Recently, Bed Bath & Beyond (NASDAQ:BBBY) experienced a significant drop of as much as 13% due to its disappointing full-year outlook. After the drop, Bed Bath & Beyond is valued at only 13 times its forward earnings. Should investors stay away from the company because of the sluggish earnings outlook, or is Bed Bath & Beyond a better buy with its lower market price than larger peers such as Target (NYSE:TGT) and Macy's (NYSE:M)?

Reducing operating outlook
In the third quarter, Bed Bath & Beyond earned more than $2.86 billion in sales, only 6% higher than the revenue of the third quarter of the previous year. Net income rose by nearly 2% to $237.2 million while EPS enjoyed higher growth at 8.73%. The higher growth was mainly due to the company's share buyback activity--during the current quarter, it bought back around 2.3 million shares for $171 million.  As Bed Bath & Beyond does not pay dividends to its shareholders, it returns cash only by repurchasing shares. Over the past two years, it has returned around 86% of its operating cash flows.

The company lowered its EPS outlook for the fourth quarter from $1.70-$1.77 range to a $1.60-$1.67 range. In addition, for the full year the company reduced its guidance from $4.88-$5.01 to only $4.79-$4.86. 

What might drive Bed Bath & Beyond forward
Although the market showed its pessimism about the company, investors should feel safe because of its strong balance sheet. As of November 2013, it had nearly $4.13 billion in equity, $471 million in cash, and no debt. Bed Bath & Beyond has a much more conservative capital structure than either Target and Macy's. While Target had nearly $14.7 billion in both short and long-term debt, the total debt of Macy's came in at more than $7.1 billion.

Bed Bath & Beyond still enjoys a competitive advantage in the retail industry because of its wide range of interesting merchandise offerings. Because of its decentralized management culture, Bed Bath & Beyond can customize its merchandise assortment to better suit customers' shopping preferences. The company will keep driving its business forward with several major initiatives including enhancing its omnichannel experience for shoppers and improving network communications in its stores.

Shareholder value will be enhanced through the continuation of the company's share buyback program. The company intends to keep buying back its shares under its existing $2.5 billion repurchase program, which was estimated to finish in 2015. While Bed Bath & Beyond only returns cash to shareholders via share repurchases, both Target and Macy's make use of both dividend payments and share repurchases. Target and Macy's offer investors a decent dividend yield at 1.80% and 2.70%, respectively. Looking forward, Target expected to grow its annual dividend by 20% and buy back as much as $4 billion worth of shares in 2014 and beyond.  Year-to-date, Macy's has retired around 27.6 million shares to return $1.25 billion to shareholders. 

My Foolish take
Despite the sluggish outlook, Bed Bath & Beyond's debt-free balance sheet, a significant footprint of more than 1,000 stores, continuous improvement in operating performance, and ongoing share repurchases make me think that the company will continue to drive shareholders' value in the long run. As a result, the recent short-term drop could represent a good opportunity for investors to own a piece of this retailer for the long-term.