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Bed Bath & Beyond Up on Q4 Earnings Beat & First Dividend

Shares of Bed Bath & Beyond Inc. BBBY jumped 4.5% in the after-market trading session as the company posted better-than-expected results for fourth-quarter fiscal 2015, thus ending the year on a solid note. Moreover, the company initiated a dividend program, alongside making share repurchases, which instilled a positive sentiment among investors.  

Quarterly adjusted earnings per share came in at $1.85, faring better than both the Zacks Consensus Estimate and the year-ago figure of $1.80. Also, the figure was almost in line with the upper end of the company’s guidance range of $1.72–$1.86 per share.
 

Including one-time items, the company’s fourth-quarter earnings came in at $1.91 per share, up 6.1% year over year.

Deeper Insight

The home-furnishing retailer’s net sales climbed 2.4% to $3,417.9 million, surpassing the Zacks Consensus Estimate of $3,382 million. On a currency-neutral basis, sales jumped 2.8%.

Coming within the company’s guidance range, comparable-store sales (comps) for the quarter scaled up 1.7%. On a currency-neutral basis, comps rose 2.1%, driven by an increase in average transaction amount as well as transaction count. Further, comps from customer-facing digital networks soared by more than 25%, whereas comps at stores remained flat.

However, gross profit of this Zacks Rank #4 (Sell) company dipped 0.4% to $1,319.9 million in the reported quarter, while the gross profit margin contracted 110 basis points (bps) to 38.6%, mainly due to soft merchandise margins coupled with a rise in direct-to-customer shipping costs.

Operating profit dropped 6.3% to $498.6 million and the operating profit margin contracted about 130 bps from the prior-year quarter to 14.6%.

Financial Position

Bed Bath & Beyond ended fiscal 2015 with cash and cash equivalents of $515.6 million, long-term debt of $1,500 million, and total shareholders' equity of $2,559.4 million.

During fiscal 2015, the company generated cash flow of about $1,012.2 million from operating activities, while deploying $328.4 million toward capital expenditure. Capital expenditure for the fiscal is envisioned in a range of $400–$425 million.

Share Buyback Plan

During the fourth quarter, the company bought back 7 million shares for nearly $327 million. With this, the company concluded its $2 billion share repurchase program and also started making buybacks under its new $2.5 billion buyback plan, which was authorized in Sep 2015. As of Feb 27, 2016, Bed Bath & Beyond had shares worth $2.3 billion remaining under its Sep 2015 program.

Notably, concurrent with the earnings release, management authorized a quarterly dividend program based on its solid cash flow generation, confidence in future prospects and focus on boosting shareholder value. Thus, the company announced its first quarterly cash dividend of 12.5 cents per share, payable on Jul 19, 2016, to shareholders of record as on Jun 17.

Outlook

Management remains hopeful about driving future growth on the back of its strategic investments and omnichannel progress.

Bed Bath & Beyond projects comps growth in the range of 1%–2% for fiscal 2016, while sales are anticipated to be 90 bps greater than comps. Further, the company expects gross margin and selling, general and administrative expense deleverage in fiscal 2016.

Considering all factors, the company anticipates fiscal 2016 earnings per share in the range of $4.50 to a little over $5.00.

Also, Bed, Bath & Beyond expects to introduce 30 new stores, while closing 15 in the fiscal year. Capital expenditure for fiscal 2016 is anticipated in the range of $400–$425 million.

Stocks to Consider

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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