Source:  Bed Bath & Beyond

Normally, it may be a bad idea for just about any company to go into debt in order to buy back shares of its stock, but in the case of Bed Bath & Beyond (NASDAQ:BBBY) perhaps it makes sense. Bed Bath & Beyond is betting on itself and it is betting big -- to the tune of close to $2.9 billion -- on top of the $6.6 billion it has already spent in the last decade on share repurchases. Let's take a look at what's going on.

First there is the obvious: confidence. Bed Bath & Beyond had $861 million left in its buyback authorization as of the end of May, and then on July 7 the board announced it had approved a new authorization of $2 billion. CEO Steven Temares explained the move was based on "continued confidence in our Company's long-term growth potential, financial outlook and cash flow generation."

Ten days later another announcement came: Bed Bath & Beyond had closed on $1.5 billion debt with around $72 million in average annual interest (for the first 10 years) in order to accelerate $1.1 billion in buybacks by the end of this calendar year. Based on a share price of, say, $63 -- where the stock closed Oct. 17 -- that would reduce the fully diluted shares count by over 17 million or around 9%.

If you do the math, 9% fewer shares would have an effect of boosting the earnings per share around 10% before the effect of interest expense. With the company earning around a $1 billion a year in net income, the after-tax effect of the interest expense is far less than the boost to EPS. The math checks out.

But can Bed Bath & Beyond afford it?
I'm a big fan of a solid balance sheet and the $1.5 billion in new debt changes all that only a little. The debt only has relatively small interest payments with principal of 20%, 20%, and 60% not due for 10, 20, and 30 years, respectively. As a long-term Foolish investor I hate to disregard anything, but debt not due for decades from now is well beyond my worry, especially when inflation alone would severely reduce the hit felt all those years from now.

Prior to the transaction, Bed Bath & Beyond had no long-term debt and current assets more than double its current liabilities along with piles of cash coming in the bank just about each and every quarter for many years. Standard & Poor's rates the company's lending risk at A-, which is phenomenal. Financially speaking, taking on the debt and executing the buyback seem like a no-brainer.

Are there better ways to spend that money?
Just because the company can afford it, doesn't necessarily mean the buybacks are worth the money. However, its now low debt payments, still otherwise great balance sheet, and continued growing cash coming into the coffers means Bed Bath & Beyond can still pursue other avenues at the same time.

Based on track record, it's hard to doubt Bed Bath & Beyond. As Co-Chairman Warren Eisenberg put it in the most recent conference call, "While much has changed in the past 43 years, change itself has been a constant as well as our ability to respond successfully to it, and we are prudent to be ahead of it."

The company plans to continue to invest in technology for more efficient direct-to-consumer sales from its desktop and mobile websites and expand delivery capabilities for larger items and orders. Bed Bath & Beyond is also investing in a "more digital shopping experience" for customers in its stores with the goal of improving sales and profit margins.

At the same time, the company already has over 1,500 stores and plans to add just 22 more for this calendar year. Based on that, it seems like Bed Bath & Beyond may be in a mature phase so there isn't a lot of need to deploy cash into new stores. Other than further same-store sales growth, buying back shares may be the quickest and easiest way to raise earnings per share.