Bed Bath & Beyond (NASDAQ:BBBY) reported yet another strong quarter Wednesday afternoon, sending BBBY shares jumping Thursday. Bed Bath & Beyond gained more than 8%, putting its year-to-date gains at a hefty 24%.
Earnings climbed for yet another quarter, this time by 32% year-over-year to $1.48 per share. Net sales were up 9.1% to $2.7 billion, and comparative store sales rose by 6.8%.
So can BBBY keep up the breakneck growth and stock gains, or should investors start to get cautious? Let’s take a look at Bed Bath & Beyond’s pros and cons:
Strong Brand: Founded in 1971, BBBY has become one of the top specialty retailers in the U.S., selling a wide assortment of home furnishings and merchandise at everyday low prices. And BBBY certainly knows how to grow — in the past 19 years, the chain has blossomed from 34 stores to 1,175, mostly in the U.S. and Canada.
New Markets: To continue its growth ramp, BBBY has entered new categories. Some of these include Christmas Tree Shops (gifts and house goods), Harmon Face Values (health and beauty items) and buybuy BABY (infant products). These are in the early phases but are showing lots of promise. For fiscal 2012, BBBY plans to open 40 new stores across all its concepts.
Financial Strength: The company has $1.9 billion in the bank and $900 million left on its share buyback authorization. Management also has remained disciplined with its costs. In fact, selling, general and administrative costs fell by 180 basis points over the past year.
The Consumer: Even though the U.S. economy is showing strength, there’s still plenty of potential pitfalls. Persistently high gas prices remain a problem, and consumers still must deal with heavy debt burdens. If there is another economic downturn, the impact is likely to be significant for BBBY.
Competition: Consumers definitely have alternatives. Bed Bath & Beyond faces competition from large players like Wal-Mart (NYSE:WMT) and Target (NYSE:TGT), as well as regional operators. And Amazon (NASDAQ:AMZN) continues to lurk in almost all things retail.
Valuation: BBBY shares are not cheap, coming close to 20 times earnings — fairly frothy for the sector. The company also does not pay out a dividend.
It’s hard to find much wrong with Bed Bath & Beyond. The company has a management that knows how to manage growth. BBBY also has has a continuing focus on better merchandising and improved store layouts. In fiscal 2012, BBBY plans to spend anywhere from $270 million to $323 million on capital expenditures for relocations, remodeling and renovations. Also, more resources will be devoted to the website.
However, despite all these positives, it looks like the stock has gotten ahead of itself for now. Investors might be better off waiting for a pullback before jumping in.
Tom Taulli runs the InvestorPlace blog IPO Playbook, a site dedicated to the hottest news and rumors about initial public offerings. He also is the author of “The Complete M&A Handbook”, “All About Short Selling” and “All About Commodities.” Follow him on Twitter at @ttaulli or reach him via email. As of this writing, he did not own a position in any of the aforementioned securities.