...February 28, 2014 Volume XL, Issue II Bed Bath & Beyond Inc. Nasdaq: BBBY Dow Jones Indus: 16,321.71 S&P 500: 1,859.45 Russell 2000: 1,183.03 Index Component: S&P 500 Initially Probed: Volume XXXVIII, Issue VII & VIII @ $69.77 Last Probed: Volume XXXIX, Issue XI & XII @ $76.52 Trigger: No Type of Situation: Business Value Price: Shares Outstanding (MM): Fully Diluted (MM): Average Daily Volume (MM): $ 67.82 209.7 212.3 (1.2%) 2.6 Market Cap (MM): Enterprise Value (MM): Percentage Closely Held: $ 14.2 $ 13.4 Insiders ~4% 52-Week High/Low: 5-Year High/Low: $ 80.82/56.37 $ 80.82/19.52 Trailing Twelve Months Price/Earnings: Price/Stated Book Value: 13.8x 3.4x Net Cash & Investments (MM): Upside to Estimate of Intrinsic Value: $ 781 Dividend: Yield: $ NA NA Net Revenue Per Share: LTM: 2012: 2011: 2010: $ $ $ $ Earnings Per Share: 2012: 2011: 2010: Overview Bed Bath & Beyond Inc. (“BBBY” or “the Company”) is a major operator within the retail sector. BBBY operates roughly 1,500 stores and employs approximately 57,000 people throughout North America, and the firm generates annual revenue of over $10 billion. The stores are primarily located in the U.S., and consist of the following brands: Bed Bath & Beyond, Christmas Tree Shops, Harmon, buybuy BABY, and Cost Plus World Market. BBBY’s product line includes a wide range of domestic merchandise and home furnishings. Examples of BBBY’s...
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...Bed Bath & Beyond Case Study Feinstein and Eisenberg founded a small chain of stores called “Bed n Bath” in 1971. They operated their small chain of stores in the New York and New Jersey market where they offered bed linens and bath accessories in their stores. Feinstein and Eisenberg saw an opportunity for growth in extending their offerings beyond just bed linens and bath accessories. They quickly changed their small store format in 1985 and headed towards the superstore business model. With the change in business model came a change in the company’s name, they renamed the company “Bed Bath & Beyond” in 1987. Their stores would now carry a myriad of products with a full-line of domestic home furnishings and merchandise. The first step in making the switch to the superstore model was to expand the stores in which they currently operated. In 1987, they had 20 stores and they quickly began to plan the expansion of their stores’ square footage. The average superstore at that time was approximately 40,000 square feet. As they began to convert existing stores into superstores, they also began to find new store space to build out their superstores. The new model relied on Bed Bath & Beyond being able to provide home furnishings and merchandise at a 20% to 40% discount compared to department stores. Feinstein and Eisenberg also stressed customer service and believed it was the key to success. They spent very little on marketing or advertising which meant they relied heavily...
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...Q. 1: Explain how Bed Bath & Beyond practices the retailing concept. A. 1: Bed Bath and Beyond practices the retailing concept by being value-driven and goal oriented. By maintaining annual sales of 6 billion (not to mention the 15 years of consecutive profit), BB&B has clearly met the customer's standards by offering convenient and multiple store locations, excellent store atmosphere, and an assortment of indispensable merchandise. BB&B also practices the retailing concept by giving their customer a total retail experience. When a customer ventures into a BB&B store, they aren't just looking to purchase a product, they are seeking a pleasant shopping experience. For those who have never shopped at a BB&B (hard to believe since they have become such an enormous and highly regarded franchise), one can tell why customers have chosen to become such long-term investors with the company. Bed Bath & Beyond stores are generally located off all major highways or large plazas with well-proportioned parking lots and easy access to the main doors. Inside Bed Bath & Beyond franchises, the store is regularly staffed with a large quantity of friendly and ‘well-kept' sales associates who are willing to approach and help the customer in finding their particular needs. Also, BB&B offers good value to their customers by keeping them informed in regards to special store promotions whether by mailing list or basic in store flyers. Q. 2: Evaluate Bed Bath & Beyonds's growth plans. A. 2: ...
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... You structure your analysis by answering the following questions: 1. What is wrong with building up cash? Provide (at least two) reasons in favor and against keeping cash in the firm. Against: By paying out excess cash and issuing debt, BBBY could improve return to equity holders and raise earnings per share (by a share repurchase). Leverage can increase a firm’s expected earnings per share. An argument is that by doing so, leverage should also increase the firm’s stock price. Because BBBY has no debt, they pay no interest, and because in perfect capital markets there are no taxes, BBBY’s earnings would equal its EBIT. If BBBY has new debt, they will have interest payments each year, so their earnings will decrease (EBIT – interest). If BBBY uses the debt to repurchase shares, the number of outstanding shares will also fall. Because of this, the earnings per share can increase with leverage. This increase might appear to make shareholders better off and could potentially lead to an increase in the stock price. Besides this, BBBY faces the risk that the firm is not attracting investors. Investors want to maximize their returns and when the firm has a lot of cash, the investors may not be sure of the ability of BBBY to maximize the shareholder value. Another positive point about debt is the tax deduction. In favor: -Leverage increases the risk of equity even when there’s no risk that the firm will default. Thus, while debt may be cheaper when considered on...
