A Lukewarm Bed Bath

Recent results at home furnishings retailer Bed Bath & Beyond (NASDAQ:BBBY) were nothing to write home about, but things could have been much worse, given the plummeting trends in residential home sales from the likes of limping Lennar (NYSE:LEN), DR Horton (NYSE:DHI), and Centex (NYSE:CTX).

Second-quarter sales improved by a very respectable 10%, as Bed Bath opened 10 new stores during the quarter, bringing the total namesake store count to 831 as of quarter end. A 2.2% increase in same-store sales took care of the rest of the growth, which again was decent, given that comps grew 4.8% in last year's quarter.

Reported earnings per share advanced almost 8% to $0.55 per share, which was ahead of analyst expectations for the quarter. Exclude a $5.8 million tax benefit, though, and earnings came in about even with expectations. It took the repurchase of more than 5% of average common shares outstanding to make the bottom-line estimates.

Still, there's nothing wrong with using strong cash flow generation to offset shaky operating trends. Fellow Fool Rich Smith has been highlighting Bed Bath's steady erosion in operating and net margins, and this quarter was no exception, as net margins fell to 8.3%. Cash flow generation improved for the first half of the year, but on a quarterly basis, free cash flow fell 11.8% compared to the same period last year.

During the earnings conference call, management stated it was "pleased" with recent performance and expected the coming year to be another in which it increases market share in the home furnishings industry. It plans on opening another 70 Bed Bath stores by year end, or about 9.7% growth from where it started the year, while relocating "several" existing locations. It will also start to rely on growth in other concepts as it announced ambitions to accelerate growth in its Christmas Tree Shops concept and will open at least a couple more BBY BABY stores in the near future. Health- and beauty-care retailer Harmon rounds out the other concepts, and the company plans to open a freestanding store, as well as continue to place Harmon departments within Bed Bath stores.

Bed Bath expects flat- to low-single-digit earnings growth during the upcoming third quarter and flat to down growth for the fourth quarter, given that first-half same-store sales trends continue. This should all still culminate into bottom-line growth for the full year, with share buybacks again helping matters. So while management characterized recent results as solid, especially considering that retailers with similar industry exposure such as Target (NYSE:TGT) and Lowe's (NYSE:LOW) are tempering forward guidance, I'll continue to characterize company performance as a mixed bag, with the potential for further profit warnings at any time, given the current retailing environment.