Home-furnishings retailer Bed Bath & Beyond (Nasdaq: BBBY) reports its fiscal third-quarter 2007 earnings results tomorrow. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.

What analysts say:

  • Buy, sell, or waffle? Twenty-one analysts follow Bed Bath, down four from last quarter. Six of them rate it a buy, 13 a hold, and two say "sell." The Motley Fool CAPS community rates the company three out of five stars.
  • Revenue. On average, analysts are looking for 9% sales growth, to $1.77 billion.
  • Earnings. Profits are predicted to rise 4% to $0.52 per share.

What management says:
Citing "continued confidence in our Company's long-term growth potential, financial outlook and excess cash flow generation," Bed Bath announced in last quarter's earnings release that it has renewed its share-buyback program, with an additional $1 billion in repurchase authorizations.

What management does:
Emphasis on "potential." As far as actuality goes, last quarter didn't go too far toward realizing that potential. While sales grew 10% and per-share earnings grew about 8%, net profit growth was helped by a lower tax rate and share buybacks that concentrated what profits there were among fewer shares. Meanwhile, margins continued to slump, as you can see below.

Margins

5/06

8/06

11/06

3/07

6/07

9/07

Gross

42.9%

42.9%

43.1%

42.8%

42.7%

42.5%

Operating

14.7%

14.3%

14.0%

13.4%

13.2%

12.9%

Net

9.6%

9.4%

9.3%

9.0%

8.8%

8.7%

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:
That said, I'd be remiss in failing to mention that I think Bed Bath has a lot farther to fall before it gets anywhere near the performance of its competitors. The best of these -- Target (NYSE: TGT), Macy's (NYSE: M), and Williams-Sonoma (NYSE: WSM) -- earn operating margins in only the upper single digits. Wal-Mart (NYSE: WMT) and Tuesday Morning (Nasdaq: TUES) lag even farther back, and Pier 1 (NYSE: PIR) is still losing money.

Also worth noting is that Bed Bath isn't just whistling past the graveyard when it says it's got the cash-production prowess to buy back as many shares as it likes. As anemic as things may have looked under GAAP last quarter, cash profits told an entirely different tale. Through the first six months of Bed Bath's fiscal year, the chain generated just less than $125 million in free cash flow -- a 27% increase compared to last year's first two quarters. And it did this while increasing capital expenditures to grow its store count.

With the home-furnishings industry suffering through a slump, and Bed Bath's share price languishing along with it, now might be precisely the right time to buy back shares on the cheap -- for Bed Bath, and for you.

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Do the Fools at Motley Fool Stock Advisor -- where we've recommended this stock -- still agree? Grab yourself a free 30-day trial to the service and find out. The Fool owns shares of Bed Bath & Beyond. Bed Bath & Beyond and Wal-Mart are Inside Value picks. Tuesday Morning is a former Income Investor pick.

Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.