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Ticker: (Nasdaq: BBBY)
Interest rates are falling. Mortgage and refinancing applications are climbing. With all this money and real estate exchanging hands, is it any wonder that the country is stocking up on bed linens and new bath towels? Is it any wonder they're finding it at Bed, Bath & Beyond (Nasdaq: BBBY)?
Bed, Bath & Beyond owns and operates the country's largest chain of housewares goods. True to its name, the domestics retailer carries soft bed and bath items, and goes beyond that to stock kitchen items and small home furnishings. As of the end of the calendar year the company had 311 locations with a presence in 43 different states.
Why the White Sale? The stock had dipped into the preteens last year just as it was reporting its eighth consecutive record year in terms of both sales and profits. Revenues shot up by 34%. Margins widened as earnings grew by 42%.
Consistency cuts both ways. Knowing that Bed, Bath & Beyond is able to grow its base at a self-financed 20-25% clip over the next few years, even with healthy comps on top of that, the growth upside is clearly limited. Bed, Bath & Beyond Inc.
Phone: 908-688-0888
Website: http://www.bedbathandbeyond.com
Price (2/21/01): $24
How Did It Double?
Yes, it's an easy correlation to make. However, the big surprise is that the company was posting record results even when it was the rates that were doing the climbing and loan applications falling. Since the stock's debut in 1992, the housewares superstore chain has been a consistent grower through the thick and thin of the financial tide.
In the November quarter, even as economists questioned the consumer's desire and ability to spend, the company reported 25% in top-line growth, and more importantly, a 4.2% spike in same-store sales.
This wasn't an industrywide endorsement. Earlier this month, fellow home specialist Lechters (Nasdaq: LECH) got Hannibaled, closing down 166 of its stores and trimming its staff by 30%.
It seems the big-box style of Bed, Bath & Beyond -- and the perceived values laying delicately within -- has achieved an all-weather charm. So while the chain's peers were hung out to dry, the company became a a fluffy comforter of fiscal outperformance.
Business Description
Financial Facts
Income Statement
12-month sales: $2243.8 million
2-month income: $156.1 million
12-month EPS: $0.54
Profit Margin: 7.0%
Market Cap: $7060.80 million
Balance Sheet
Cash: $140.9 million
Current Assets: $866.9 million
Current Liabilities: $419.0 million
Long-term Debt N/A
Ratios
Price-to-earnings: 44.4
Price-to-sales: 3.1
How Could You Have Found This Double?
While retailers are often leveraged concepts who can go from the brink of greatness to the doorstep of bankruptcy in one fickle shopping season, Bed, Bath & Beyond was never like that.
As Richard McCaffery pointed out in a Fool on the Hill column last year, the company was able to fund all of its expansion over the past few years from its operating cash flow. Having a debt-free balance sheet with the ability to live off the fat of your own land is always a welcome sight -- but more so in these nervous times when the market is holding tight to its purse strings.
As the stock stood its ground through most of 1998 and 1999, probably as a result of the tempting allure of high-flying tech stocks at the time, the fundamentals kept marching ahead. It created an opportunity for those who were able to take back their money from under their pillow -- and plunk it down on the pillow retailer.
Where to From Here?
Right now the company is wrapping up its fiscal year. Through the first nine months the company grew sales and profits by 28% and 30%, respectively. It is trading at 36 times year-ahead earning estimates. That's a relatively thin premium to its growth rate in any environment.
So while there is clearly a case to be made for the stock to inch higher, this is hardly the situation where the equity will get another Daily Double treatise a few months from now. But if the company's predictable past becomes its future, this can be a healthy grower that will continue to deliver results above historical market averages.
So, another near-term doubling of price? Probably not. But don't throw in the towel. The company's still working on its spin cycle.
Rick Aristotle Munarriz has never bought a loofah -- though he loves saying that word over and over -- and he's never bought stock in Bed, Bath & Beyond. Rick's stock holdings can be viewed online, as can the Fool's disclosure policy.
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