Is it spring-cleaning time for your portfolio? Ready to ditch the old slow-growth drapes and hang a new set in bright, profitable colors? I suggest a shade of Motley Fool Stock Advisor recommendation Bed Bath & Beyond (NASDAQ:BBBY). It's not just in fashion this year; it's also reporting Q4 and full-year 2005 earnings tomorrow.
What analysts say:
- Buy, sell, or waffle? Of the 29 analysts crowding the aisles at Bed Bath & Beyond, only one rates the stock a sell. Of the rest, 17 say "buy" and 11 say "hold."
- Revenues. Wall Street is looking for 12% sales growth for the quarter, with $1.64 billion being the consensus.
- Earnings. Profits are expected to roll in a bit slower, with analysts expecting to see only 10% growth to $0.65 per share.
What management says:
In late January, Bed Bath & Beyond tacked on $200 million to its existing $400 million stock-buyback plan. Two weeks later, it announced it had spent it all. All together, the $600 million buyback reduced the firm's share count by 16.4 million shares, or about 5% of shares outstanding. Strangely, the company noted that the first $400 million spent had no "material impact" on earnings per share in Q3, and it expected that the extra $200 million would likewise have no material impact in Q4.
Ordinarily, I'd expect a 5% concentration of profits to significantly enhance earnings per share. If it didn't, and if it won't, that suggests to me that much of the buying back may aim to make up for the effects of stock dilution. For tomorrow, I'd hope to either see a significant decline in average shares outstanding on the company's income statement, or an increase in cash if the share count did increase substantially.
What management does:
Share-count meanderings aside, Bed Bath & Beyond runs a great business, and it keeps getting better. Over the past 18 months, it's grown each of its rolling gross, operating, and net margins, maintaining its profitability lead over larger rivals such as Target (NYSE:TGT) and Wal-Mart (NYSE:WMT), both of which have improved similarly.
|
Margins % |
8/04 |
11/04 |
2/05 |
5/05 |
8/05 |
11/05 |
|---|---|---|---|---|---|---|
|
Gross |
42 |
42.2 |
42.5 |
42.5 |
42.6 |
42.7 |
|
Op. |
14.7 |
14.9 |
15.4 |
15.4 |
15.5 |
15.3 |
|
Net |
9.2 |
9.4 |
9.8 |
9.9 |
10 |
9.9 |
One Fool says:
Fool co-founder and Stock Advisor co-analyst Tom Gardner, who recommended the stock back in November, continues to have great faith in this company. In a recent report, he even applauded the firm's willingness to "forgo a full year of profit in order to buy back stock," the same move that has me both skeptical and hoping to be proved wrong.
Although we differ in how we interpret the buyback program, I agree with Tom that, long-term, this superior business is a keeper.
Competitors:
In addition to the megaretailers already mentioned, Bed Bath & Beyond competes with home-furnishing specialists such as:
- Williams-Sonoma (NYSE:WSM)
- Pier 1 (NYSE:PIR)
- Cost Plus (NASDAQ:CPWM)
Fool contributorRich Smithdoes not own shares of any company named above.
