Bed Bath & Beyond Beats Estimates But Its Outlook Falls Short

Jun.25.12 | About: Bed Bath (BBBY)

Domestic merchandiser Bed Bath & Beyond (NASDAQ:BBBY) reported strong 2012 fiscal year first quarter results after the market close on Wednesday afternoon. The company earned $0.89 per share, an increase of 24% on a year-over-year basis, compared to the consensus estimate of $0.85 for its first quarter. Revenue was in-line with the Street estimate of $2.2 billion (up 5%). Same-store sales were also strong, growing 3% compared to the same quarter last year.

However, the company's outlook disappointed investors. The firm guided to earnings of $0.97-$1.03 per share versus a consensus estimate that called for $1.08 per share for its second quarter. The company also forecasted same-store sales to grow 2-4% for the second quarter and the year, as well as earnings per share to expand in the high-single to low-double digits for fiscal year 2012. Management reiterated that it thinks its Bed Bath & Beyond concept can expand to over 1,300 stores over time, and that the company can continue to selectively open more BuyBuy Baby, Christmas Tree Shop, and Cost Plus World Markets locations. The firm also bought back $306 million worth of stock during the quarter and still has $613 million remaining in its current repurchase agreement.

The market took the news negatively, as shares tumbled following the report. Though guidance was below expectations, we thought the company's quarterly results were strong and that the firm's somewhat conservative guidance is nothing to be overly worried about. Bed Bath & Beyond provided conservative guidance following its strong results in its FY2011 fourth quarter, so we take it as a sign that management is merely conservative rather than that the business is weakening. Further, we see upside in earnings once the actual acquisition of Cost Plus World Market (and its 259 stores) finally is completed. We think Cost Plus World Market will benefit from management's superior operational execution, and thus the 20x 2012 earnings that Bed Bath & Beyond paid for the firm could end up being a bargain.

With over $1 billion in cash, projected capital expenditures for FY2012 of $275-$325 million, the firm continues to have a strong balance sheet and cash-flow profile. However, we think the shares are fairly valued at current levels (click here for our DCF valuation model template). Bed Bath & Beyond registers a 6 on our Valuentum Buying Index, so we're not very excited about the shares even after the fall.

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Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.