Looking Beyond Bed Bath & Beyond's Earnings

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Look beyond Bed Bath & Beyond's (NASDAQ: BBBY) fiscal 2013 first-quarter earnings and you'll see steady growth anchored by a strong market position. Revenue increased 17.8%, comparable-store sales rose 3.4%, and the company expects performance to be robust for the remainder of the year.

The company, a chain of retail stores operating under flagship brands including Christmas Tree Shops, Harmon and buybuy Baby stores, recently posted mixed results. Earnings per share came in at $0.93, missing projected estimates of $1.68 by $0.75. Revenue came in at $2.6 billion, slightly better than expectations, and up 17.8% year-over-year. The 2.1% slip in earnings came as the home-furnishing retailer recorded an increase in expenses and a smaller tax benefit. 

Looking forward, the company is upbeat. It continues to expand across the United States and remains focused on improving customer service and the retail experience both in stores and online.

“These results continue our consistent performance in terms of earnings-per-share growth and overall financial strength,” Leonard Joseph Feinstein, co-founder and co-chairman said on a conference call. “During the quarter, we continued the integration of World Market and Linen Holdings and made good progress on our major initiatives that we mentioned last quarter.”

Benefiting from a Goldilocks syndrome

Competition is indeed stiff and expanding in the housewares markets. But analysts maintain Bed Bath & Beyond had found its niche and say the company benefits from the Goldilocks syndrome.

Washington state-based Trutina Financial's Patty Edwards says rivals like Crate & Barrel are too expensive, while less-pricey Target (NYSE: TGT) has less options.

"[At Bed Bath & Beyond] you can buy a $20 towel or you can buy a $2 towel. And you can do all of that in one spot,” Edwards explained.

Meanwhile, online giant Amazon.com (NASDAQ: AMZN), which has mastered the art of selling books and electronics, could use some pointers when it comes to selling housewares. Although it does offer a large collection of home goods, it's not the first stop for shoppers looking for such items.

Amazon continues to impress with robust revenue and earnings thanks to growing sales of digital content, cloud-computing services and gains in its main retail business. In addition, it is venturing into media, entertainment and fine art. Late last year it rolled out wine sales and has been touting upscale fashion in a move into higher end markets.

After hitting a year-to-date low of $245.75 in early May, shares are up nearly 13%. Short-term option activity reveals traders are betting on more upside.

But Amazon.com isn't a big threat to Bed Bath & Beyond, which is growing its online presence in an effort to attract more web shoppers. And, its brick-and-mortar stores give the company an edge over Internet-only sites for shoppers who "want-it-now,"  and shoppers wanting an in-person "look and see."

Target presently sees gains North of the border. The first three Target stores to open in Canada attracted larger-than-expected crowds. In late March, the U.S.-based retailer opened 17 more locations in Canada to warm receptions. “We thought there would be an initial bump. The bump has not leveled off to the degree that we thought,” executive John Morioka said in a statement.

More good news for Target in the U.S. is Wal-Mart Stores struggles to keep shelves fully stocked and checkout lines well-staffed, Bloomberg reports.

But the troubling news is that Target has lost some of its cache amid a changing landscape in retail. J.C. Penney and Kohl's are treading on Target's turf and venturing beyond apparel.

While Target has morphed into a true superstore, selling everything from groceries to garden supplies, customers have moved away from purchasing its more profitable apparel items and home goods.

For home goods, they are going to Bed Bath & Beyond.

Upgrades boost shares

With the housing market showing some real signs of recovery, and consumer confidence edging up a bit, Bed Bath and Beyond stands to benefit. Americans are eager to spend more on sprucing up their homes as many are foregoing vacations and spending more time at homes.

That's why two Wall Street firms just upped their outlook on the company's shares, which are trading just shy of a 52-week high.

Bank of America boosted shares to a “buy” from a “neutral” with an $82 price target. Citigroup Inc also set an $82 price target and rates the stock "buy"

Bed Bath & Beyond has been profitable for the last eight quarters, Forbes reports. And for the last four quarters, profits have grown year-over-year by an average of 24%. Last quarter, the company posted a whopping 81% increase.

The majority of analysts (62%) have a “buy” on shares. That’s better than analyst ratings of its three closest competitors, which average 45% "buys."

I often find myself in Bed Bath & Beyond and Harmon stores thanks to their competitive prices and coupons. Stores are always busy, staff is always friendly and selections are plentiful. Watching customers come and go, almost all leave with packages in tow.

Online sites are clean, easy to navigate and changing to offer more . The company's e-commerce push could account to 10% of sales by 2015, up from its current 2%, according to Canaccord Genuity.

Market participants looking for a clean investment don’t need to look beyond Bed Bath & Beyond.

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Diane Alter has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and Bed Bath & Beyond. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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