Bed Bath & Beyond Leads Its Industry

Spencer Jakab in the Wall Street Journal has some good things to say about Bed Bath & Beyond ($BBBY)

Part of Bed Bath’s success stemmed from others’ failures, specifically the bankruptcy of competitor Linens N’ Things, plus smaller operations. But that is giving management short shrift. It did a good job of controlling costs and piling up cash for both organic growth and timely acquisitions, snapping up two companies in the recent quarter.

That is amply reflected in Bed Bath’s share price. Although the stock sold off by 17% in June, when the company reported same-store sales decelerated in the fiscal first quarter, they have since clawed back around two-thirds of that.

Now, for example, Bed Bath’s ratio of enterprise value, or market value plus net debt, to sales is 65% higher than the average of four indirect competitors: Pier 1 Imports, Macy’s, Williams-Sonoma and Target. Bed Bath is in the middle of the pack on multiple of price to earnings. But that comparison is flattered by margins that may have benefited from the vacuum in its retail category. Oppenheimer noted Tuesday that Bed Bath is relying more on coupons lately to drive sales growth, which could damp profitability.

It would be natural, but premature, for some of the enthusiasm about housing’s rebound to carry over to Bed Bath. While home prices have recovered, existing- and new-home sales are far below peak levels. And the percentage of first-time buyers remains below historical norms. Those are the ones most likely to buy sheets, towels and small appliances in the wake of purchasing a home.

Bed Bath has made the most of some tough years but now finds its valuation beyond compare.

He also notes that BBBY will have 60% more stores by the end of this fiscal year than it had five years ago, while operating margins are higher now than at the height of the housing boom.

Posted by on September 19th, 2012 at 10:58 am


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