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...Accounting and Finance for Technology Abstract Objective: To analyze the effects of Bed Bath & Beyond’s (BBBY) rapid expansion strategy on the company and to determine if such a strategy is sustainable. Methods: We used data extracted from financial statements and applied sustainability ratios such as the DuPont ratio. Results: Bed Bath & Beyond will greatly benefit from pursuing its expansion policy in both the short and long term. Key Words: Sustained long-term growth, excellent customer service, promote-from-within policy. Table of Contents Executive Summary 3 Business, Operating and Expansion Strategies 3 Consistency in Strategy and Potential Changes 5 Current Performance and Keys to its Current Success 6 Competitors 7 Strouds 7 Lechters 8 JC Penney 8 Linens ‘n Things 8 Competitive Analysis 9 The Bargaining Power of Suppliers 9 Bargaining Power of Buyers 9 The Threat of New Entrants 9 Threat of Substitutes 9 Industry Rivalry 10 ROE and DuPont ratio analysis 10 3-Point DuPont Ratio 10 5-Point DuPont Ratio 10 ROE and growth rate 11 Strategic Considerations and Recommendation 12 References 13 Appendix A 14 Appendix B 14 Appendix C 14 Appendix D 15 Appendix E 15 Appendix F 15 Appendix G 16 Executive Summary Team United is an external independent consulting group hired by the board of directors of Bed Bath & Beyond (BBBY) to review and analyze the company’s business, operating, and expansion strategies. We are analyzing...
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...their small chain of stores, they sold bed linens and bath accessories in the New York-New Jersey area. In 1985, Feinstein and Eisenberg began a shift away from the small specialty-store format to a superstore format where they saw greater growth opportunities. The superstores carried a full-line of both domestic merchandise and home furnishings. Reflecting the new format, the company’s name was changed in 1987 to its current Bed Bath & Beyond. BBBY’s Business Strategy BBBY’s strategy consisted of three major components. First, BBBY delivered outstanding value by offering name brand and better quality merchandise at every-day low prices. Its prices were 40 percent below department store prices and even lower than department store sale prices. Second, the superstore format enabled the company to offer a huge selection of merchandise with both breadth and depth in its product lines and 30,000 SKUs (stock keeping units). Last, BBBY provided well defined superior service from the time the customer drove into the parking lot to the time they left the store, and even when the customer returned merchandise. Delivering Value Bed Bath & Beyond provides value to the customer by offering the better quality merchandise...
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...The business risk of BBBY can be categorized as medium to low. On the low side that is due to the fact that BBBY is a common goods company and the risk of default in the common goods industry is relatively low. But BBBY also has a lot of competitors with a higher market share and some of them even offer a higher ROE, like Best Buy (23.4%) and William Sonoma’s just a little above BBBY’s (19.5%), compared to BBBY ROE of 20.1%. The main competitors are chains of superstores such as Target and Best Buy. While BBBY has no debt on its balance sheets due to the conservatism of its management team, it invested a lot of its money in short-term securities and lately these investments weren’t profitable enough due to the low interest earned. Therefore, it is clear that the company needs a new strategy as to the future of their excess funds. As mentioned above, we believe that the company does have a lot of excess cash that needs to be organized in a better way to provide its owners with a higher return. The company could pay out the excess cash as one time dividend or it could implement stock repurchasing. As for the first alternative, it is highly inefficient because if the company offers higher ROE than the current market does, it should keep the money in the company. Companies always do what is best for their shareholders. Therefore, it leaves us with only one option – to repurchase some of the shares back from the public to increase the price of the stock that will remain outstanding...
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...billion, net income of $339 million and net sales of $4.5 billion, representing 22% growth in revenue and 32% growth in income as compared to the previous year. In addition to the 575 Bed Bath and Beyond stores, BBBY also owns 30 Harmon Stores, a discount health, and beauty aid retailer, and 24 Christmas Tree Shops, a retailer of home décor, giftware, and seasonal merchandise. Results of operations for both the Harmon Stores and the Christmas Tree Shops are included in the companies consolidated results of operations and have been since the date of acquisition. Bed Bath and Beyond is currently the largest superstore domestics retailer, although their market share is only 4%. Competitors like Target, Wal-Mart and JC Penney offer a wider variety of merchandise such as apparel and electronics. Since 2002 growth has been a result of acquiring the Christmas Tree Shops and the Harmon Stores. In addition BBBY believes that their product offerings, customer service and advertising program have contributed to the company's financial success. Business risk in the case of BBBY is low if you only consider that the products they sell are produced by name brand companies, so any products needing repair could be sent directly to the name brand company. By passing BBBY and that BBBY has no control over the quality of the products they sell and that there are no significant switching costs. However, their degree of operating advantage is high at 2.93 (Exhibit 1) which would indicate high business...
