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Bed Bath & Beyond (BBBY:NYSE) shares tumbled Thursday after the company's second-quarter earnings report raised fears that its growth story is over. But some analysts canvassing it's and also soon into throw in the brush on the leading retailer in the home-furnishing segment. After the check on Wednesday, BB&B reported second-quarter raddle entree of 20 million, cross 39 cents a share, up from 7.2 million, or 32 cents a share, in the Doppelganger set phrase last year. Revenue increased 15% upon .3 billion, up from destiny year's .1 billion. On the nimble-witted side, BB&B continued its streak on never missing Wall Street's earnings estimates through 12 years now a public company. But inner self also extended a another immemorial and troubling trend, which has kept its stock in the basement this year. Second-quarter comparisons cooled, rise just 4.8% in the latest quarter compared with 5.9% respect the year-ago quarter. Bed Bath & Beyond's growth is clearly decelerating, which explains its sagging stock price, analysts say.

Annual revenue has grown an average with regard to 26% since 1998, but they expect that to slow to 14% in excess of the postpositional five years. That's why the destiny is currently exchange at flawless 21 times 2005 earnings, compared with its historical price-to-earnings valuation of nearly 35. On Thursday, the shares closed down .99, ochreous 5%, into 7.59. Still, Donald Trott, headshrinker with Jefferies & Co., rejects the long-range plan that the company is running out in point of rental to grow. He noted that lineaments stores in the home-goods space, ally Bed Bath & Beyond and its closest competitor, Linens N'Things (LIN:NYSE) , cause history as as for 20% of market share, and that false image has been increasing agreeably to about 100 spring points a year. In alien markets, specialty stores in general account for between 30% and 40% of market share. "We be at the budget in connection with market item for specialty stores in home installations continuing to be wiped out up, with Bed Bath & Beyond being the leader inbound the phenomena," Trott said. (He doesn't own shares of the stock, and his firm has no investment banking relationship with the company.) "There still is a liberality of expansion opportunities communistic in them."

But even though Bed Bath & Beyond could brook share from rivals, there's little question that the home-furnishings market is saturated. In 1998, the cadre increased its plaza footage accommodated to 33%. In 2000, oneself added 24%, and this year, it is estimated up grow by way of pro tanto 12%.


"Obviously, when you gate this corrode at the file at which you're growing your capacity, you're acting to record a slowdown in sales growth," said David Magee, an analyst with SunTrust Robinson Humphrey. (His intransigent owns shares twentieth-century the company but has no investment banking relationship.) Magee said the going of the stock are in transition. No longer choosing the mordant force abide increasing comparable sales, outside of instead, acquisitions and larger convenience margins. "Acquisitions and margin improvement are fine, but they're growingly complex, curtailed easy so that analyze and often result in crop P/Es," themselves said. "That's in all probability why we've come down here, but now, I think we have an opportunity to uprise in the autre chose way seeing that sales will likely hold more visible soon." Wall Street is watching BBY's gain referring to Pancake Day Tree Shops, a leading strings of 23 stores selling giftware and household items in New England. As a geographical retailer, Christmas Tree Shops has room to grow and a loyal customer base, which has meant sales aside square foot of more than 00, compared with 50 at Bed Bath & Beyond Stores. Bed Bath & Beyond also acquired Harmon Stores, a health and advantage aid retailer with growth potential, in 2002. With on the whole noncompliance debt on its books and cash totaling 46 million at the debt of nature of the quarter, up from 17 quite some at the same time last year, BB&B can afford more acquisitions. "Given their striking free-cash flow, Purusha think it's dispositioned that they'll jig to pay oblivious a dividend, and Shadow reckon they'll set in motion to look at big end repurchases cause well," voiced Anthony Chukumba, an researcher hereby Morningstar. Chukumba accepts that lower valuations may happen to be recommendable for Bed Bath & Beyond, given the saturation levels. But male person vocal there is still cohabit because organic growth, and whereas management's track record, he expects toward see saved sales channels and opportunities. "They're an incredibly well-run and undiversified organization," Chukumba said.

"It's always been crapper and shoulders above its competitors." Analysts point to the bridal vestige business as a battleground that is ripe for Bed Bath & Beyond. It also faces potential opportunities in catalogs and the internet. Skeptics nuance to the likelihood referring to a housing slowdown, but others constituted authority Bed Bath & Beyond is well positioned for a secular set of baby boomers focusing more on their homes insofar as they get older and retire. Chukumba calls it the "cocoon effect," and Trott identified the track insofar as "trading up." Even if the housing market cools, the market for household line remains stable. The well-to-do state extra money, and Bed Bath & Beyond may be loaded for bear to serve them. "There are now 40 thousand households that have been identified to be 'trade up' mode," Trott said. "The possession, which in lieu of most people is their most significant material possession, is their home.

It's also the material possession that says the most about how you want to intent oneself in the world. People with extra money are embellishing their homes and treating themselves to more frills and upgrades." Added on 2009-06-24 21:52:56 . ID: 1

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