The day after it reported a better than expected second quarter, Bed Bath & Beyond's (BBBY +0.00%) stock jumped over 7%. The company beat out analysts' expectations, but the bounce wasn't enough to drag the company out of its first half funk. The stock is still down 18% since the beginning of the year. Obviously that's something that Bed Bath & Beyond wants to change, and the company's management team made its plans clear on the most recent conference call. Here are the five highlights.
Comparable sales are on the rise
Sue Lattmann, CFO: "[For] the fiscal third quarter, we are modeling comparable sales to increase in the range of 2% to 3%. For the fourth quarter, we are modeling comparable sales to increase in the range of 4% to 5%. This will bring the modeled, full-year comp sales to a range of 2.6% to 3.1%."
Bed Bath & Beyond had a rough start to the year. In its fourth quarter, comparable sales increased just 1.7%, while in the first quarter they rose a mere 0.4%. That kept sales growth low and kept investors away, as it seemed like the company might start recording falls in comparable store sales. Leading up to the second quarter earnings release, analysts were expecting total sales to rise just 2.5%.
Instead, Bed Bath & Beyond managed to increase its comparable sales by 3.4%, pushing total sales up 4.3% and trouncing estimates. Management's forecast of full year comparable sales around 3% means that it expects the worst to have passed.
Bed Bath & Beyond is in a solid financial position
Steve Temares, CEO: "[We] are pleased that Standard & Poor's has raised our credit rating to single A- from BBB+, which speaks to the strength of our company and our future prospects."
Bed Bath & Beyond's balance sheet is looking strong. In the first half, the company generated free cash flow of $398 million, helping to increase its cash on hand. The retailer also issued $1.5 billion in unsecured notes this quarter, which helped fund $1.3 billion of repurchases in the first half.
The company is looking more fundamentally sound than it has in a while, with cash coming in and lenders offering up credit. That's giving Bed Bath & Beyond a chance to fund investment in its stores and operations.
Omnichannel is the future, and Bed Bath & Beyond is ready
Temares: "Customers today may take advantage of our omnichannel environment by using more than one channel when making a purchase. We believe an integrated experience must exist among these channels to provide a seamless customer experience."
Bed Bath & Beyond isn't alone in touting the future of retail as being omnichannel driven. Customers no longer think about making a purchase in one place or using one piece of technology. Bed Bath & Beyond is now accepting returns in-store regardless of where they were made, working on expanding Wi-Fi into stores, and giving customers the chance to ship from stores.
All of these are going to be basic shopping requirements in a few years, just like having an online store is currently. Bed Bath & Beyond is investing in these technologies to try and stay on curve, giving customers the shopping experience they now expect.
There is still room for store growth
Temares: "We believe that throughout the United States and Canada, we have the opportunity to operate in excess of 1300 Bed Bath & Beyond stores as well as grow our cost plus World Market, Christmas Tree Shops andThat!, and buybuy BABY concepts from coast-to-coast."
Even with 1,017 stores across the US and Canada, Bed Bath & Beyond thinks that there is room for more. The company is also going to expand the offerings at some of its locations, using its range of brands to give it extra reach.
For instance, the company has discussed putting baby food and beauty care products in some Bed Bath & Beyond locations, giving extra exposure to its buybuy Baby brands. Right now, the company says that it has over 300 locations in mind for the cross promotional activity.
Stabilization in the name of the game
Lattmann: "[We] are modeling net earnings per diluted share to be approximately $1.17 to $1.21 for the third quarter and approximately $1.78 to $1.83 for the fourth quarter, bringing the full year modeled net earnings per diluted share to a range of $5.00 to $5.08."
While growth is the long term goal, right now Bed Bath & Beyond just wants to stabilize. The forecasted annual earnings per share range would put the company up at least 4.4% compared to fiscal 2013. That's a respectable gain, but it's just going to be the first step down the long road to real growth.
It's also below the pace that Bed Bath & Beyond was managing leading up to this year. In fiscal 2013, for instance, the company increased earnings per share by 5%, while in fiscal 2012, annual earnings per share grew 12.3%.
Bed Bath & Beyond is back on the path to returning to those highs. By focusing on smart investments, comparable sales growth, and all of its channels, the company has a real chance to rebound from its recent difficulty. While I've never been a huge fan of Bed Bath & Beyond, it's clear that management has a plan in place to get the brand back on track. Now they just need to execute.
