WSJ on Bed Bath & Beyond

edelfenbein
The Wall Street Journal looks at Bed Bath & Beyond's (BBBY) first-ever profting warning:
Bed Bath now trades at 16.1 times estimated per-share earnings for the next 12 months, a tad cheaper than the overall market, according to Credit Suisse. While that is well below the 25 price/earnings average of the past five years, Bed Bath doesn't have the growth prospects it once had for its flagship stores, and investors have been frustrated with the slow progress in its other businesses, such as its specialty Christmas Tree Shops.
Bulls point out that Bed Bath's balance sheet is impressive. It holds about $1 billion more cash than debt, according to data company Capital IQ.
And the earnings disappointment was relatively minor: The company said it would earn between 36 cents and 38 cents in the first quarter, which ended June 2, compared with expectations of 39 cents. Bed Bath's same-store sales, or sales at stores open at least a year, are expected to rise 1.6%, besting many peers though below the company's longstanding projection of 3% to 5% growth.
But there are indications that Bed Bath's historically juicy profit margins -- 14% in 2006 -- may be challenged by competitors, such as closely held Linens 'n Things, which has been cutting prices amid its own sales decline.
Another reason for bearishness: The company's stores are getting older and are about at the point where money is needed to update them, argues Stephen Long, a portfolio manager at Hanover Square Capital, a New York hedge fund with less than $50 million in assets, which has been betting against Bed Bath in recent months.
"Growth is falling; that suggests to us that the core concept is very mature," Mr. Long says. "The stock will drift down to $33 as growth investors" bail out of the stock and are replaced by value-oriented investors.
I still don’t see any reason to worry. All of the problems cited are problems that nearly every company in the sector faces. Let’s not forget the basics: BBBY is a very well-managed company, with sold financials going for a reasonable price. The bullish case for BBBY is that simple.