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...industry analysis？ Be aided * Industry consolidation. Business environment becomes less favorable. It’s good for LNT to turn around based on the big scope and the existed structure. * Integrate internet. It’s good for LNT to build the online store * Globalization of the fashion. It’s good for LNT because of their differentiated products. Be hindered: * Slow increasing rate with intensely competition. The maturity of the U.S. market. * Industry consolidation makes the large companies stronger, but LNT fall behind some big companies like BBBY. So it’s hard to catch up. * Financial crisis. * Government policies affect the industry performance. e.g. interest rate adjustment. High interest rate, low purchase. 3. How had Bed Bath & Beyond come to surpass Linens’n Thins over time despite its similar initial founding in the early 1970s (in terms of strategy and execution)? * BBBY expanded inventory, no debt and promoted only from within the company, while relying on store managers for inventory control. However, LNT just focus on increase market share. They didn’t care about the efficiency. * BBBY’s merchandising innovation was better than LNT’s. and more flexibility than LNT....
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...Analysis Extended Ratio Analysis SGR and IGR Analysis Forecasting Valuation Analysis Cost of Equity Cost of Debt WACC Method of Comparables Intrinsic Valuation Models Altman Z-Score Analyst Recommendation Appendix Works Cited 1 3 7 8 9 10 11 12 13 14 14 16 16 18 20 21 23 26 29 30 31 31 37 44 46 47 47 61 61 66 67 68 72 78 79 80 84 2 Executive Summary Investment Recommendation: Overvalued, Sell BBBY – NASDAQ $40.40 52 week range $30.92 - $43.32 Revenue (2006) $5,809,562,000 Market Capitalization $11.75 Billion Shares Outstanding 283,380,000 3-month Avg. Daily Trading Volume 2,332,640 Institutional Ownership 83.40% Insider Ownership 3.70% Book Value Per Share (mrq) $9.35 ROE 25.99% ROA 17.90% Est. 5 year EPS Growth Rate 9.00% Cost of Capital Est. R2 Beta Ke Ke Estimated 13.01% 10-Year 37.4 2.28 15.87% 7-Year 37.4 2.28 12.56% 5-Year 37.5 2.29 12.62% 1-Year 37.8 2.30 12.71% 3-Month 37.8 2.31 13.01% Published 1.76 Kd BBBY: 5.74% Revised: 2.66% WACC BBBY:...
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...Investments team project KUBS Investment Fund Manager Group 14 (Step 1) For the convenience of problem solving, we solved the problems in following orders: a–c–e–b-d. a) The yearly expected return: First, find the weekly return for each stock by using the formula of: rᵢ=p₁-p₀p₀ Second, for each of the stock, add all of the weekly return and then divide by the number of sample (from Oct 27, 2005 until Oct 19, 2015) to get the average of weekly return. rw=1mnί=1mnrᵢ (where mn is 521) Third, multiply the average of weekly return with 52 weeks to get the yearly average. ry=mrw (where m is 52) b) The standard deviation of estimate in (a): To find the error in the mean estimate, we need to calculate its standard deviation first. S²w=1(mn-1)i=1mn(rᵢ-r)² S²y=mS²w (where mn is 521, m is 52) Therefore, Sy= S²y Next, we can find the error by using the formula stated below: σᵣ=Syn Assume that n=52152is approximately equal to 10 c) The yearly variance of the return: S²w=1(mn-1)i=1mn(rᵢ-r)² (where mn is 521) Note: Since we need to calculate its yearly variance, thus we need to multiply it with 52 weeks. S²y=mS²w (where m is 52) d) The standard deviation of estimate in (c): σs²=2S²y(mn-1) (where mn is 521) e) The yearly standard deviation of the return: By referring to the yearly variance in part (c) that we have calculated, we can then find the yearly standard deviation by square rooting the answer of the variance. S²w=1(mn-1)i=1mn(rᵢ-r)²S²y=mS²w (where mn is...
