Outlook underwhelms at Bed Bath & Beyond

UNION, N.J. — The growth prospects of the nation’s leading home goods retailer is being questioned following a solid first quarter performance and weaker-than-expected outlook.

Bed Bath & Beyond reported first quarter sales that increased 5.1% to slightly more than $2.1 billion and same-store sales that increased 3% for the period ended May 26. Profits grew at a much faster pace, increasing 24% to 89 cents a share or $206.8 million compared with72 cents or $180.6 million. The earnings per share figure was five cents better than the 84 cents analysts expected. However, same-store sales decelerated from the 7% gain recorded during the first quarter of 2011 and the 8.4% increase seen in the first quarter of 2010. A weaker-than-expected profit forecast for the remainder of the year sent shares of the company sharply lower in after hours trading. The company said it expect profits for the second quarter to range from 97 cents to $1.03, well below the $1.08 analysts forecast.

While the company’s outlook was lower than expected, Bed Bath & Beyond outlined a number of growth initiatives, several of which are impacting short term profits, but are expected to drive growth for the next decade. For starters, the company announced two acquisitions recently, the larger of which is the pending $495 million cash purchase of the 259 unit Cost Plus home good chain. The deal is expected to negatively affect second quarter results but contribute to profit long term. News of that deal was followed by the more recent announcement of a $105 million acquisition of Linen Holdings, a business-to-business distributor of textile products, amenities and other goods.

Those acquisitions add to the company’s organic efforts that saw the company open 12 stores year to date out of a full year plan for 40 new units. The company ended the first quarter with a total of 1,180 stores, consisting of 995 Bed Bath & Beyond stores, 72 Christmas Tree Shops, 68 buybuy BABY stores and 45 stores under the banners of Harmon and Harmon Face Values.

Co-chairman Leonard Feinstein re-iterated the company’s view of its longer term expansion potential and indicated growth can come from leveraging the merchandise assortments off the different formats and the soon-to-be acquired Cost Plus stores.

“We believe throughout the United States and Canada, again excluding cost plus world markets stores as the transaction has not yet been completed, there is an opportunity to operate in excess of 1,300 Bed Bath & Beyond stores as well as grow our Christmas Tree shops and bubuy BABY concepts from coast to coast,” Feinstein said during a recorded statement released after financial results were reported. “Additionally, we will continue to open Harman Face Value stores and place health and beauty care offerings in selected stores across all our concepts as well as World Market food departments in selected Bed Bath & Beyond stores.”
Although Bed Bath & Beyond does not conduct a live conference call with analysts, it was apparent from the recorded statements that the company isn’t going to relinquish online business to Amazon.com without a fight. Amazon.com launched a home goods offering called Casa.com earlier this year and now Bed Bath & Beyond expects its investments in online initiatives will ding profits by 9 cents a share during the back half of the year.

CFO Gene Castagna said the additional operating costs the company expects to incur are related to development of an enhanced Website, the opening of an 800,000-sq.-ft. e-commerce fulfillment center in Pendergrass, Ga., and the initial phase of a new information technology data center.

Whether online or in stores, CEO Steve Temares indicated the company’s fundamental business strategy remains unchanged of offering a broad assortment of merchandise at everyday low prices with superior customer service.

“As always, we will continue to invest in all aspects of our company and work to enhance our customer's overall experience in store, online and through mobile devices and social media,” Temares said. “We remain committed to being our customer's first choice for the merchandise categories we offer domestically, interactively and over the longer term, internationally.”

Bed Bath & Beyond is a partner in a joint venture which operates two stores in the Mexico City market under the Home & More banner.