Bed Bath & Buoyant

Net sales for the quarter exceeded $1.2 billion, up 13% over the same quarter of 2004, and comp store sales were up 4.4%, compared with an increase of just over 5% in the same quarter the year before. Temares anticipates continuing comp store sales increases of between 3% and 5% for the remainder of the year and low double-digit increases in net sales.

He credits the company's success, particularly in the area of providing customer satisfaction, to its de-centralized organization. "It empowers people to make decisions at the local level," he said.

Calling home goods "a still attractive area of retail," Leonard Feinstein, chairman, said, "yet, our share of this market is less than 6%. We expect Bed Bath & Beyond to grow and believe there's an opportunity to grow to 1,100 stores in the US." It opened 11 during first quarter and plans 85 new ones for the full year. "The new units are slightly larger than those we opened in 2004," he added.

At the end of the first fiscal quarter, the company operated a total of 732 stores. They include 671 Bed Bath & Beyond units in 44 states and Puerto Rico, 26 Christmas Tree Shops in seven states, and 35 Harmon Stores in three states. One unit each of Christmas Tree and Harmon, which specialize in gift and health and beauty products, respectively, opened during the first quarter and "several more" will be added this year, according to Feinstein.

The earnings report came on a down day on Wall Street, and shares of BBBY closed on June 23 at $41.96 a share on the Nasdaq, down just over 5% from the previous day. A report by Neely J.N. Tamminga, senior research analyst at Piper Jaffray & Co., may also have had some impact. Acknowledging that BBBY's performance was in line with his company's estimate and slightly above Wall Street expectations, he took a neutral stance.

The position, he said, "is largely rooted in our belief that the home furnishings category is likely to become more crowded . . . we continue to believe competitive pressures will increase." Among the reasons he cited is J.C. Penney's home business, which is "pulling the moderate customer back to the mall." In addition, Target's focus on home business "is pulling an upscale-minded moderate customer to the discount channel."

Furthermore, Tamminga cited potential impact from the pending Federated/May merger. "Its combined home businesses will step up in size and gain in scale fairly quickly, we believe," he said. "While we recognize there is renewed enthusiasm in BBBY shares," he concluded, "we prefer to sit on the sidelines with respect to this stock, owing to what we believe will be increased competitive pressures in 2005."

Meanwhile, Dana Telsey, a Bear Stearns analyst, said her company was raising its 2005 year-end target for BBBY shares to $49, versus a previous target of $46 per share. And, following the Bed Bath & Beyond conference call, a SG Cowan & Co. report said the first-quarter results "should refute investor concerns related to over saturation and deteriorating new store productivity."

The Cowan report added, however, that BBBY shares "could pull back slightly in the near term, following a recent rally," and pointed specifically to the lack of information on performance and plans for Christmas Tree Shops. Bed Bath & Beyond acquired Christmas Tree Shops in 2003.