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Bed Bath & Beyond (BBBY) Replies |
HenryTo
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Joined: 06 Aug 2004
Posts: 11722
Location: Los Angeles, California
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 Posted: Wed May 09, 2012 2:27 pm Post subject: |
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Morningstar on BBBY's acquisition of Cost Plus.
| Quote: | | Bed Bath & Beyond BBBY announced Wednesday that it has reached a definitive agreement to acquire all outstanding shares of Cost Plus CPWM in an all-cash deal for $22 per share, a 22% premium to Tuesday's closing price of $17.99. The move by the historically conservative and tight-lipped Bed Bath team came as a surprise, but when looking at the potential business combination and total consideration paid, we view the deal favorably. There is no change to our $70 fair value estimate at this point, but we will adjust our financial model to account for the announced acquisition, which is expected to close in the fiscal second quarter. Bed Bath ended its fiscal first quarter with more than $1.7 billion in net cash and short-term investments ($7 per share), and while management has been steadily buying back shares, investors began to ask what the firm w ould do with its cash hoard and free cash flow (which amounts to more than $800 million annually). We view the acquisition price--at roughly $520 million, representing 0.5 times forward sales and 10 times forward consensus EBITDA--as reasonable both in size and on relative valuation metrics. Management estimates that the deal will be "slightly accretive" to full-year 2012 earnings and, despite risks associated with a relatively lackluster record of profitability at Cost Plus, we think Bed Bath's culture and operating model will have a net positive impact on the Cost Plus and World Market businesses (which collectively represent roughly 260 stores) over the long run. For the Bed Bath concept, which is already (arguably) approaching saturation in the domestic market at nearly 1,000 sites, the home furnishings bolt-on represents another leg of growth. The deal will bump Bed Bath's consolidated annual sales by 10%, or $1 billion, though the focus should really be on expenses, which is where the real opportunity lies, in our view. Gross margins at Cost Plus averaged 31% over the past decade (10% lower than Bed Bath's margin), while its selling, general, and administrative expense ratio sits at 30% of sales (500 basis points higher than that of Bed Bath). With shares of Bed Bath trading at only a modest discount to our fair value estimate, we'd require a wider margin of safety before recommending the name. We are acutely aware of the ongoing merchandise mix shift toward lower-margin product and integration risks, among other mounting headwinds. Still, we like the firm's conservative approach toward leverage and expansion, and this leads us to believe that the firm will be well positioned with plenty of runway for growth as macroeconomic trends return to more normalized levels. |
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HenryTo
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Joined: 06 Aug 2004
Posts: 11722
Location: Los Angeles, California
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| Posted: Thu Apr 05, 2012 12:32 pm Post subject: |
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Morningstar on BBBY's 4Q earnings.
| Quote: | | Bed Bath & Beyond's BBBY fourth-quarter same-store sales growth sharply exceeded management's guidance and our own projection and, when combined with solid cost control, translated into a nice earnings beat (12% above consensus). Despite taking the usual cautiously optimistic tone and citing a few long-range investments that will pressure margins in 2012, management offered an initial full-year outlook in line with our forecast. We plan to raise our fair value estimate on the basis of 2011 performance and the 2012 outlook, the time value of money, and an incrementally more positive long-term margin trajectory. For the fiscal fourth quarter, revenue increased to 9.1% year over year to $2.7 billion and same-store sales rose 6.8%, easily outpacing management's 2%-4% forecast. This was a nice surprise, given that the same-store sales growth rate accelerated sequentially (from 4.1% in the third quarter), despite lapping much tougher comps (8.5% in last year's fourth quarter). While gross margins trickled down slightly owing to higher inventory costs, couponing, and a mix shift, selling, general, and administrative expenses as a percentage of sales dropped 180 basis points year over year. As a result, operating margins improved to 20.2% and earnings per diluted share came in at $1.48 (versus management's guidance of $1.28-$1.33). This fiscal year contains an extra week, and our previous 7% top-line estimate was towards the high end of management's 5%-7% target. What's interesting (and incrementally positive, in our view) in the Bed Bath story at this point is that management projects flat (or down only nominally) operating margins in 2012, despite some heavy investments. The extra week of sales will help, but put in perspective, in April 2011 management expected that benefits from higher sales volume would be offset by higher costs and mix shift, resulting in flat margins for 2011. Twelve months later, the firm delivered 180 basis points of margin outperformance relative to management's initial plan, which is impressive. To us, this suggests that the firm still has plenty of operating (and pricing?) levers that it can pull, while still investing in long-range programs that should ultimately lead to further productivity, profitability, and gains in return on invested capital. Although there are still several moving and sometimes conflicting pieces to the U.S. macro puzzle, we like that Bed Bath & Beyond's management is sticking to a conservative planning model, opening roughly 40 stores in 2012. With $1.7 billion in net cash and equivalents plus short-term investments on the balance sheet ($7 per share) and more than $900 million remaining on its share-repurchase program, we expect Bed Bath & Beyond to fully fund its growth plans while continuing to drive shareholder value. We like the fundamentals of the company and see a long runway for domestic and international growth across its concepts; however, with shares trading at 15 times our 2012 earnings estimate, we would wait for a pullback before putting new money into the name. |
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rffrydr
Moderator
Joined: 30 Oct 2005
Posts: 16929
Location: Sunny California
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| Posted: Thu Dec 22, 2011 11:03 am Post subject: |
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This looks interesting--with troop return kicker:
Owning a Stock Call: Bed Bath & Beyond
By Brian Sozzi | Dec 22, 2011 | 11:30 AM EST
| Quote: | On December 8, I liked Bed Bath & Beyond as one to tuck into a portfolio and hold for longer than two seconds. On December 22, I still like Bed Bath & Beyond as a long-term play, and now it could be had at a lower price post earnings. Bed Bath & Beyond is getting hit today, in my judgment, first as a result of a slight disappointment (consensus bullish, not that the company did not execute) on the quarterly same-store sales metric. Second, the company is sort of experiencing what I call "Target Margin Evolution", where like Target, Bed Bath & Beyond's gross margin is changing as a greater number of traffic driving items are added to the assortment.
