Thursday, April 8, 1999

Bed Bath & Beyond Inc.
(Nasdaq: BBBY)
Phone: 908-688-0888
Price (4/1/99): $35 3/4


There are hard gains being made with the peddlers of soft goods. Bed Bath & Beyond, like Linens 'n Things (NYSE: LIN), has been the beneficiary of a housing boom and swelling consumer confidence lately.

With the impressive distinction of having produced same store sales increases every single year since its 1992 initial public offering, ramped up expansion by Bed Bath & Beyond has been applauded on Wall Street.

After market jitters dropped the stock into the teens seven months ago, the shares have been doing nothing but ringing up gains. The Bed & Bath are looking pretty good. The Beyond is looking even better.


Bed Bath & Beyond is one the country's largest home furnishings retailers. The New Jersey-based company operates 189 namesake superstores representing 7.8 million square feet.

This year the company expects to open 50 new stores.


Income Statement
12-month sales: $1397.2 million
12-month income: $97.3 million
12-month EPS: $0.68
Profit Margin: 7.0%
Market Cap: $5298.4 million

Balance Sheet
Cash: $90.4 million
Current Assets: $455.3 million
Current Liabilities: $205.7 million
Long-term Debt: None

Price-to-earnings: 52.3
Price-to-sales: 3.8


Last year Bed Bath & Beyond split its shares 2-for-1. While these popular stock dividends are not material to a company's fundamentals, they often assure investors that upper management believes that the future looks promising enough to justify the lower share price.

Bed Bath & Beyond had the misfortune of doubling its shares outstanding at half the price just as the market was beginning to cool off late last summer. You can't fault the company for not owning a crystal ball on what the equity markets will do in the future. At least Bed Bath & Beyond has a history that earned its internal optimism.

The company had consistently met or exceeded analyst expectations. The streak of positive annual comp sales was showing no signs of abating. As a matter of fact, it was just beginning to strengthen. Over the past three quarters the comps have risen 6%, 8.8% and 10.8%, respectively. While that kind of steamroller momentum may not have been obvious when the stock was languishing in the high teens, the company's credible past performance made the stock an attractive purchase.


What makes a house a home? Personal touches. We had 5 million home resales last year and it's a pretty safe bet that many of those transplanted homeowners had to stock up on new textiles and other accessories for the new homestead.

But being in the right sector is not always enough. While the company's price action over the past year mirrors Linens 'n Things the tide has not risen on all boats in this soft goods harbor. Pier 1 Imports (NYSE: PIR) and Bombay Company (NYSE: BBA) are finding their shares draping over new lows.

A look at comp sales reveals why we have such a wide discrepancy. Recent months have been flat to lower at Pier 1 and Bombay. That is hardly the case at Bed Bath & Beyond and Linens 'n Things, which reported same store sales gains of 7.6% and 8% over the past year, respectively.

The size of the box apparently matters here. Pier 1 and Bombay sell a limited collection of often eclectic imported home furnishings in small mall locations. The average Bed Bath & Beyond takes up more than 40,000 square feet and its emphasis is on selection but at discounted prices.

Thrifty is in, Fools. Despite strong domestic employment levels that are beginning to reach marks unseen over the past three decades, the concept of saving money on retail goods seems to have stuck for good. Check out Wal-Mart (NYSE: WMT) for the ultimate proof that a "falling prices" strategy often leads to higher share prices.

Right now, it's hard to consider the stock of Bed Bath & Beyond to be the same screaming buy as, say, one of the store's clearance white sale items. Upward revisions still have the company only earning about $0.85 a share this new fiscal year (which ends in February 2000) and a little more than a buck next year. That has the company selling at a much higher multiple than the projected earnings growth rate or even the 27% new store growth rate that expansion dictates over the next year. However, investors have shown a tendency to pay respectable premiums for proven quality names -- and Bed Bath & Beyond fits the bill like a fitted sheet.

--Rick Aristotle Munarriz

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