Will Bed Bath & Beyond Come Back From the Dead, or Is Macy's the Way to Go?

After seeing its shares plummet, Bed Bath & Beyond could be a great bargain! However, is it possible that Macy's makes for a better play for the Foolish investor?

Jul 2, 2014 at 9:00AM


Source: Bed Bath & Beyond

After Bed Bath & Beyond (NASDAQ:BBBY) reported revenue and earnings results that fell shy of analyst expectations on June 25, shares fell 7% the next day to close at $56.70. With shares of the domestic merchandise retailer trading near a new 52-week low, some investors might think that now's the time to get in. However, is it more likely than not that the real action for the Foolish investor can be found in Macy's (NYSE:M) instead?

Bed Bath & Beyond just couldn't please
For the quarter, Bed Bath & Beyond reported revenue of $2.66 billion. Although this represents a modest 2% gain over the $2.61 billion management reported last year, its results came in short compared to the $2.69 billion analysts anticipated. In its press release, the company attributed its rising sales to a 1.5% increase in store count to 1,500 locations from the 1,478 reported for the same quarter last year. This was complemented by a disappointing 0.4% improvement in comparable-store sales.

  Actual Forecast Last Year's
Revenue (billions) $2.66 $2.69 $2.61
Earnings per share $0.93 $0.95 $0.93

Source: Yahoo! Finance

From a profitability standpoint, Bed Bath & Beyond's numbers were even worse. For the quarter, management reported earnings per share of $0.93, matching last year's performance but missing the $0.95 Mr. Market hoped to see. Despite benefiting from higher revenue, the retailer's bottom line was hit by rising costs, primarily in its cost of goods sold, which rose from 60.5% of sales to 61.2%, and its selling, general, and administrative expenses, which increased from 27.2% of sales to 27.5%. This was, however, offset by a 7% reduction in share count as the company bought back shares.

But how does the company fare against the competition?
Over the past five years, Bed Bath & Beyond has been a pretty decent growth story. Between 2009 and 2013, the retailer saw its revenue jump 47% from $7.8 billion to $11.5 billion, while net income soared 70% from $600 million to $1 billion. The increase in revenue has been, for the most part, chalked up to a 36% rise in store count from 1,100 locations in 2009 to 1,496 by the end of its 2013 fiscal year. The company's net income performance has been mostly due to its increased sales but can also be attributed to lower costs in its selling, general, and administrative expenses in relation to revenue.

BBBY Revenue (Annual) Chart

Bed Bath & Beyond Revenue (Annual) data by YCharts

While Bed Bath & Beyond's results have been impressive over the past five years, Macy's hasn't been anything to scoff at. Between 2009 and 2013, Macy's saw its revenue shoot up 19% from $23.5 billion to $27.9 billion. Although Macy's store count decreased by 0.7% from 847 locations to 841 during this period, its aggregate comparable-store sales growth of 10% (12% including its store-within-a-store concepts) and improving e-commerce sales helped to pick up the slack.

BBBY Net Income (Annual) Chart

Bed Bath & Beyond Net Income (Annual) data by YCharts

From a revenue standpoint, Macy's did well but nowhere near as well as Bed Bath & Beyond. But from a profit perspective, the company's performance put its rival's growth to shame. Between 2009 and 2013, Macy's saw its net income skyrocket 352% from $329 million to $1.5 billion. Some of this increase can be chalked up to the retailer's higher sales, but bigger contributors appear to be the 20% reduction in debt the company reported and the drop in its selling, general, and administrative expenses from 34.3% of sales to 30.2%.

Foolish takeaway
Based on the data provided, Mr. Market was displeased with Bed Bath & Beyond's performance this quarter, but there is some upside. On top of seeing strong long-term growth, the retailer is still showing signs that sales are continuing to increase. This suggests that the business is fundamentally sound, but the drop in profits (only saved by a decreased share count) is something Foolish investors need to monitor if they decide to pick up its shares. As an alternative, Macy's may be a strong play. Admittedly, the retailer's revenue growth hasn't been as rapid as its rival's, but its jump in profitability is hard to pass up.

Top dividend stocks for the next decade
Although Bed Bath & Beyond holds some potential, there is one thing the company is lacking: a strong, stable dividend that's poised to deliver attractive returns over the long run!

You see, the smartest investors know that dividend stocks simply crush their non-dividend paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.

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