Bed Bath is among the best managed and most profitable (on a return on capital basis) retailers out there. they, like many others, have taken advantage of the epic ineptitude of the department stores, combined with changing shopping habits (power strips over malls), to build a huge business.
but....
i think time is running out on them, and i think management might be signalling the same thing. there are now 850-900 combined Bed Baths and Linens&Things; how many do we really need? the marginal new store they are opening is smaller than the base; that's why sales grew at only 15% despite a 4% comp in the just completed quarter; this may be a signal that they don't have many more places to open those 30k ft^2 stores, and have to open 20-25k ft^2 stores instead (the smaller stores are, as a general rule, inherently less profitable). plus, in the last 2 years now, they have bought two very marginal retailers; Christmas Tree Shops (a local MA company) which sells mostly crap, and a health and beauty retailer whose name i can't remember.
i think that the "up and to the right" for these guys is pretty much done. it is also a hugely over-owned and over-loved stock; EVERY growth manager owns it. that said, look how long it took for Home Depot to get moving down after the business had clearly peaked; so i don't know about timing here. but, at BBBY, revenue growth, and more importantly ROIC, have surely peaked, which means the multiple will compress and the stock will likely under-perform from here.
Cheers |
