Bed Bath & Beyond
Announced yesterday, earnings through the first nine months of this year grew 29%. That is indeed robust growth, but not as robust as the 41% for the same period a year ago. Same-store sales, a key measure of growth at outlets open for more than one year, gained 5.6%, again a healthy jump, but, compared with last year's 9.5%, the number looks pale.
Overall revenue tells the same story. Topline growth peaked at 44% in 1995, but since then the pace has steadily slowed to half that rate in the last two years. Continuing the slide, nine-month sales grew 21% this year, down by 6% froma year ago. The company's sales are slowing as deep discounters such as Home Depot
Bed Bath & Beyond plans to open 80 to 90 new stores next year, beyond an expected base of 576 at the end of this fiscal year. But its new stores have been a smaller average size than its older stores, and the declining square footage growth could be affecting sales and earnings growth.
Much to its credit, the retailer has kept a squeaky clean balance sheet and funded expansion from operating cash flow. At first blush, that strategy sounds pretty darn good, but it can be a two-edged sword. Cash flow last year grew by 24%, which is not bad, but given the 70% growth of the year before, this year's self-financed expansion will be limited.
The stock, which closed at about $40 yesterday, is near the upper end of its 52-week price range, and for now there seems to be little room for investor optimism. Vigorous growth is already priced as it trades at about 26 times year-ahead earnings estimates. With earnings, sales, and same-store sales continuing to slow down, expect the stock to do so as well.
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