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...Harvard Business School 9-196-123 Rev. May 10, 2000 Bed Bath & Beyond Strange as it may seem, there’s something romantic about housewares. Visit the giant Bed Bath & Beyond store in Manhattan on a busy Saturday and you’ll see all kinds of couples kissing and cooing as they discuss what size sofa pillows to buy or whether a certain set of burgundy towels will match their bath mats. It’s just one more bit of evidence that America has been in a cocooning mood the past few years. And few people have benefited more from this nest-building trend than Leonard Feinstein and Warren Eisenberg, who founded Bed Bath & Beyond in Springfield, N.J., back in 1971. After 14 fairly sluggish years in the business, the duo in 1985 started experimenting with large stores, running to 20,000 square feet and stacked to the ceiling with towels, curtains, bedspreads and housewares. Feinstein and Eisenberg haven’t looked back since. This year, with 49 of these superstores in operation, Bed Bath & Beyond is expected to ring up sales of $415 million, an increase of 35% from last year’s $306 million take. Earnings are expected to grow to $28 million, or 82 cents per share, from $21.9 million, or 64 cents last year. But questions are starting to be raised about how long Bed Bath & Beyond can keep up its heady growth. Some smart investors have been selling the company’s high-flying shares, and these sellers include Feinstein and Eisenberg themselves. Rising interest rates have been slowing housing starts...
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...Harvard Business School 9-196-123 Rev. May 10, 2000 Bed Bath & Beyond Strange as it may seem, there’s something romantic about housewares. Visit the giant Bed Bath & Beyond store in Manhattan on a busy Saturday and you’ll see all kinds of couples kissing and cooing as they discuss what size sofa pillows to buy or whether a certain set of burgundy towels will match their bath mats. It’s just one more bit of evidence that America has been in a cocooning mood the past few years. And few people have benefited more from this nest-building trend than Leonard Feinstein and Warren Eisenberg, who founded Bed Bath & Beyond in Springfield, N.J., back in 1971. After 14 fairly sluggish years in the business, the duo in 1985 started experimenting with large stores, running to 20,000 square feet and stacked to the ceiling with towels, curtains, bedspreads and housewares. Feinstein and Eisenberg haven’t looked back since. This year, with 49 of these superstores in operation, Bed Bath & Beyond is expected to ring up sales of $415 million, an increase of 35% from last year’s $306 million take. Earnings are expected to grow to $28 million, or 82 cents per share, from $21.9 million, or 64 cents last year. But questions are starting to be raised about how long Bed Bath & Beyond can keep up its heady growth. Some smart investors have been selling the company’s high-flying shares, and these sellers include Feinstein and Eisenberg themselves. Rising interest rates have been slowing housing starts...
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...Company’s average store size of approximately 33,000 gross square feet enables it to offer a more comprehensive product and brand selection than department stores and other retailers that sell home furnishings. The Company’s primary target guest is female between the ages of 25 and 55 who is fashion and brand conscious, has better income and focuses on the home as a reflection of her individuality. On the surface, LNT and BBBY companies were pursuing a similar business-level strategy of cost leadership, but key strategic decisions led them down quite different evolutionary paths. Both companies focused on providing consumers with high-quality houseware goods in a no-frills, value-priced environment, but LNT's decision to build centralized warehouses - seemingly consistent with a cost leadership strategy - ended up bringing it into direct competition with Target and Walmart. In contrast, BBBY allowed for greater decentralization in decision making, thereby allowing more store-level decision making and greater customization to local consumers' tastes. As a result, BBBY was able to better differentiate itself from Walmart and Target. The case will need formulation of basic strategy concepts, such as industry and environmental analysis, business-level strategies, core competencies and administrative heritage. At the time of...
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...Profitability Analysis Capital Structure Analysis Extended Ratio Analysis SGR and IGR Analysis Forecasting Valuation Analysis Cost of Equity Cost of Debt WACC Method of Comparables Intrinsic Valuation Models Altman Z-Score Analyst Recommendation Appendix Works Cited 3 7 8 9 10 11 12 13 14 14 16 16 18 20 21 23 26 29 30 31 31 37 44 46 47 47 61 61 66 67 68 72 78 79 80 84 1 2 Executive Summary Investment Recommendation: Overvalued, Sell BBBY – NASDAQ $40.40 52 week range $30.92 - $43.32 Revenue (2006) $5,809,562,000 Market Capitalization $11.75 Billion Shares Outstanding 283,380,000 3-month Avg. Daily Trading Volume 2,332,640 Institutional Ownership 83.40% Insider Ownership 3.70% Book Value Per Share (mrq) $9.35 ROE 25.99% ROA 17.90% Est. 5 year EPS Growth Rate 9.00% Cost of Capital Est. R2 Beta Ke Ke Estimated 13.01% 10-Year 37.4 2.28 15.87% 7-Year 37.4 2.28 12.56% 5-Year 37.5 2.29 12.62% 1-Year 37.8 2.30 12.71% 3-Month 37.8 2.31 13.01% Published 1.76 Kd BBBY: 5.74% Revised: 2.66% WACC BBBY: 12.03% Revised: 10.3% Altman Z-Score BBBY: 8.05 04/1/2007 EPS Forecast FYE 03/03 2006(A) 2007(E) 2008(E)...
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