Great Value at Bed Bath & Beyond, Inc. (Just Give It Time)

Despite a slowdown in growth, Bed Bath & Beyond, Inc. looks like a solid investment opportunity.

Apr 14, 2014 at 1:53PM

Bed Bath & Beyond (NASDAQ:BBBY) investors have been getting very impatient lately. After shares in the home furnishings giant rallied in the first few years after the Great Recession, stagnation has set in since 2012.

BBBY Chart

Bed Bath & Beyond 5-Year Stock Chart. Source: YCharts.

Like other forward-looking brick-and-mortar retailers, Bed Bath & Beyond is investing heavily in technology in order to keep up with online competitors. To some extent, it is also experiencing gross margin pressure as consumers demand discounts. However, Bed Bath & Beyond is still positioned for long-term success.

Sales growth slowing
Last quarter, Bed Bath & Beyond posted modest 1.7% growth in comparable-store sales. The company was negatively affected by the short holiday shopping period and bad weather in January and February that forced hundreds of stores to close at different times.

The company is projecting that this sluggish sales growth will continue into Q1 of FY 2014, when comparable-store sales are expected to rise 1%-2.5%. However, sales growth should strengthen later in the year, leading to Bed Bath & Beyond's projection for full-year comparable-store sales growth of 3%.


Low-single-digit comparable-store sales growth may be the new normal for Bed Bath & Beyond.

To a large extent, Bed Bath & Beyond's struggles can be blamed on the U.S. consumer spending environment, which remains sluggish. Plenty of department stores have faced weak sales trends recently.

That said, Bed Bath & Beyond has continued to keep comparable-store sales growth and EPS moving in the right direction. The company expects mid-single-digit EPS growth this year, driven by a combination of sales growth and share repurchases, offset by lower margins.

Is margin contraction a concern?
In fact, the main thing holding back Bed Bath & Beyond's earnings has been margin pressure, not weak sales growth. Some of this has come on the revenue side, due to customers trading down to lower price points and higher coupon expense. Both of these issues have been noted on the last couple of earnings calls.

However, 20%-off coupons have been ubiquitous at Bed Bath & Beyond for a long time, and that hasn't been a problem in the past. So while there may be a small step-down in gross margin -- which declined 0.5% last year and is expected to decline modestly in FY 2014 -- this doesn't seem like a big warning flag. Nevertheless, investors should keep an eye on gross margin to make sure that the declines don't accelerate.


Bed Bath & Beyond 20% off coupons are virtually ubiquitous.

Bed Bath & Beyond's investments in e-commerce and omnichannel initiatives have been an even bigger contributor to margin pressure. Expenses have risen as the company has moved to replatform most of its websites and mobile apps, build a new fulfillment center, and invest in other IT capabilities.

All of these technology investments are expensive, and they don't pay off right away. However, they are preparing the way for the next wave of growth at Bed Bath & Beyond, which will likely be weighted more toward e-commerce than pure in-store transactions.

Foolish bottom line
There's no denying that Bed Bath & Beyond's growth has slowed. However, it remains a high-quality retailer, and it currently trades for about 13 times last year's earnings, making it cheaper than many other slow-growth retailers.

In the next few years, Bed Bath & Beyond should be able to leverage its current technology investments. This will allow it to start expanding its margins again, and it may even bring faster sales growth. Investors who are patient enough to stick around for the long haul are likely to be rewarded.

Your credit card may soon be completely worthless
The plastic in your wallet is about to go the way of the typewriter, the VCR, and the 8-track tape player. When it does, a handful of investors could stand to get very rich. You can join them -- but you must act now. An eye-opening new presentation reveals the full story on why your credit card is about to be worthless -- and highlights one little-known company sitting at the epicenter of an earth-shaking movement that could hand early investors the kind of profits we haven't seen since the dot-com days. Click here to watch this stunning video.

Adam Levine-Weinberg has no position in any stocks mentioned. The Motley Fool recommends Bed Bath & Beyond. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers