Source: Bed Bath & Beyond

Shares of Bed Bath & Beyond (NASDAQ:BBBY) rose by an impressive 7.4% on Tuesday after the company reported better-than-expected sales and earnings per share for the second quarter of fiscal 2014. Before this big jump, Bed Bath & Beyond stock had declined by more than 20% during 2014, as the specialized retailer had reported disappointing financial performance in the previous three quarters. Is this the beginning of a sustained turnaround for Bed Bath & Beyond?

The numbers
Total sales during the quarter ended on Aug. 30 came in at $2.94 billion, a 4.3% increase versus $2.92 billion in the same period last year, and better than the $2.89 billion Wall Street analysts forecasted on average, according to data compiled by Thomson Reuters. Comparable sales increased by a healthy 3.4% during the quarter.

Gross profit margin declined to 37.9% of sales versus 39.4% of revenues in the same quarter of 2013. During the previous earnings conference call, management had warned that gross margin would remain under pressure because of pricing discounts and increased coupons, so this came as no surprise to analysts.

Diluted earnings per share of $1.17 were comfortably above analysts' forecasts of $1.14 for the quarter, and marginally higher than the $1.16 in earnings per share the company delivered during the second quarter in fiscal 2013.

Forward guidance was roughly in line with expectations. Management expects earnings during the coming quarter to be in the range of $1.17 to $1.21 per share versus an average forecast of $1.20 per share from Wall Street analysts. For the full year, Bed Bath & Beyond expects earnings per share of between $5 and $5.08, versus an average forecast of $5.03 per share from analysts.

The context
It's important to notice that huge share buybacks had a big impact on earnings per share during the quarter, as the company repurchased approximately $1 billion of its own stock during the period. Bed Bath & Beyond has recently issued $1.5 billion in debt to finance an accelerated share buyback program, and the company is clearly not wasting any time when it comes to putting that money to work.

Looking at earnings on a total net income basis, the figure declined 10.2%, from $294.3 million in the second quarter of fiscal 2013 to $223.95 million.

Growing sales weren't enough to compensate for the decline in profit margins, as Bed Bath & Beyond relied intensely on pricing discounts to generate sales growth in an aggressively competitive retail environment. Big share buybacks in the context of stagnant or declining earnings are usually greeted with skepticism, as they can be considered an artificial method to inflate earnings per share in the absence of organic growth.

On the other hand, the company seems to be moving in the right direction, even if profitability remains under pressure. Generating sales growth is usually a required step before a company can focus on increasing profitability, and the recent earnings report is a considerable improvement versus the lackluster increase of 0.4% in comparable store sales that Bed Bath & Beyond delivered in the first quarter.

In addition, the fact that management is expecting solid profits for both the coming quarter and the full year ending in February 2015 could be considered a sign of optimism regarding recent trends and the prospects for improved profitability in the coming quarters.

Key takeaway
Bed Bath & Beyond seems to be moving in the right direction, even if it's not completely out of the woods yet. While profit margins are still under pressure, improving sales trends are a big positive for investors in the company, as this is a necessary achievement before management can focus on increasing margins. Only time will tell if this is the beginning of a sustainable turnaround for Bed Bath & Beyond. However, the recent earnings report provides reasons for cautious optimism.

Andrés Cardenal has no position in any stocks mentioned. The Motley Fool recommends Bed Bath & Beyond. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.