--Earnings per share beat guidance with 15% gain
--Shares slump on weak outlook, lukewarm comparable sales and
lower margin
--Company plans to open World Market food departments in
selected stores
(Updates with details from release and conference call, adds
context)
By Joan E. Solsman and Ben Fox Rubin
Bed Bath & Beyond Inc. (BBBY) again surpassed expectations
with 15% higher profit in the fiscal first quarter, but it broke
from tradition with a downbeat outlook, middling same-store-sales
growth and gross margin contraction.
Shares in the home-furnishings retailer fell 11% after hours to
$65.65. The stock has been tracking all-time highs recently,
enjoying an upward swing since 2009 and reaching its latest apex at
$75.84 Tuesday.
It forecast current-quarter earnings of 97 cents to $1.03 a
share, missing views of $1.08 from analysts polled by Thomson
Reuters, on growth in revenue of 5% to 7% and same-store sales of
2% to 4%.
And despite a track record of boosting its full-year outlook
with its fiscal-first-quarter results, Bed Bath & Beyond only
affirmed its forecast for high single- to low double-digit
percentage growth in earnings per share. The consensus estimate was
for the company to raise the view nearer to 14%. Revenue outlook
nudged a percentage point to 6% to 8% gain.
Bed Bath & Beyond also warned that should its pending
takeover of Cost Plus Inc. (CPWM) close this quarter as expected,
transaction and integration costs would push fiscal second-quarter
guidance several cents lower, though the acquisition would be
slightly accretive in the second half.
Bed Bath & Beyond recently unveiled its first takeovers
since 2007 within weeks of each other, planning to buy Cost Plus in
a deal valued at $550 million and purchasing privately held linens
distributor Linen Holdings LLC for about $105 million.
Cost Plus stores sell a mix of home furnishings, accessories and
gourmet food and wine, while Linens distributes textiles and
amenities to hospitality, cruise, restaurant and health-care
companies.
Bed Bath & Beyond has said Cost Plus would to expand its
selection of specialty foods and items not easily found elsewhere,
while Linen Holdings' value lay in its sourcing and sales expertise
and the chance to augment Linen Holdings offerings with its own
inventory.
During a conference call discussing the results, executives said
the company would be opening World Market food departments in
selected Bed Bath & Beyond stores.
Analysts have said Bed Bath's acquisitions effort could be a
defensive maneuver against potentially slowing core sales and
increasing margin pressure, or it could simply be a method of
deploying cash, given its strong free cash flow and debt-free
balance sheet.
In the latest period, same-store sales rose 3%, the midpoint of
the company's guidance. The sequentially lower rate keeps with the
trend of peers and in home-furnishings sales data, but expectations
were for the metric to hit the range's high end, if not exceed
it.
Gross margin narrowed to 40% from 40.6% because of increases in
both the redemptions of coupons and average coupon amount, as well
as a continuing shift to lower-margin mix. The company had largely
avoided margin contraction in recent years but has now posted two
straight quarters of deterioration.
Ahead of the results, UBS analyst Michael Lasser had warned that
while he expected some gross margin pressure, a decline greater
than about half a percentage point would put strain on the
stock.
The benefit from lower overhead costs also paled in the period,
as Bed Bath again booked lower payroll and occupancy expenses but
reported no benefit from lower advertising spending.
For the quarter ended May 26, Bed Bath & Beyond reported a
profit of $206.8 million, or 89 cents a share, up from $180.6
million, or 72 cents a share, a year earlier. Net sales grew 5.1%
to $2.22 billion.
In April, the company predicted earnings of 79 cents to 83 cents
a share and revenue growth of 4% to 6%.
-Write to Joan E. Solsman at joan.solsman@dowjones.com and Ben
Fox Rubin at ben.rubin@dowjones.com