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Non-Tech : Bed, Bath, and Beyond (BBBY)
BBBY 8.320-4.4%May 23 3:59 PM EDT

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To: Neil H who wrote (68)7/25/2003 9:39:03 AM
From: Neil H  Read Replies (1) of 78
Bed, Bath & Beyond Adolescence
Page 2

The company argues that it can continue to grow, if at a slower pace. Management believes that Bed Bath & Beyond could have up to 950 stores in the long term.

But the company's first-quarter earnings report last month and its subsequent purchase of Christmas Tree Shops fanned the critical fires.

Although the company's earnings topped Wall Street's consensus, its revenue numbers fell short of the Street's rosier projections. The company opened just eight stores in the quarter, far off its previous pace, and its square footage was up just 15.5% over the same period last year. The company warned that store space and revenue growth would slow down from previous levels.

Meanwhile, some saw the acquisition of the 23-store Christmas Tree Shops as evidence the company knows its days of organic growth are nearing an end.

In a note issued earlier this month initiating coverage on the company, Collin McGranahan of Bernstein Research summed up the bear view. Bed Bath & Beyond is a maturing company whose days of growth are ending, McGranahan said. Square footage is already declining, he noted, and the only way for the company to continue to add stores is by expanding into smaller, less profitable markets or by cannibalizing the sales of existing stores, he said.

"We think [the] significant deceleration in Bed Bath store square-footage growth is lasting and will lead to [an] increased vulnerability to home furnishings cyclicality, moderation in comp-store sales trends and decelerating earnings growth," McGranahan said in his note. "Current valuation embeds an optimistic view of the medium- to longer-term growth potential. However, the stock remains relatively expensive today, and we think [price-to-earnings] multiple compression is likely from these levels, as investors discount decelerating earnings growth." (Bernstein doesn't do investment banking.)
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