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Bed Bath & Beyond Inc. (NASDAQ:BBBY) reported better-than-expected third-quarter 2011 results on the heels of strong growth in sales and higher margins.

Earnings rose approximately 28.4% to 95 cents per share from the year-ago earnings of 74 cents a share, handily surpassing its earnings guidance range of 82 cents to 87 cents per share. Bed Bath & Beyond also outpaced the Zacks Consensus Estimate of 88 cents a share.

Quarterly Details

Bed Bath & Beyond's top line jumped almost 6.8% to $2,343.6 million from $2,193.8 million in the year-ago quarter. However, the company's top line missed the Zacks Consensus Estimate of $2,359 million.

The company has been witnessing incremental trends in comparable-store sales for the past several quarters. The comparable-store sales had treaded downwards for the last time in second quarter of fiscal 2009, when it edged down 0.6%. In the current quarter, comparable-store sales increased approximately 4.1% compared with a 7% rise in the previous-year quarter.

Gross profit margin for the quarter remained flat year-over-year at 40.9%. The profit margin was benefited by reduced markdowns as a percentage of net sales, which were fully offset by a change in the mix of merchandise sold, which included lower-margin categories and higher inventory acquisition costs.

Bed Bath & Beyond's lower payroll and occupancy expenses as a percentage of net sales coupled with reduction in advertising expenses led to lower selling, general and administrative expenses, which eventually resulted in operating margin expansion of 130 basis points to 15.2% compared with the prior-year quarter.

Financial Position

Bed Bath & Beyond ended the quarter with cash and cash equivalents of $765.8 million compared with $840.3 million in the year-ago quarter. Moreover, the company ended the quarter with shareholders' equity of $3,910.5 million versus $3,798.9 million in the prior-year quarter.

During the reported quarter, the company repurchased $328 million worth of shares, representing approximately 5.6 million shares. At the end of third-quarter 2011, the company has approximately $1.3 billion remaining under its new share repurchase program of $2.0 billion, authorized in December 2010.

Stores Update

The company currently operates 993 Bed Bath & Beyond stores in all 50 states, the District of Columbia, Puerto Rico and Canada, 71 Christmas Tree Shops stores, 61 buybuy BABY stores and 46 stores under the brands of Harmon or Harmon Face Values, thereby bringing the total store count to 1,171 at the end of the quarter.

The company added seven Bed Bath & Beyond stores, seven buybuy BABY stores, one Christmas Store and one Harmon Face value Store in the reported quarter.

Since the commencement of the fourth quarter, the company has opened one additional buybuy BABY store and closed one Harmon store. Bed Bath & Beyond is also a partner in a joint venture, which operates two stores in the Mexico City market under the name "Home & More".

Bed Bath & Beyond has planned to make a capital expenditure of $275 million for new store openings and remodeling the existing stores. Since the beginning of fiscal 2011, the company has opened 36 stores, and is planning to increase the total number of new store count to approximately 39 stores across all of its concepts by the end of the year.

Management's Sales Guidance and Comparable-Store Sales Outlook

Management expects comparable-store sales to increase in the range of 2% to 4% in the fourth quarter of fiscal 2011 and by 5% in fiscal 2011. Consequently, the company expects comparable-store sales to trigger net sales in the range of 4% to 6% in the fourth quarter and 7% to 8% in fiscal 2011.

Earnings Guidance

Bed Bath & Beyond expects to deliver fourth-quarter 2011 earnings per share between $1.28 and $1.33. Fiscal 2011 earnings per share are expected to be in the range of $3.86 to $3.92, an increase of 22% to 25% from the prior-period level, up from the previous forecast of 22% to 25%.

Bed Bath & Beyond operates in a highly fragmented industry and faces competition from larger retailers such as Target Corporation (NYSE:TGT) and Wal-Mart Stores Inc. (NYSE:WMT) as well as from departmental and specialty stores. Being in a highly-competitive industry, Bed Bath may find it difficult to execute and implement new business strategies, which in turn, will impact its operations adversely.

Currently, Bed Bath & Beyond holds a Zacks #2 Rank, implying a short-term ‘Buy’ rating on the stock. The company retains a long-term ‘Neutral’ recommendation on the stock.

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Source: Bed Bath Beats EPS, Shy Of Revenues