prior-year quarter.

Earnings Guidance

Bed Bath & Beyond expects to deliver second-quarter 2010 earnings per share between 59 cents and 63 cents. Fiscal 2010 earnings per share are expected to rise 15% over 2009 earnings per share of $1.64.

Agreement of Analysts

Over the last 7 days only one analyst moved its estimate in the upward direction with no downward movement by any analyst for fiscal 2010. This implies that most of the analysts are neutral on the outlook and do not foresee any upward catalyst or downward pressure on the result. The estimates for third quarter of fiscal 2010 and fiscal 2011 have remained stagnant over the last 7 days, with none of the analysts moving in either direction, leaving the consensus unchanged.

Magnitude of Estimate Revisions

Over the last seven days, there has been no movement in estimates for the next two quarters and for fiscal 2010 and 2011 from the analysts.

Earnings Surprise

Considering earnings surprises, the stock has been steady over the last four quarters, with positive surprises ranging between a low of 8.3% and a high of 34.9%. The average remained positive at 17.8%. This implies that Bed Bath’s has surpassed the Zacks Consensus Estimate by 17.8% over the said period.

The upside potential for the estimate in the second quarter, essentially a proxy for future earnings surprises, currently stands at 0.00%.

Our Recommendation

Bed Bath’s shares maintain a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation. Our long-term recommendation for the stock remains ‘Neutral’.

Bed Bath represents a strong brand with solid growth opportunities. A brisk expansion strategy, debt-free balance sheet and strong cash position augur well for the company’s future operating performance. Further, Bed Bath is well positioned to benefit from recent positive housing turnover trends.

Bed Bath is a long-term growth story with growth driven by newer concepts like buybuy BABY and Christmas Tree Shops. The company’s leadership position enables it to continue to cultivate its market share.

However, macroeconomic headwinds and the resultant impact on discretionary spending, and intense competition from department stores, specialty stores and mass merchandisers undermine the company’s future growth prospects. This leaves limited space for above-market performance of the company.

BED BATH&BEYOND (BBBY): Free Stock Analysis Report

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