Bed Bath & Beyond: Death of Growth Redux

Bed Bath & Beyond’s earnings were not actually bad, but guidance is not good. Third-quarter profits were up only 2%, while earnings per share rose a bit more to $1.03 from $0.95 a year ago. We had a consensus from Thomson Reuters of $1.02 per share. The 15% gain in sales to $2.7 billion was also slightly under the $2.73 billion expected. The 1.7% same-store sales growth was also said to be hurt by about 0.9% due to Hurricane Sandy.

Here is the earnings guidance: $1.60 to $1.67 EPS for the current quarter and $4.48 to $4.54 EPS for its full fiscal year. Unfortunately, the consensus estimates were for $1.75 EPS for the current quarter and $4.62 EPS for the year. Does it matter that the company has announced a new $2.5 billion share buyback plan? Not really.

Here is how bad things are: shares are down 9% at $54.75 this morning to a new 52-week low! The prior 52-week range was $55.58 to $75.84. The new market cap of $12.4 billion implies that a serious share reduction could occur if the retailer lives up to its full $2.5 billion share buyback.

Why do we say this is the death of growth? From the year 2000, Bed Bath & Beyond shares rose from $15 to $70, but now we have had three serious issues around earnings and guidance. The benefit from the death of Linens n Things has now past. The company’s acquisition of Cost Plust World Market was a good move, but it was also a signal that Bed Bath & Beyond has to look beyond the bed and bath for growth opportunities. The company likely still will keep growing its sales, and its store count likely will keep growing. The problem is that shareholders are now facing a maturing story. That means that the great growth story has peaked, hence the death of growth.

How far can the shares fall from here? Maybe nothing at all. If you are a chartist, the long-term chart is on the right (not correct, but opposite of the left) side of a head and shoulders chart pattern. That is not a good thing.

JON C. OGG