However, I don't believe my longer term thesis, which is that the company stands to reap the benefits of troops returning home, is dying on the vine. In fact, the three months of results may actually ignite my call further:
1. Company is finally becoming serious on the virtues of returning its oodles of cash to shareholders.
2. It's discounting less (sorry mom, I know you love those blue discount mailers).
3. Traffic and transaction value increased in the quarter despite a less promotional stance, always a good thing to see at a retail (retail is a cat and mouse game after all). |
_________________
Today is the Tomorrow you worried about Yesterday! |
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HenryTo
Site Admin
Joined: 06 Aug 2004
Posts: 11722
Location: Los Angeles, California
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| Posted: Thu Sep 22, 2011 10:40 am Post subject: |
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Morningstar's latest comments on BBBY:
| Quote: | | Just as Bed Bath & Beyond's BBBY customers have become accustomed to receiving the hallmark "20% off" coupons in the mail, its investors should be used to the firm's steady outperformance by now. The second quarter was no exception, as the firm again posted impressive sales, margin, and earnings growth. As a result, management raised its expected full-year earnings per share growth to 22%-25% from 15%-20% and painted a balanced view of the marketplace, which was encouraging. When the company reported first-quarter results in June, we indicated that management's full-year top-line and earnings targets appeared quite reasonable, and we saw a path that supported a fair value estimate increase. These positive trends materialized in the second-quarter financials and outlook, and when combined with larger share buybacks and the time value of money, we now expect to raise our medium-term EPS projections and fair value estimate. Total company revenue in the second quarter rose 8.3% year over year to $2.3 billion, as same-store sales increased 5.6% (against a 7.4% comp in last year's second quarter). Operating margins came in at 16% (up 220 basis points year over year) as reduced markdowns and coupon activity and tighter expense management offset a continued shift to lower-margin merchandise. Diluted earnings per share increased to $0.93 from $0.70 a year ago, a 33% jump (partially enhanced by $287 million in share buybacks during the quarter). We reiterate our favorable long-term view of Bed Bath & Beyond following solid year-to-date results. The company continues to be extremely prudent and thoughtful with its cash hoard (nearly $5.00 per share in net cash and equivalents) and expansion plans (now 40 new stores for 2011, at the lower end of the previous 40-45 range), which investors should find comforting, particularly given the current uncertain environment. The firm does face several headwinds, and we're keeping particularly close watch on the trend toward lower-margin products, for example, but management has executed well and there's no sense that the firm is going to jeopardize its franchise just to expand. This makes us feel pretty good, especially since we think many of the firm's concepts (buybuy BABY specifically) have an incredibly long runway for growth, which makes this long-term story that much more compelling. Shares are trading at a modest premium to our fair value estimate, but we would keep a close eye on the name and be more active in the event of a pullback. |
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HenryTo
Site Admin
Joined: 06 Aug 2004
Posts: 11722
Location: Los Angeles, California
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| Posted: Fri Apr 08, 2011 12:02 am Post subject: |
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Morningstar on BBBY's 4Q earnings, full-year results, and 2011 projections:
http://quicktake.morningstar.com/Stocknet/376247/another-quarter-of-outperformance-for-bed-bath-beyond-management-gives-achievable-2011-outlook.aspx?symbol=BBBY
| Quote: | | Management remains cautiously optimistic heading into 2011 and expects mid-single-digit revenue growth, driven by a 4% increase in average square footage and comp sales growth in the 2%-4% range. The company projects flat operating margins in 2011, as benefits from higher sales volume could be offset by higher costs and mix shift. Bed Bath & Beyond has not been at the center of commodity inflation chatter in recent quarters, though it is exposed to both transportation and cotton-related cost increases, which we are keeping a close eye on. However, the impact appears to be manageable and management is comfortable with its full-year diluted earnings per share growth projection of 10%-15% (in line with our existing projection). If the firm were to buy back zero shares in 2011 (extremely unlikely, in our view), mid-single-digit sales growth and flat operating margins would still drive 8%-9% EPS growth. |
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HenryTo
Site Admin
Joined: 06 Aug 2004
Posts: 11722
Location: Los Angeles, California
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| Posted: Sat Dec 25, 2010 11:13 pm Post subject: |
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Morningstar on BBBY's 3Q earnings:
