Bed, Bath and Beyond: Five Negatives and Five Positives
William is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
On Sept. 19, Bed, Bath and Beyond (NASDAQ: BBBY) came out with its latest earnings announcement. The numbers were brutal, and the stock price showed it. I discerned five things I disliked and liked about Bed, Bath and Beyond’s current situation.
1. Contradiction between EPS and Earnings. The company recorded a 5% increase in diluted earnings per share for the latest quarter, but a 2% decline in actual earnings. This stems from a 7% decline in weighted diluted shares outstanding. An investor relying on earnings per share alone could falsely conclude that Bed, Bath, and Beyond had an increase in earnings.
2. Deteriorating cash flow. Operating cash flow year to date is down 3%. Free cash flow is down 21%. The company spent $669 million acquisitions in the most recent quarter, and as a result, cash and marketable securities are at 23% of stockholder’s equity, down from 44% in the previous quarter. As you can see from points No. 4 and No. 5 below, that means Bed, Bath and Beyond is now simply at par with its peers as far as cash positioning.
3. Enticing customers with coupons. This is part of the reason that gross margins declined from 41% to 39% in the most recent quarter.
4. Williams Sonoma (NYSE: WSM) did better on its earnings. The kitchenware retailer's earnings increased 5% this past quarter. Its cash as a percentage of stockholder’s equity stands at 28%, surpassing that of Bed, Bath and Beyond.
5) Pier 1 Imports (NYSE: PIR) also did better on its earnings. The company's earnings increased 7% for the quarter. Itscash and marketable securities as a percentage of stockholder’s equity, at 25%, exceeds the same figure at Bed, Bath and Beyond.
All wasn’t gloom and doom for Bed, Bath and Beyond. Here are five positive takeaways from its latest earnings announcement.
1.) Its stock price is down 13% over the past 5 days. The company's increase in fundamental risk was subsequently compensated by lower market risk. Bed, Bath and Beyond's P/E ratio of 14 beats Williams Sonoma's P/E of 20.
2.) Excellent debt-to-equity ratio. It doesn’t appear that Bed, Bad, and Beyond has taken on any long-term debt, which still stands at 0%. The total debt-to-equity ratio, comprised mainly of accounting accruals and accounts payable, stands at 56%.
3.) Growing revenue on a quarterly and year-to-date basis. Top-line growth means Bed, Bath and Beyond is still expanding, even though it's not keeping as much of its revenue as profit.
4.) Comparable-store sales are up 3%. This year-to-date figure tells me that the company's older stores are still increasing sales, suggesting that top-line growth isn’t in any trouble.
5.) Earnings are up year to date. While quarterly earnings are down year to date, earnings have risen 5%. Quarterly EPS also gained 5%.
A long-term investor doesn't bail just because a company has a bad quarter. The acquisition of Cost Plus and Linen Holdings should be accretive to Bed, Bath and Beyond's 2013 earnings. Regardless of its lower cash stash and reduced quarterly earnings, I think this company will do okay over the long run.
stockdissector has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Bed Bath & Beyond and Williams-Sonoma. 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.If you have questions about this post or the Fool’s blog network, click here for information.