Will Bed Bath & Beyond Rebound After Its Fourth Quarter?

Bed Bath & Beyond is still in good shape after its latest earnings report.

Apr 17, 2014 at 10:51AM

Bed Bath & Beyond (NASDAQ:BBBY) fell more than 6% after 2013 fourth quarter earnings and revenue came in less than last year's same quarter. EPS was $1.60 compared to last year's $1.68, and revenue was $3.203 billion compared to last year's $3.401 billion, a decrease of 5.8%. The company's earnings were in line with Wall Street estimates, while its revenue number was slightly lower.

Bed Bath & Beyond was not immune to the harsh weather conditions that other retailers experienced this winter. Disruptions due to weather led to 464 instances a store was closed for a full day and 1,923 for a partial day. The company estimated that the impact of weather resulted in a decrease of EPS from $0.06 to $0.07. Moreover, its 2013 fourth quarter reporting period contained one less week, 13 versus 14, than 2012's.

The news was not all bad from Bed Bath & Beyond. Despite the weather and one less week in the reporting period, the company reported an increase in comparable store sales of 1.7% in the fourth quarter. The comparable store sales for the full year in 2013 increased 2.4%. Revenues in 2013 increased 5.4% to $11.504 billion from $10.915 billion in 2012. The company also took advantage of its depressed stock price by repurchasing 7.5 million shares in the fourth quarter of 2013 for an aggregate value of $532 million. Bed Bath & Beyond's share repurchase program still has $1.1 billion remaining, so expect the company to be aggressively buying back stock in the coming quarters as well. The buyback program also led to the company reporting higher EPS in 2013 than in 2012, $4.79 versus $4.56, even with one less week in fiscal 2013.


Source: Bed Bath & Beyond Facebook Page

Bed Bath & Beyond is reaching an extremely low valuation with a current P/E multiple of 13 and a forward P/E of 11.5. The company continues to generate strong cash flows and above average returns on equity and capital, and carries no debt. Bed Bath & Beyond will also benefit from a recovering housing market and the better weather in the coming months as people go out more to shop. Unlike its competitors, such as Wal-Mart Stores (NYSE:WMT), Bed Bath & Beyond strives to create an experience for its shoppers and is not totally subject to customers switching to buying more of its products online. Its products such as bedding, furniture, and bathroom accessories are things customers like to get a feel for and are not easily evaluated online. So, as long as the company continues to drive traffic to its stores and maintain its strong financial position, it should be in good shape for the future.

Wal-Mart is a good company in its own right but it competes mostly on price and not on store experience to the degree that Bed Bath & Beyond does. Therefore, Wal-Mart is especially vulnerable to online retailers selling items that people do not need a feel for such as books, detergent, snacks, and movies. Further, Wal-Mart has to maintain its massive stores, distribution centers, and employ hundreds of thousands of people while online retailers have to maintain their digital presence and distribution network. Wal-Mart's strategy is becoming ever more vulnerable as people switch more and more to online shopping.

It is becoming more important to not only attract customers with the products you offer but also with the experience you offer, and this is easier to do when the products you sell need to be felt and evaluated by customers before purchase. Bed Bath & Beyond is that type of company. Its future is not tied to the growing number of online shoppers and it competes not just on price but on store experience as well. Bed Bath & Beyond's business model is well prepared for the digital age and its financial condition gives it flexibility to pursue avenues to grow the business and reward shareholders effectively.

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Andrew Sebastian has the following options: long August 2014 $67.50 calls on Bed Bath & Beyond. 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.

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