Investors were shaken out of a comfortable slumber when perennial outperformer Bed Bath & Beyond (NASDAQ:BBBY) issued its earnings warning earlier this month. When the actual fiscal Q1 2007 numbers come out on Wednesday, will the company make them feel once more right at home?

What analysts say:

  • Buy, sell, or waffle? Twenty-five analysts follow Bed Bath, giving it nine buy ratings, 14 holds, and a pair of sells.
  • Revenues. On average, they're looking for 10.5% sales growth to $1.54 billion.
  • Earnings. Profits are predicted to come in just 6% higher at $0.37 per share.

What management says:
The big news at Bed Bath this quarter is almost certainly no news to you -- not if you have Internet access, own a television, or subscribe to a newspaper. Bed Bath issued its first ever earnings warning this month. Read all about it here. The dime tour version, though, goes like this: Bed Bath basically predicted the same numbers that you see the analysts parroting in the section above. The good news: There's still a chance the firm will "beat" those estimates, as it predicted "approximately 11%" sales growth, and its earnings range went as high as $0.38 per share. A few well-timed, post-warning buybacks, funded from its near-$1 billion warchest, would suffice to concentrate its profits and meet or beat that target.

What management does:
As mentioned in last quarter's pre-earnings Forecast, we've seen a continuing "deterioration in Bed Bath's business" as operating and net margins continue to decline. That continued last quarter, and worse -- gross margins began moving south as well.

Margins

11/05

2/06

5/06

8/06

11/06

3/07

Gross

42.7%

42.8%

42.9%

42.9%

43.1%

42.8%

Operating

15.6%

15.6%

15.4%

15.1%

14.9%

14.2%

Net

9.9%

9.9%

9.6%

9.4%

9.3%

9%
All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
If I got a nickel for every time a retailer (Wal-Mart (NYSE:WMT)), furniture maker (Furniture Brands (NYSE:FBN)), or restaurateur (Starbucks (NASDAQ:SBUX)) called its business "challenging" -- why, I suspect I could give up investing entirely, and retire on the proceeds of my trademark license. So it's little surprise that in making its first-ever earnings warning, Bed Bath, too, uttered the dread "c" word.

Somehow, though, I doubt Bed Bath will have too much trouble rising to the challenge. Retail has been tough for some time now, what with gas prices rising and home equity falling, yet this is the first time we've heard Bed Bath complain. In an industry where almost everyone is struggling, Bed Bath still sports superb margins, high enough to make it the envy of any number of rivals, from Target (NYSE:TGT), to Pier 1 (NYSE:PIR), to Williams-Sonoma (NYSE:WSM). And with the firm still boasting a strong, cash-rich balance sheet, rising sales, and inventories that grow no faster than sales, I see little reason to expect significant pressure on the firm's margins in the immediate future.

Of course, if Wednesday's news shows inventories spike while sales flatline, all bets are off.

For more Bed-time reading, try:

Bed Bath & Beyond is both a Motley Fool Stock Advisor selection and a Motley Fool Inside Value recommendation. Wal-Mart is also an Inside Value pick and Starbucks is a Stock Advisor choice. Two great newsletters, lots of great companies. Click the links above for a free 30-day trial to either newsletter.

Fool contributor Rich Smith does not own shares of any company named above.