Bed Bath & Beyond Inc. (BBBY, Financial) reported Q2 2015 results Thursday of $2.99 billion in revenue and $1.21 in earnings per share. EPS met estimates, but revenue missed expectations by $40 million. Shares of Bed Bath & Beyond closed Friday near their 52-week low of $59 per share, down almost 22% year to date.
Company
Bed Bath & Beyond is a retailer that sells a wide assortment of merchandise and home furnishings such as bedding, linens, kitchenware, bathroom items, etc.
From the most recent 8-K:
As of August 29, 2015, the Company had a total of 1,520 stores, including 1,023 Bed Bath & Beyond stores in all 50 states, the District of Columbia, Puerto Rico and Canada, 270 stores under the names of World Market, Cost Plus World Market or Cost Plus, 99 buybuy BABY stores, 78 stores under the names Christmas Tree Shops, Christmas Tree Shops andThat! or and That!, and 50 stores under the names Harmon or Harmon Face Values.
Did you know that if you had invested in Bed Bath & Beyond when it first IPO-ed in 1992, you could have grown your money by 55 times? The chart below shows a comparison of Bed Bath & Beyond and the S&P 500 since 1992.
I was quite surprised at Bed Bath & Beyond’s dramatic growth history. The company’s core concept -- to provide a pleasant maybe even fun shopping experience -- has remained the same throughout the years. The clip below is a few years old, but it captures why customers return. Somehow, actress Kristen Bell gets sidetracked into how much she loves shopping there.
Bed Bath & Beyond provides excellent customer service. It lays stores out in a racetrack format to optimize traffic flow. It is also a great marketing company. It does not do much in the way of TV or radio commercials. However, it’s known for the 20%-off coupon, and it is great at merchandising. It provides a shopping experience where customers are prone to make spontaneous purchases. In the most recent earnings call, management disclosed that they purchased e-commerce company “Of a Kind,” a platform for independent designers that sells jewelry, home accessories, luggage and more. The acquisition fits perfectly with Bed Bath & Beyond’s strategy of offering unique items for spontaneous purchases.
Earnings growth consistency
You can see that revenue has steadily trended higher in the last 10 years with a CAGR of 8.34% in the last five years.
EPS has trended higher over the last 10 years with a CAGR of 12.4% in the last five years. It should be noted that net income decreased last year, but EPS was aided by share buybacks.
Comparison to peers
You can see that Bed Bath & Beyond compares favorably in financial metrics when juxtaposed with Williams Sonoma and Target. Its forward PE ratio based on FY 2016 earnings is 10.75.
| Trailing Twelve Month Metric | Bed Bath and Beyond | Williams Sonoma | Target |
| PE ratio | 11.66 | 23.57 | Negative Earnings |
| EV / EBIT | 7.26 | 14.57 | 11.12 |
| Price to Book | 4.03 | 6.25 | 3.58 |
| Current Ratio | 1.99 | 1.43 | 1.15 |
| Debt to Equity | 0.59 | 0.18 | 0.91 |
| 12 Month EBIT Growth % | 11.1% | 9.3% | 14.5% |
Risks
In recent years, more customers have turned to online shopping. Bed Bath & Beyond has been behind in the online space and has had to respond with bolstering its e-commerce site and investing in its omnichannel experience. This investment is part of the reason its operating margins have been slipping in recent years.
Conclusion
Bed Bath and Beyond is a good company that has delivered for many years. Its high growth phase has obviously passed, but it can deliver steady returns in the years to come.
The company has also announced a $2.5 billion share buyback plan. The current market capitalization is $10.14 billion.
