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Bed, Bath & Beyond's Prospects Excite Enthusiasm, Especially at Bed, Bath & Beyond

Things are turning Bed, Bath & Beyond's way, and the home furnishings retailer is poised to use that momentum to drive growth.

In the company's third quarter conference call, as transcribed by SeekingAlpha, Leonard Feinstein, co-chairman, noted how the same period last year represented a nadir for the retailer. "You will recall that last year's fiscal third quarter was negatively impacted by challenging economic conditions as well as the liquidation sales of a then major competitor," he said.

After last year's third quarter, Bed, Bath & Beyond (BBBY) had to report an almost six percent decrease in comparable store sales, those in locations open for at least a year, an overall sales decrease of about one percent to $1.78 billion and earnings per diluted share of 34 cents versus 52 cents a year earlier. In this year's quarter, comps gained seven percent, overall sales increased 11 percent and earnings advanced to 58 cents a share.

Look a little more closely and things look even better for the retailer.

Steve Temares, CEO, pointed out that the latest results included a gross profit gain to 41 percent of net sales compared with approximately 39 percent in last year's period as decreases in inventory acquisition costs and coupon redemption as a percentage of sales were partially offset by a merchandise mix shift to lower margin categories. What that translates to is less competition, better stock management and the ability to keep frugal customers coming into the store even if they're spending less. The lower coupon costs are a direct benefit of the demise of Linens 'N Things, the competitor Feinstein recalled. Bed, Bath & Beyond may keep mailing coupons to its customers -- who are used to getting them and who are prompted to make additional store visits by them -- but it no longer is in a coupon dual with Linens 'N Things and, so, can manage that aspect of marketing to its favor. Temares noted that a decrease of 2.5 percentage points in SG&A expenses "was primarily due to a relative decrease in advertising expense resulting from a decrease in the distribution of advertising pieces."

Given the way it's managing its business, Bed, Bath & Beyond -- which self-finances growth from its own cash flow and carries no debt on its balance sheet - seems prepared to accelerate growth initiatives. Its increasing ability to generate cash for investment comes at a time when observers believe it has honed its smaller non-namesake chains to a point were the money invested in them generates a similar rate of return to that of Bed, Bath & Beyond stores. The company hasn't revealed growth plans for fiscal 2010 yet, but it's a good bet that the year ahead will look like this one, but more so.

At second quarter's end in August, Bed, Bath & Beyond operated 1,056 stores, including 943 namesake stores, 53 Christmas Tree Shops seasonal and home décor stores, 19 buybuy BABY children's needs stores, and 41 personal care stores under the Harmon name, one that is more frequently popping up in the retailer's other formats. In opening Harmon shops in its other stores, the company adds a health and beauty care component that can generate additional sales from customer store visits and even encourage them.

By fiscal 2009's end, Eugene Castagna, CFO, said:

...including the 53 stores opened so far this year, we expect to open approximately 64 new stores across our concepts including 38 Bed Bath & Beyond stores throughout the U.S. and Canada, eight Christmas Tree Shops, 13 buybuy BABY stores and five Harmon Face Value stores. We also plan to continue to add Harmon Face Value's health and beauty care departments within additional Bed Bath & Beyond, Christmas Tree Shops and buybuy BABY locations as well as continuing to add fine china departments to Bed Bath & Beyond stores.
Temares added:
In taking a long-term approach to building our Bed Bath and Beyond, Christmas Tree Shops, buybuy BABY and Harmon Face Value concepts, and through the ongoing efforts to cross merchandise and leverage our best practices across each of our concepts, we expect over time to do more for and with our customers.
Indeed, Leonard Feinstein mentioned:
Our ability to leverage the breadth and depth of our merchandise offering, grow our bridal and baby gift registries and continue the development of our online sales capabilities affords us additional opportunities to attract new customers to Bed Bath & Beyond.
Considering that, a decade ago, Bed, Bath & Beyond vigorously resisted being dragged into electronic commerce, anxious as it was to get customers into its stores more often, Feinstein's just expressed enthusiasm for web-based sales suggests that the company's executives have become very excited about its prospects.