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Bed Bath & Beyond: Can Growth Efforts Take BBBY Higher?

Bed Bath & Beyond Inc. BBBY is a leading operator of domestic merchandise and home furnishing stores in the U.S.  The company enjoys a strong competitive advantage with a well-established position in the market, given its strong countrywide network, coupled with its strategic efforts to align merchandise with regional climate and demographics.

As part of its strategic efforts, Bed Bath & Beyond is focused on expanding its store count, while increasing the productivity of existing stores by adjusting the breadth and depth of its merchandise offerings to suit customer preferences. We believe that these initiatives will go a long way in retaining existing customers, while attracting new ones.

Apart from this, Bed Bath & Beyond continually reviews and prioritizes its capital needs, making the right investments to help position itself for long-term success. The company anticipates capital expenditure of about $400–$425 million in fiscal 2016, mainly toward new store openings and refurbishment of existing stores, enhancement of information technology, and other important future projects.

Thanks to these efforts and other factors, the company recently made a leap, with its fourth-quarter fiscal 2015 results topping earnings and sales estimates for the first time in the past six quarters. Moreover, results improved year over year and comparable store sales also trended upward.

Notably, apart from making share buybacks in the quarter, the company initiated a dividend program based on its solid cash flow generation, confidence in future prospects and focus on shareholders. Bed Bath & Beyond’s first quarterly cash dividend of 12.5 cents per share is payable on Jul 19, 2016, to shareholders of record as on Jun 17.

While the fourth quarter was otherwise spectacular, margins remained pressurized mainly due to soft merchandise margins and a rise in net direct-to-customer shipping costs. Also, SG&A expenses escalated. Both these trends are expected to continue in fiscal 2016, thus posing concerns. Further, the persistence of currency headwinds may impact results.

So let’s see if Bed Bath & Beyond can manage to battle these headwinds and continue with its upbeat performance in the future.

Zacks Rank

Bed Bath & Beyond currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the same industry worth considering include KAR Auction Services, Inc. KAR and ULTA Salon, Cosmetics & Fragrance, Inc. ULTA, each with a Zacks Rank #1 (Strong Buy), and CST Brands, Inc. CST, with a Zacks Rank #2 (Buy).

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ULTA SALON COSM (ULTA): Free Stock Analysis Report
 
BED BATH&BEYOND (BBBY): Free Stock Analysis Report
 
KAR AUCTION SVC (KAR): Free Stock Analysis Report
 
CST BRANDS INC (CST): Free Stock Analysis Report
 
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