Bed Bath & Beyond Inc. (BBBY) reports preliminary financial results for the quarter ended 2012-08-31.
Bed Bath & Beyond Inc.’s analysis versus peers uses the following peer-set: TJX Cos. (TJX), Macy’s Inc. (M), Williams-Sonoma Inc. (WSM), Pier 1 Imports Inc. (PIR), Shimachu Co. Ltd. (8184-JP), Siam Global House PCL (GLOBAL-TH), Kirkland’s Inc. (KIRK), easyhome Ltd. (EH) and Sunday Co. Ltd. (7450-JP). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.
| Quarterly (USD million) | 2012-08-31 | 2012-05-31 | 2012-02-29 | 2011-11-30 | 2011-08-31 |
|---|---|---|---|---|---|
| Revenues | 2,593.0 | 2,218.3 | 2,732.3 | 2,343.6 | 2,314.1 |
| Revenue Growth % | 16.9 | (18.8) | 16.6 | 1.3 | 9.7 |
| Net Income | 224.3 | 206.8 | 351.0 | 228.5 | 229.4 |
| Net Income Growth % | 8.5 | (41.1) | 53.6 | (0.4) | 27.0 |
| Net Margin % | 8.7 | 9.3 | 12.8 | 9.8 | 9.9 |
| ROE % (Annualized) | 23.0 | 21.2 | 35.9 | 23.4 | 23.4 |
| ROA % (Annualized) | 15.0 | 14.3 | 24.3 | 15.8 | 15.9 |
Valuation Drivers
Bed Bath & Beyond Inc.’s current Price/Book of 3.6 is about median in its peer group. BBBY-US’s operating performance is higher than the median of its chosen peers (ROE of 25.8% compared to the peer median ROE of 17.0%) but the market does not seem to expect higher growth relative to peers (PE of 14.0 compared to peer median of 12.4) but simply to maintain its relatively high rates of return.
The company attempts to achieve high profit margins (currently 10.2% vs. peer median of 5.5%) through differentiated products. It currently operates with peer median asset turns of 1.7x. BBBY-US’s net margin is similar to last year’s high of 10.4%, which compares to a low of 5.9% in 2009.
Economic Moat
Growth in BBBY-US’s revenues and earnings have been in-line with its chosen peers (annual revenue growth of 8.5% and earnings growth of 25.0% respectively). Its top-line performance seems to imply ‘more of the same’ for earnings. BBBY-US is currently converting every 1% of change in revenue into 3.0% change in annual reported earnings.
BBBY-US’s return on assets is above its peer median both in the current period (17.1% vs. peer median 7.6%) and also over the past five years (14.0% vs. peer median 5.6%). This performance suggests that the company’s relatively high operating returns are sustainable.
The company’s gross margin of 42.2% is around peer median suggesting that BBBY-US’s operations do not benefit from any differentiating pricing advantage. However, BBBY-US’s pre-tax margin is more than the peer median (16.1% compared to 8.5%) suggesting relatively tight control on operating costs.
Growth & Investment Strategy
While BBBY-US’s revenues have grown faster than the peer median (9.6% vs. 5.0% respectively for the past three years), the market gives the stock an about peer median PE ratio of 14.0. This suggests that the market has some questions about the company’s long-term strategy.
BBBY-US’s annualized rate of change in capital of 9.3% over the past three years is higher than its peer median of 6.1%. This investment has generated an above peer median return on capital of 21.4% averaged over the same three years. Evidently, the relatively high capital investment was successful given the the relatively strong growth in its returns.
Earnings Quality
BBBY-US has reported relatively strong net income margin for the last twelve months (10.2% vs. peer median of 5.5%). This margin performance combined with relatively low accruals (2.0% vs. peer median of 3.6%) suggests possible aggressive accounting and an overstatement of its reported net income.
BBBY-US’s accruals over the last twelve months are around zero. However, this modestly positive level is also less than the peer median which suggests some amount of building of reserves.
Trend Charts
