Tic-tac-toe, investors want to know: After warning on earnings last quarter, Bed Bath & Beyond (NASDAQ:BBBY) managed to ultimately beat estimates, only after the company lowered expectations prior to the release. The company reports its Q2 2007 numbers tomorrow, so we'll see if the retail world is still in a slump.

What analysts say:

  • Buy, sell, or waffle? Twenty-five analysts follow Bed Bath, giving it seven buy ratings, 16 holds, and a pair of sells.
  • Revenue. On average, they're looking for 10% sales growth to $1.77 billion.
  • Earnings. Profits are predicted to rise a penny to $0.52 per share.

What management says:
Well, at least they're consistent. That was, I suppose, the silver lining around Bed Bath's earnings report last quarter. As fellow Fool Ryan Fuhrmann described at the time, the retailer turned in a "mixed bag" of earnings results, which included 1.6% growth in same-store sales and $0.38 per share in profits -- a penny less than Wall Street had been hoping to see before management delivered an earnings update a week prior to earnings. While we'd prefer 20-20 foresight, the fact that management can accurately see at least one week into the future is something, I guess.

Speaking of the future, Bed Bath CEO Steven Temares opined three months ago that the "overall retailing environment, especially sales of merchandise related to the home, is challenging." Judging from the sales warning that Target (NYSE:TGT) issued yesterday evening, and the near-simultaneous earnings warning from Lowe's (NYSE:LOW), I'd say the challenges remain today.

What management does:
While a lot of people were surprised by Bed Bath's news last quarter, the margin trends (here's where 20-20 hindsight comes in handy) had actually been suggesting that all was not right for some time. Gross margins have held up pretty well, granted. But both operating and net margins have been sliding for well over a year (although they remain comfortably ahead of competitors such as Williams-Sonoma (NYSE:WSM) and -- heaven forfend! -- Pier 1 (NYSE:PIR).)

Margin

2/06

5/06

8/06

11/06

3/07

6/07

Gross

42.8%

42.9%

42.9%

43.1%

42.8%

42.7%

Operating

15.1%

14.7%

14.3%

14%

13.4%

13.2%

Net

9.9%

9.6%

9.4%

9.3%

9%

8.8%

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Checking in on the results last quarter, our team at Motley Fool Stock Advisor had this to say about the newsletter pick:

... The company is now facing numerous competitive pressures (other retailers, gas prices, higher interest rates, a weak housing market) that will challenge its growth potential for a few years. Nevertheless, Tom remains bullish on the stock ...

As it so happens, I agree with Tom on this one. At 16 times trailing earnings and analysts predicting 15% long-term profits growth, Bed Bath certainly doesn't look expensive. Granted, the firm's having its troubles keeping margins up, but once Bed Bath figures out how to get a better handle on its SG&A, I expect we'll see margins perk back up in short order -- and the share price will follow suit.

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Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy. Bed Bath and Beyond is a Stock Advisor and Inside Value pick.