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Bed, Bath & Beyond Is Good to Grow in 2010

Bed, Bath & Beyond (BBBY) is poised to have a good 2010 based on comparisons to last year's recessionary sales figures, competitive position and the prospect that consumers are returning to its part of the market.

In its last quarter completed, the second, Bed, Bath & Beyond coped with a decline in comparable store sales â€" those open for at least a year â€" that ran just under one percent. However, as opposed to the losses that some other home furnishings specialists have been posting, Bed, Bath & Beyond recorded net earnings of $222.7 million or 86 cents per diluted share, which represented a 13 percent increase over same period in 2008.

Wedbush Morgan analyst Joan Storms just added Bed, Bath & Beyond to her Best Ideas list of companies that are in a position to make market advances. Beside some short-term investment advantages, including the easier year-over-year sales comparisons, Storms noted that home furnishings specialty retailers are operating less selling space after the 2008 demise of rival Linens 'N Things, suggesting consumers will concentrate more densely in what's left. Also, even among those suffering losses, home furnishings retailers have enjoyed better sales lately. Those developments suggest that Bed, Bath & Beyond can pick up shoppers who are ready to buy but who still may be deciding where.

Indeed, as demand improves, Bed, Bath & Beyond has the opportunity to grab more home furnishings sales from former Linens 'N Things customers than might be expected considering the success bargain-oriented retailers such as Walmart (WMT) and Kirkland's (KIRK) have had in the sector. Linens 'N Things was not known as a low-price operator, which suggests that its customers were willing to sacrifice something on price to shop in a specialty store environment. If they, too, go with the market direction and begin to spend more on home furnishings, former Linens 'N Things customers are likely to favor Bed, Bath & Beyond over discounters or even those department stores that have developed stronger operations in domestic goods, J.C. Penney (JCP) conspicuous among them.

And, the Linens 'N Things liquidation provides an additional benefit. Bed, Bath & Beyond doesn't have to bear the cost of as many coupon mailings and redemptions. Mailing coupons was the main way the two retailers battled on the marketing front.

Storms noted that the portfolio of secondary store concepts the company has acquired is maturing, with a commensurate enhancement of benefits. Its decision to expand the seasonal and low-cost home furnishings specialist Christmas Trees Shops suggests that, after five years, Bed, Bath & Beyond has molded the chain into a growth vehicle that will provide returns at something like the level its namesake stores do. She also noted that beauty and personal care concept Harmon and toddler seller buy buy Baby present an array of cross-selling opportunities. Bed, Bath & Beyond has been introducing Harmon sections throughout its store system. The personal care items they offer â€" from toothpaste to makeup â€" provide Bed, Bath & Beyond's other stores with additional and incremental sales in the longer-term and even the immediate future. "Harmon will be great for holiday stocking stuffers," Storms said.

Additionally, Harmon has the potential to drive more Bed, Bath & Beyond store visits and home specialists only get a few a year. It also has potential as a stand-alone growth concept. In its original manifestation, as a discount personal and beauty care specialty operation, Harmon stores fit small spaces around the 5,000 square foot range in places such as office and industrial parks that generate lots of drive-by traffic. Its main competitors, drug chains, don't jam themselves into such dimensions these days. As Harmon sections in Bed, Bath & Beyond become better known, expanding stand-alone stores outside of the chain's New Jersey heartland will become easier.

One other strength Storms points to is that Bed, Bath & Beyond is sitting on the equivalent of $4 per share in cash and has no debt so it can self finance all the growth it wants to venture. This year and despite the recession, the retailer is adding 58 new stores across banners, with new Harmon sections rolling as well. As a result, Bed, Bath & Beyond is a least as well positioned to grow in the economic recovery as any retailer in the United States.

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