Bed Bath and Beyond is Sleeping

The name says it all. Bed Bath is now truly Beyond making people
money. Since Jan 2002, investors in this lazy stock have made no
money. The store, where I shop frequently, has seen increasing
earnings and sales, but no growth in market cap. It has the same
multiple as Walmart (WMT) and Target (TGT) despite being 1/4th the
size of Target and 1/20th the size of Walmart.

While the stores are brighter, with higher-end items and is often
first to market with newer products, Bed Bath (BBBY) has failed to
impress analysts in the past few years despite meeting or beating
estimates. Part of this could be their customer friendly attitude
(read investor unfriendly). Giving cash in exchange for Bridal
registry gifts, accepting returns and handing out full price on items
without receipts and giving away 20% off coupons has lured customers
into their stores, but kept margins low. I can’t remember the last
time I went to a BBBY store without one of those coupons. After
discounts, their prices are even lower than Target. Add higher paid
employees to the mix and you can understand how this company is better
for customers and the people that work there, but not for investors.

But wait – there is more. Increased competition from online stores
like Overstock and Smartbargains, along with a brick and mortar show
down with Linens-n-Things (which went private last year), are more
reasons to be bearish on this stock. Moreover, in my opinion, they
have lost customers and market share to Target, which now has a
Starbucks in almost every store and has upgraded their merchandise to
include brands like Calphalon, Cuisinart and Kitchenaid, which were
previously almost exclusive to BBBY and Linens-n-Things. Unless
management makes some radical changes to attract investors, the stock
could be flatlined for a while.

BBBY has attempted to break out of its range between 34 and 47 a few
times, specially post a few earnings releases, but failed to do so
with conviction. with so much going against it, its a wonder this
stock has traded sideways for this long. At these levels, the stock is
extremely cheap and carries almost no risk. For long term risk averse
investors, this stock makes sense. For investors with short term
horizons of 6-12 months, a strong earnings could boost the stock
quickly into the low 40’s but then the inevitable fall back will
occur, so I would only look for a quick trade here – nothing more.

– Faisal Laljee

This entry was posted on Wednesday, June 21st, 2006 at 2:43 am and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed.