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Eddy Elfenbein submits: Bed Bath & Beyond (BBBY) just reported earnings of 50 cents a share, two cents below estimates. Wall Street was expecting earnings of 52 cents a share. Last year, BBBY made 45 cents a share.

Historically, more than one-third of the company's earnings comes during this (the February) quarter. I have to say that I'm very impressed with BBBY's gross margins. For this quarter, gross margins topped 43%. That's an improvement of 2.6% in the last six years.

Perhaps I’m missing something, but I don’t see where the big increase in SG&A is coming from (that’s gross profit minus operating profit). This had been decreasing for several quarters. It jumped in the four quarters prior to this one, but that was due to that FASB 123R jazz. That I understand, but this I don’t get.

Like I said, I could be missing something. This is just a first look. Perhaps the company will address it on the call (btw, BBBY is one of the few companies that doesn’t take on questions on its call).

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

The company also announced a $1 billion share buyback program. The AP also notes:

Bed Bath & Beyond expects a $40 million charge during its fiscal fourth quarter as part of "a program intended to protect over 1,600 employees from certain potential adverse tax consequences." The tax consequences are a result of historical issues with some of the company's stock option grants disclosed through a company stock option review.

The Securities and Exchange Commission is conducting an informal investigation into Bed Bath & Beyond's stock option grant practices. The U.S. Attorney for the District of New Jersey is conducting a similar inquiry. Both probes are looking at backdating, in which the vesting date of a stock option is changed to make it more valuable to the holder. While not illegal, the practice must be properly disclosed to shareholders.

See: Bed Bath & Beyond Post-Earnings: Taxes, Operations and Guidance and Bed Bath & Beyond Q3 2006 Earnings Call Transcript

Source: Bed Bath & Beyond Earnings: Gross Margins Are Impressive