Is Bed, Bath & Beyond A Buy Right Now?

It's been a very disappointing year-to-date for investors in Bed, Bath & Beyond  (NASDAQ: BBBY  ) , with the home furnishings company seeing its share price fall by 24% since the turn of the year. Clearly, this doesn't compare well to the wider index, with the S&P 500 being up close to 5% over the period. However, with Bed, Bath & Beyond now trading at the same level as it was in the first quarter of 2013 (and from where it made gains of 33% within nine months), could now be an opportune moment to buy shares?

Putting Bed, Bath & Beyond's quarterly results under the investment microscope
A source of disappointment for shareholders in Bed, Bath & Beyond was the fact that earnings for the final quarter of the 2013 fiscal year (the thirteen weeks to March 1 2014) decreased compared to the final quarter of the 2012 fiscal year. The decline was not huge, but it is significant because the US economy has picked up pace over that time period and it is reasonable to assume that companies such as Bed, Bath & Beyond should be enjoying increased demand for their products.

Net earnings per share (EPS) fell from $1.68 in the fourth quarter of 2012's fiscal year to $1.60 in the fourth quarter of 2013's fiscal year. This is a drop of 4.8%, but it should be taken into account that the previous quarter contained fourteen weeks, while the final quarter of 2013's fiscal year contained only thirteen weeks. Clearly, such differences are ironed out over the long run but the fall in earnings can at least be partly attributed to a shorter time period in which to generate profits.

However, Bed, Bath & Beyond has struggled to tap into the improved macroeconomic outlook across the US. Quarterly comparable store sales increased by 1.7%, which although it is a positive number is considerably lower than the comparable in the previous year's quarter of 2.5%. Furthermore, the comparable store sales numbers take into account the difference in number of weeks between the two periods, so it's clear that sales growth is somewhat sluggish although it is by no means a disaster.

Let's focus on the recent performance of two of Bed, Bath & Beyond's peers
Macy's  (NYSE: M  ) was able to deliver EPS growth of 9% in the first quarter of fiscal year 2014 (to May 2014), although it too struggled to deliver strong top-line growth. Revenue fell by 1.7%, while comparable sales were only slightly better at minus 1.6% when compared to the first quarter of fiscal year 2013. Including sales from departments licensed to third parties, comparable sales were better at minus 0.8%, but it remains a disappointing performance albeit when business trends were soft according to Macy's chairman and CEO, Terry J. Lundgren. The potentially positive takeaway, though, is that he added that the trend improved in April as Macy's moved into its second quarter, which could bode well for the quarterly update for the three months to August 2014.

Meanwhile, Wal-Mart  (NYSE: WMT  ) also struggled to make gains in its first quarter (to May 2014) as EPS from continuing operations fell by 3.5% compared to the first quarter of the previous year. A key reason for the fall was severe weather disruption (which may have been a cause of disappointment at Bed, Bath & Beyond and at Macy's too) as well as a higher effective tax rate for the quarter. On a more positive note, excluding unfavourable currency impacts would have caused sales to increase by 2.1% in the quarter, although comparable sales fell by eight basis points – partly due to the previously mentioned adverse weather – but would have been positive were it not for the exceptional weather conditions.

What could the future have in store for Bed, Bath & Beyond?
Looking ahead, Bed, Bath & Beyond confirms that the current fiscal year (to March 1 2015) is likely to show growth of around 5.4% in EPS, with the following year (to March 1 2016) forecast to show a considerable improvement, with EPS expected to increase by 8.3%. Such numbers show that Bed, Bath & Beyond could prove to be a steady, if unspectacular, performer and that, while the top-line may not be growing at the rate that the market is seeking, the bottom-line growth prospects appear to be positive.

In addition, Bed, Bath & Beyond continues to offer good value for money at current levels which, I believe, highlights an overly excessive drop in share price during 2014. For instance, Bed, Bath & Beyond currently trades on a price to earnings (P/E) ratio of 12.7, which is considerably lower than that of the S&P 500 on 18.5 and its two previously mentioned peers, which have P/E's of 14.6 (Macy's) and 15.7 (Wal-Mart). As such, I feel that Bed, Bath & Beyond could be a strong performer through 2014.

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