Bed Bath & Beyond (Nasdaq: BBBY) straggles into the start of earnings season this week, reporting its fiscal year-end 2007 numbers on Wednesday. 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-two analysts follow the company, which garners nine buy ratings, 10 holds, and three sells. The Motley Fool CAPS community offers the company three out of five stars.
  • Revenue. On average, they're looking for quarterly sales to slump 2% from last year to $1.96 billion.
  • Earnings. Profits are predicted to fall 18% to $0.65 per share.

What management says:
When we last we heard from Bed Bath & Beyond, management was predicting it would earn $0.64 to $0.67 per share in earnings this quarter, on flat same-store sales. If it hits those numbers, that would give the company $2.08 to $2.11 for the year.

What management does:
Profit margins, however, have been decreasing. All year long, in fact, rolling gross, operating, and net margins have been sliding steadily. At last report, the retailer was about 11% less profitable per dollar of goods sold than it had been 18 months before. Granted, that's better than Target (NYSE: TGT), Wal-Mart (NYSE: WMT), or Williams-Sonoma (NYSE: WSM) -- and way better than Pier 1 (NYSE: PIR) -- but the trend is definitely not Bed Bath & Beyond's friend these days.

Margins

8/06

11/06

3/07

6/07

9/07

12/07

Gross

42.9%

43.1%

42.8%

42.7%

42.5%

42.0%

Operating

14.3%

14.0%

13.4%

13.2%

12.9%

12.5%

Net

9.4%

9.3%

9.0%

8.8%

8.7%

8.4%

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:
At the per-share level, however, things haven't been quite as bad. Bed Bath & Beyond has continued to buy back shares, and the fewer shares there are, the greater the profits per share. When profits are growing, this helps to accelerate the growth rate. When they're falling, as is happening today, it tends to mitigate the damage.

But here's the thing. As I mentioned last quarter, Bed Bath & Beyond is rapidly spending down its cash on these buybacks, limiting its ability to continue concentrating profits among fewer and fewer shares. And in March, management became hobbled even more. The freezing up of the auction-rate securities (ARS) market has effectively locked up $326 million of the company's "cash" in securities that no one seems to want to buy.

The good news here is that this is not its problem alone -- look-alike-tickered Best Buy (NYSE: BBY) is also having ARS issues. Moreover, Bed Bath & Beyond management "currently believes that an impairment, if any, would be temporary and would not result in a charge to its fiscal 2007 earnings."

The bad news is that until the ARS market gets moving again, that's $326 million or so that Bed Bath & Beyond is not going to be able to deploy as it wishes -- for example, by buying back shares. And that could make it harder than ever for the company to "make its numbers," as it has in past quarters.

Related Foolishness:

Do the Fools at Motley Fool Stock Advisor -- where we've recommended Bed Bath & Beyond -- agree? Grab yourself a free 30-day trial to the service and find out.

Fool contributor Rich Smith does not own shares in any of the companies mentioned in this article. Bed Bath & Beyond also is recommended by Inside Value, and the Fool owns shares of it. Best Buy is a Stock Advisor and an Inside Value selection. Wal-Mart is recommended by Inside Value. The Motley Fool has a disclosure policy.