| Quote: | | Bed Bath & Beyond BBBY delivered yet another quarter of outperformance for the period ending Nov. 27. If one were looking for a potential point of weakness, it would be the gross margin line, which came in a shade below last year's 41.1%, driven primarily by an increase in inventory acquisition costs and product mix shift. We're not taking that lightly, but in the grand scheme of things, this was a pretty impressive quarter, where sales, operating profit, and diluted earnings per share each came in ahead of internal expectations by a fair margin. As a result of the solid third quarter and management's commentary regarding the fourth quarter and calendar 2011, we will probably increase our fair value estimate by a few dollars. Total revenue rose 11% year over year, to $2.2 billion, as same-store sales rose 7% (against a 7.3% comparable). The operating margin rose 150 basis points year over year, to 13.9%, as the firm leveraged top-line outperformance while limiting corporate and advertising spending. Diluted EPS increased to $0.74 from $0.58 a year ago. There were some other positive takeaways from the quarter. Management introduced a new $2 billion share-repurchase program, which it expects to complete within the next two years (at Wednesday's closing, this represents roughly 16% of the total shares outstanding). Also on the basis of the third-quarter results and positive momentum carried into the fourth quarter, management now expects diluted EPS to increase 25% year over year, an impressive statement, particularly given a mixed macro backdrop. We still believe Bed Bath has plenty of runway for long-term growth, and we expect shares to rally following the solid third-quarter results. As a self-funding growth story with no debt, a stable dividend, a substantial buyback program, and solid returns on invested capital, this is a company that we like to talk about, and we keep it on our watch list. However, with the shares poised to push through our updated fair value estimate, we would wait for a more attractive entry point. |
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HenryTo
Site Admin
Joined: 06 Aug 2004
Posts: 11722
Location: Los Angeles, California
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| Posted: Thu Sep 23, 2010 11:55 am Post subject: |
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Morningstar on BBBY's 2Q earnings:
| Quote: | | Second-quarter results from Bed Bath & Beyond BBBY came in above the high end of management's internal expectations yet again, and the firm continues to perform relatively well in a tough, albeit slowly recovering, macro environment. We plan to increase our full-year revenue assumption to reflect management's updated outlook and the firm's continued momentum at retail. However, these changes probably will not be meaningful enough to affect our fair value estimate. For the quarter, total revenue increased 11.6% year over year, to more than $2.1 billion, as same-store sales rose 7.4%. The results were driven by a combination of easy year-over-year comparisons, seven new stores and several remodels/renovations (primarily at namesake Bed Bath & Beyond locations), and stability in the broader home furnishings category. Operating margins rose 230 basis points year over year to 13.9%, well ahead of our 12.5% estimate, as the firm leveraged top-line growth while keeping a tight grip on corporate and advertising spending. Diluted earnings per share increased to $0.70 from $0.52 a year ago, reflective of last year's challenging environment as well as Bed Bath & Beyond's solid internal execution. |
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HenryTo
Site Admin
Joined: 06 Aug 2004
Posts: 11722
Location: Los Angeles, California
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| Posted: Thu Apr 08, 2010 9:56 am Post subject: |
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Morningstar on BBBY's latest earnings:
| Quote: | | Bed Bath & Beyond BBBY is the latest company to report fourth-quarter results that were well ahead of our and consensus expectations. We plan to increase our fair value estimate on the basis of the solid 2009 results, a more robust outlook for 2010, and an incremental improvement in cash-flow generation. For the quarter, revenue was $2.24 billion, an increase of 16.7% year over year, and comparable-store sales jumped 11.5%, more than doubling management's 3%-5% estimate. The results were driven by a combination of easy year-over-year comps, 17 new stores (across all concepts), and improving business conditions in the retail sector. The operating margin increased to 16.5%, up 450 basis points year over year, as easy comparables and operating leverage from solid top -line growth more than offset higher advertising and corporate expenses. Fourth-quarter earnings per share rose to $0.86 from $0.55 a year ago, a sign of last year's challenging environment and the company's growing role in the home furnishings category. Management is cautiously optimistic heading into 2010 and expects mid-single-digit revenue growth, driven by a 5% increase in average square footage and comp sales growth in the low- to mid-single-digit range. The company projects positive operating leverage throughout the year, while citing tougher comps and limited visibility in the back half of its fiscal year. These assumptions, when combined, are expected to drive diluted earnings per share growth of 10%-15% for the year, which is consistent with our expectations. |
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