Bed Bath & Beyond Inc (NASDAQ GS:BBBY)

Nothing beyond Bed and Bath.

Analysts lowered industry view of retailers to cautious from in-line, a downgrade aimed mainly at major retailers, on expectations of lower margins in 2008 at a time when the Federal Reserve is unlikely to keep loosening monetary policy. These retailers are expected to be affected by a drop in discretionary spending. Retail is down 11% year-to-date and Street EPS (estimates) remain too high. Analysts expect 60% of major retailers to post lower margins in 2008 with EPS growth of 9% versus Wall Street's 14% mean estimate. Estimates say 2008 sales growth of 2.5%, down from 4% in 2007. Without a recession, the Fed is unlikely to cut key interest rates further. Cuts would have boosted retailer's stock prices during the slow-growth period and credit bubble makes any buyouts difficult.

The Company is a chain of retail stores, sells an assortment of merchandise such as domestic merchandise and home furnishings as well as food, giftware and health and beauty care items. Operating in the highly competitive retail industry, the Company, along with other retail companies, is influenced by a number of factors like consumer preferences and spending habits, general economic conditions, unusual weather patterns, competition from existing and potential competitors and the ability to find suitable locations at acceptable occupancy costs to support the Company’s expansion program.

Steven H. Temares is the Chief Executive Officer of Bed Bath & Beyond Inc. He served as Chief Operating Officer of Bed Bath & Beyond Inc. from 1997 to April 2003, Executive Vice President 1997 to 1999. Prior to 1997, Director of Real Estate and General Counsel.

Its top competitors are Pier 1 Imports Inc., Restoration Hardware Inc and Williams-Sonoma Inc. Net sales for the three months ended September 1, 2007 was $1.77 billion, an increase of $160.5 million or approximately 10.0% in comparison to the corresponding quarter last year. For the six months ended September 1, 2007, net sales were approximately $3.3 billion, an increase of $317.8 million or approximately 10.6% over net sales from the months last year.

For this quarter 55.8% of the increase in net sales was attributed to an increase in the Company’s new store sales, 18.0% of the increase was attributed to buybuy BABY (acquired on March 22, 2007), and the balance of the increase was attributed to the increase in store sales. Sales of domestics merchandise and home furnishings for the Company accounted for approximately 47% and 53% of net sales, respectively and 46% and 54% of net sales, respectively. In comparison the sales of domestics merchandise and home furnishings in 2006 for the same quarter were 48% and 52% of net sales, respectively.

When shares dipped below $30, it was the lowest the stock has been in the last five years. No one I'm not a believer that the housing market is having a severe impact on its business. There is some impact, but it's easy to overstate. The company’s quarterly sales growth numbers have been pretty stable for the past three years, each quarter coming in around 10%-14%. BBBY is a remarkably efficient company. Gross margins usually run in the low 40% range. Operating margins have slipped a bit from 15% to 13%, but that’s to be expected. Net margins are down from 10% to about 8.5%. Both are higher than they were during the run-up in housing prices. Basically, BBBY's return-on-equity has fallen from about 24% to around 20%, yet there shares have fallen by one-third. Compare 20% ROE to the 10-year T-bond that's now paying about 4%.

Bed Bath & Beyond is exposed to the home-related consumer amid headwinds from the housing market slump. I expect shares to suffer without a near-term catalyst. Wall Street's estimates are 8% to 9% too high. The stock was trading at $31.06, down 1.7%. Look beyond Bed and Bath for your investments.