Our growing economic troubles finally caught up with Bed Bath & Beyond (NASDAQ:BBBY) last quarter. Although the retailer managed to beat estimates (for the third time in the year), its earnings nonetheless fell 16% year over year. Hardly the note management wanted to end fiscal 2007 on, I imagine, but perhaps it will be able to turn things around in fiscal 2008? We'll find out Wednesday, when the company reports its Q1 numbers.

What analysts say:

  • Buy, sell, or waffle? Twenty-one analysts follow Bed Bath, which garners eight buy ratings, 10 holds, and three sells.
  • Revenue. On average, they're looking for sales to rise 4% to $1.62 billion.
  • Earnings. Profits are predicted to plummet 29% to $0.27 per share.

What management says:
Things may be rough here at home, but Bed Bath is no longer a totally domestic operation. To the contrary, Bed Bath seems to be going all NAFTA on us lately, advising in May: "Following on our successful entry into Canada, we are excited to be entering Mexico with [a 50% equity investment in Mexico's HomeĀ & More, S.A. de C.V.]

Following, too, in the footsteps of a veritable parade of U.S. corporations expanding south of the border: Everyone from pharmacist Pfizer to automakers GM (NYSE:GM) and Ford, and even fellow retailers Wal-Mart (NYSE:WMT) and Home Depot (NYSE:HD) has been making a run for the border lately. Why? As CEO Steven Temares put it: "We believe there is a significant opportunity for future growth throughout Mexico."

Hey, if everybody else is doing it ...

What management does:
And honestly, it's hard to imagine Bed Bath will do any worse in Mexico than here at home, where margins have been slumping for as long as I can remember. Granted, things aren't quite as bad as at Pier 1 (NYSE:PIR), where management has apparently been driven stark raving mad. Asserting it's healthy as a horse and fit to acquire rivals one day, reporting massive losses the next.

Margins

11/06

3/07

6/07

9/07

12/07

3/08

Gross

43.1%

42.8%

42.7%

42.5%

42%%

41.5%

Operating

14%%

13.4%

13.2%

12.9%

12.5%

11.9%

Net

9.3%

9%%

8.8%

8.7%

8.4%

8%%

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:
So just how bad are things at Bed Bath? Well, as of the end of last fiscal year, management was predicting something in the neighborhood of a 10%-15% decline in earnings this year -- call it $1.80 in per-share profits, give or take. That's assuming the U.S. economy doesn't worsen, and that comps are no worse than "slightly negative" this year.

If all goes well, therefore, we're currently looking at a stock priced at approximately 16 times this year's earnings. Analysts expect it to grow at a little over 12% per year going forward. Seeing as Bed Bath doesn't even pay you a dividend to wait around and see how things will work out, that doesn't look to be a particularly attractive valuation. Unless and until management tells us things are looking up, therefore, I'd consign this stock to the "great Beyond."

If that's the case, though, then why does Fool co-founder, Motley Fool Stock Advisor co-advisor, and all-around investor extraordinaire Tom Gardner argue that Bed Bath is a "Great buy"? Read Tom's midyear update on Bed Bath and all his other stock picks (for free!) and find out.