Q3 Preview: Bed Bath & Beyond (BBBY) Seeing Slowdown, But Should Still Come Out On Top

Bed Bath & Beyond, Inc. (Nasdaq: BBBY) is up 0.5% ahead of the company's third quarter earnings report, expected out after the market closes today. Shares last traded at $47.79.

BBBY is expected to report an EPS of $0.65 with revs of $2.11 billion. Looking back a quarter, we find that the Union, NJ-based retailer reported an EPS of $0.70 on revs of $2.14 billion, beating consensus views calling for an EPS of $0.63 and revs of $2.10 billion. For Q310, the company reported an EPS of $0.58 on revs of $1.97 billion, topping the Street consensus calling for an EPS of $0.43 with revs of $1.90 billion.

Shares gained 17.2% through the quarter to $43.74 at the end of November. The stock is up 8.7% since then, and 21% on the year.

Data from Bloomberg has 12 analysts with a Buy on BBBY, 15 with a hold, and one suggesting to Sell. The analyst price target average is $51, with a high of $58 and low of $40.

Summary

• Goldman Sachs notes that similar analysis predicting big earnings wins over the last few quarters are pointing to a more moderate report this time around. Goldman is looking for an EPS of $0.68 and sales of $2.12 billion, in which they see a sequential decline in sales productivity coupled with an EBIT margin in-line with historical levels. Goldman notes that their, "sales estimate does look slightly conservative on other measures, as it implies substantially softer growth relative to the market (as measured by retail sales and PCE) than the company noted in the first half, and deceleration in the 3-year same-store sales trend."
  
  Goldman has a Neutral rating on the shares with a price target of $50.
  
  
• J.P. Morgan believes the recent industry data supports momentum for the top line. Competitors Williams-Sonoma (NYSE: WSM) and Pier 1 (NYSE: PIR) posted comps of 8.1% and 10.2%, respectively, along with improvements in run rate. JPM is only modeling for a flat run rate with BBBY. JPM is looking for comps of 5% (up from 3.5% prior).
  
  JPM notes that, although they see upside to results, the stock is setting up poorly heading into results. Shares have gained 8% since the start of November (vs. 4% for S&P 500), shares appear fairly valued at 14x P/E and 7.5x Enterprise Value/EBITDA. JPM expects conservative guidance given difficult comps. JPM is looking for an EPS of $0.67, with an 8.1% increase in revs.
  
  JPM currently holds a Neutral rating on the shares, with a price target of $52.
  
  
• Deutsche Bank sees BBBY at least coming in line with the consensus, and are comfortable with comps of 3%. Margins should be tighter due to less benefit from reducing advertising costs on less competition from Linens 'n Things. Advertising as a percentage of sales is likely tickling six-year lows, below 2.6% seen in 2004.
  
  On couponing, Deutsche says, "Reducing the level of couponing has since been a positive driver to margins, but this appears to have nearly run its course. Although, one potential positive factor is some recent couponing activity that we have noticed, in which BBBY offers 20% off for a period of time, but then drops the savings to 10% after a certain date. We believe this can help reduce the negative margin impact from couponing."
  
  Looking at guidance, DB thinks that there may be some downside given that guidance is already toward the upside. Based on estimates an their own calculations, DB is expecting Q410 EPS outlook of $0.89 - $0.93.
  
  Deutsche maintains a Hold and $51 price target.
  
  
• Wedbush is looking for an EPS of $0.65 on comps of 3% and sales of $2.085 billion. They note that there are several analysts with an EPS target of $0.68, indicating high expectations. They expect higher gross margins resulting from lower coupon redemption, markdowns, and inventory acquisition costs, despite a shift toward lower margin categories.
  
  Wedbush also alludes to BBBY testing merchandise from Cost Plus (Nasdaq: CPWM) in only three of their stores has fueled some takeover speculation. Though they believe that an acquisition isn't in the works, Wedbush said that BBBY would see some benefit from carrying some Cost Plus merchandise in their stores.
  
  Wedbush has an Outperform on the shares, with a $50 price target.

Bed Bath & Beyond is expected to release their Q310 earnings on Wednesday, December 22, 2010, at approximately 4:00pm EST. Stay tuned to StreetInsider.com's EPS Central section to see our analysis of the highly-anticipated quarterly results withi0 n seconds of their release.

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