Has Bed Bath & Beyond Fallen Too Far?

After being hit with news of poor revenue and in-line earnings, shares of Bed Bath & Beyond plummeted. Is now actually the best time to jump into the company's shares or should investors look at Target or Macy's instead?

Apr 15, 2014 at 5:30PM

Images

Source: Wikimedia Commons

After the market closed on April 9, shares of Bed Bath & Beyond (NASDAQ:BBBY) fell 6% on news that the company's fourth quarter results were slightly worse than anticipated and that management's expectations for its next quarter is far lower than forecasted. In light of this news, it makes sense for shares to drop. Is it possible though that now more than ever is a prime opportunity to pile into the company?

Bed Bath & Below!
During the fourth quarter of its 2013 fiscal year, Bed Bath & Beyond reported revenue of $3.2 billion. This represents a 6% decline compared to the $3.4 billion management reported the same quarter a year earlier and fell almost 1% shy of the $3.22 billion analysts hoped to see.

According to management, the drop in sales is due to an extra week of operations during last year's fourth quarter compared to this year's,  partially offset by a rise in store count and improved store metrics. At the end of its fiscal year, the company operated 1,496 retail locations, up almost 2% from the 1,471 stores in place the same time last year. Additionally, Bed Bath & Beyond's comparable store sales rose 1.7% during the quarter.

Picture

Source: Bed Bath & Beyond

In terms of revenue, Bed Bath & Beyond fell short. The same cannot be said for the company's profitability during the quarter, however. According to management, earnings per share came in at $1.60. This matched analyst expectations and fell in the upper range of the $1.57 to $1.61 the company anticipated as recently as March. It should be noted though that the company's bottom line was lower than the $1.68 the business saw the same quarter a year earlier.

This drop in profits compared to last year's numbers was mostly due to the company's fall in revenue, but it can also be chalked up to higher costs in relation to sales. For the quarter, the company's cost of revenue rose from 59% of sales to 59.5%, while its selling, general, and administrative expenses notched up from 23.4% of sales to 24%. These negative events were partially offset by a 6.5% drop in the number of shares outstanding because of management's decision to buy back $532 million worth of the company's shares over the quarter.

Can the company handle the heat?
Over the past five years, Bed Bath & Beyond has been on fire. Between 2009 and 2013, the company's revenue soared an impressive 47% from $7.8 billion to $11.5 billion. This rise in revenue was driven, in part, by an improvement in the company's comparable store sales over time. It was also attributable to its acquisition of other retailers like World Market and Linen Holdings.

BBBY Revenue (TTM) Chart

Source: BBBY Revenue (TTM) data by YCharts

In juxtaposition, both Target (NYSE:TGT) and Macy's (NYSE:M), two of Bed Bath & Beyond's largest rivals, saw their sales rise 11% and 19% from $65.4 billion to $72.6 billion and from $23.5 billion to $27.9 billion, respectively. In the case of Target, the rise in revenue was due to higher comparable store sales over time, but it was also due to higher store count. Macy's also attributed its rise in revenue to a greater number of locations, but with most of its growth due to higher comparable store sales, part of which was driven by its store-within-a-store operations.

In terms of profitability, Bed Bath & Beyond did even better than it did from a revenue perspective, with net income rising 70% from $600 million to $1 billion. On top of benefiting from rising sales, the company saw its selling, general, and administrative expenses fall from 28.5% of sales to 25.7%.

Over this timeframe, Macy's performed even stronger. Between 2009 and 2013, the retailer's net income jumped 352% from $329 million to $1.5 billion. Like Bed Bath & Beyond, Macy's bottom line improvement came from higher revenue and a decline in its selling, general, and administrative expenses, which fell from 34.2% of sales to 30.2%, but there were other factors involved. During the five-year period, the company reduced its debt load from $8.5 billion to $6.7 billion, resulting in a 30% decrease in interest expense per year.

BBBY Net Income (Annual) Chart

Source: BBBY Net Income (Annual) data by YCharts

Target hasn't been so lucky. Even though the company's revenue improved at a respectable rate over the past five years, its bottom line fell by 21% from $2.5 billion to about $2 billion. Excluding 2013, the company's revenue actually rose 21%. However, the lower revenue stemming from its data breach, combined with $17 million in expenses relating to it and a 41% jump in interest expenses over the past five years, negatively affected its profitability.

Foolish takeaway
Based on the data provided, it looks like Bed Bath & Beyond's quarter was OK but far from great. The business reported a drop in both revenue and profits over the past quarter, but its longer-term performance has been enviable. In spite of fierce competition from its rivals, the company has to compete with e-commerce sites. Still, its operations don't appear to have been hurt to any noticeable extent.

Moving forward, it's difficult to tell if Bed Bath & Beyond can continue its long-term growth trend. For the Foolish investor who believes in management's ability to execute strategies and keep up with the changing landscape of retail, though, the business might offer some attractive prospects.

Boost your 2014 returns with The Motley Fool's top stock

Even in spite of its tumble, shares of Bed Bath & Beyond might make for an attractive prospect if management can stave off slowing growth.  However, does this make the company a top stock or are there better investments for the Foolish investor to dive into?

There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Daniel Jones 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 fool.com.

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 www.fool.com/beginners, 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 www.fool.com/podcasts.

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