Bed Bath & Buy?

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Well, the news is out now, and it's not good. No worse than expected, sure, but still not good.

Bed Bath & Beyond's (Nasdaq: BBBY) second-quarter earnings basically nailed Wall Street estimates. Profits per share came in at the predicted $0.46. Sales totaled $1.85 billion, just a feather's weight shy of analyst estimates. But none of that's really here nor there, is it? What we really want to know is how the company will perform going forward -- and as I said, the news is not good.

Too much stuff, too few sales
If you recall from Monday's pre-earnings Foolish Forecast, I've been keeping a close eye on inventory levels at Triple-B lately. Why? Because inventories can only grow faster than sales for so long, before management bites the bullet and cuts prices (and profit margins) to restore some balance to its working capital.

Now, at last report, Triple-B sales were inching up 1% year over year, while inventories averaged 9% higher for the past six months, as compared with their year-previous levels. Yesterday's news showed a similar relationship -- sales up 5%, inventories up 13%. To put those numbers in context, here's a quick look at how close rivals were doing in their most recent quarterly reports ...

Company	Sales Growth	Inventory Growth
Wal-Mart (NYSE: WMT)	10.4%	3.5%
Target (NYSE: TGT)	5.7%	10%
Williams-Sonoma (NYSE: WSM)	(4.6%)	0.8%
Pier 1 (NYSE: PIR)	(7%)	1.2%

... and here's what we saw at a couple of other big names in the home-furnishings space:

Company	Sales Growth	Inventory Growth
Lowe's (NYSE: LOW)	2.4%	1.8%
Home Depot (NYSE: HD)	(5.4%)	(3.4%)

So basically, we have a company posting better sales growth than most of its higher-end peers and lagging only big-box discounters such as Wal-Mart and Target. That would be fine news if that's all there was to the story. Problem is, Bed Bath & Beyond also shows the highest rate of inventory growth of practically any home-furnishings retailer you can name -- and that's not good news.

Honey, I shrunk the cash
The inventory glut is already starting to strangle the company's free cash flow. Through the first half of this year, it's down 51% year over year, despite drastic reductions in capital spending.

Whether that's the reason the company curtailed its already dwindling stock buybacks last quarter, or whether management simply recognizes that its stock is too expensive to buy, well, I'll leave that to wiser heads than mine to decide.

Bed Bath & Beyond may not be buying its stock, but should you? Pick up a free trial to Motley Fool Stock Advisor, and find out whether Fool co-founder Tom Gardner thinks this stock is a buy.

Related Foolishness:

• This Just In: Upgrades and Downgrades
• Beware Bed Bath & Beyond
• This Stock Is Cheap -- or Is It?