The Death of Growth at Bed Bath & Beyond

Bed Bath & Beyond Inc. (NASDAQ: BBBY) always beats earnings and seems to please Wall Street investors as Main Street consumers keep flocking to its stores.  Perhaps there is a gap in the historic norm.

The retailer of home products reported that net earnings rose 24% to $0.89 per share, or $206.8 million, for the quarter.  Net sales for the first quarter of 2012 were up just over 5% to $2.218 billion. Thomson Reuters had estimates of $0.85 EPS and $2.25 billion.

The company’s comparable same-store sales rose 3.0% in the quarter. Bed Bath & Beyond spent some $306 million to repurchase approximately 4.6 million shares during the quarter and the remaining balance of the current share repurchase program was approximately $613 million.

Here is the guidance: $0.97 to $1.03 per share for the coming second quarter, down well under the $1.08 EPS target from Thomson Reuters. For the year the company  “continues to model net earnings per diluted share to increase by a high single to a low double digit percentage range for all of fiscal 2012, which will be 53 weeks.” Thomson Reuters was calling for growth of about 14%.

The reaction is far from the norm here. The retailer closed down 1.4% at $73.67 on the day, but shares are now down 10% at $66.00 in the after-hours session.

What investors have to ask if this is the peak of the growth story for Bed Bath & Beyond.  It is acquiring Cost Plus, Inc. (NASDAQ: CPWM) but this is slowing of growth.  We recently criticized this company as one of 20 dividend sinners because it pays nothing out in the form of a dividend.  Maybe the company should consider paying out excess capital directly to all holders rather than absorbing shares that sellers want out of and shrinking its float.

JON C. OGG