Can Bed Bath & Beyond Bounce Back?

Bed Bath beyond storeIs it too late to rechristen Bed Bath & Beyond (BBBY) as Bed Bath & Begone?

Investors probably feel that way. Many retailers and home improvement specialists are trading near all-time highs, but not the housewares superstore chain.

The retailer was trading close to its 52-week low even before Wednesday's disappointing quarterly report when earnings grew by less than 2 percent to $232.8 million, despite seeing net sales climb 15 percent to top $2.7 billion. Oh, and don't get too excited about the top-line growth. It's largely the handiwork of a pair of acquisitions that closed in June. Bed Bath & Beyond same-store sales only inched 1.7 percent higher during the quarter.

Things may not seem so bad, but they're about to get worse.

Deck the Halls and Hit the Deck

Like most retailers, Bed Bath & Beyond lives for the holidays. It doesn't have the same kind of seasonality as traditional stores -- since folks need new shower curtain rods and K-Cup coffee pods year-round -- but its strongest quarter by far is the Christmas-stoked fiscal fourth quarter.

Well, the news isn't all that encouraging on that front.

Bed Bath & Beyond sees a profit of $1.60 a share to $1.67 a share during the quarter. Wall Street was forecasting net income of $1.75 a share.

This is actually even worse than it looks.

Bed Bath & Beyond has been aggressively buying back stock. It's a smart strategy in general, but it's a ploy that some companies use to mask bottom-line weakness. Repurchasing shares lowers the share count that profits are divided by to arrive at earnings per share. For example, Bed Bath & Beyond's net income grew by less than 2 percent this past quarter, but rose by more than 8 percent on a per-share basis.

There's certainly nothing wrong with buying back shares, especially if it's done at low prices. However, it's something to keep in mind in assessing a company's true performance. In Bed Bath & Beyond's case, acquisitions are inflating the top line and buybacks are puffing up the per-share profitability.

Home Is Where the Improvement Is

It's surprising to see Bed Bath & Beyond just meandering about.

When it comes to house wares, apparently the soft goods that Bed Bath & Beyond is selling aren't as hot as the heartier home improvement products that Home Depot (HD) is ringing up.

Now that the housing market is showing signs of stability, homeowners and prospective homebuyers aren't having a problem going for big-ticket improvement projects. Home Depot and Lowe's (LOW) are trading near their 52-week highs.

Hey, there's an idea. Bed Bath & Beyond's next acquisition may want to be in the home improvement arena. Things are just too hard right now for soft goods.

Motley Fool contributor Rick Aristotle Munarriz has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Bed Bath & Beyond, The Home Depot, and Lowe's companies.

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December 20 2012 at 7:18 PM Report abuse -1 rate up rate down Reply

I love BB&B. Shop there often. They will take back anything that doesn't work right. I find all sorts of quality kitchen gadgets, linens, personal care items, etc. Contrary to what rivercat0338 reports, Target doesn't hold a candle to what BB&B carries. And CVS isn't even in the same game. I personally hope that they stay in business. It would be a big loss to our community.

December 20 2012 at 6:52 PM Report abuse rate up rate down Reply

What an unpleasant shopping experience. Why create such narrow aisles that can't accommodate the carts? They also carry such a limited selection of brands, there's no point in going there unless you know you need one of those items. The addition of personal products I can find at any CVS didn't improve matters. Not surprised they're struggling. I'd rather go to Target any day.

December 20 2012 at 4:36 PM Report abuse rate up rate down Reply

Bed, Bath & Beyond, one of the most overpriced retailers, I've ever had the misfortune to walk into by mistake!

December 20 2012 at 1:55 PM Report abuse rate up rate down Reply
1 reply to fair236's comment

Overpriced and what they sell for the most part comes from China.

December 20 2012 at 5:29 PM Report abuse rate up rate down Reply