Bed Bath & Beyond makes its digital future

Growth decelerated at Bed Bath & Beyond during the third quarter but the $1.3 billion the company spent buying back stock enabled it to achieve analysts’ earnings estimates.

Sales at the company’s 1,510 stores and Web sites increased 2.7% to $2.94 billion and same store sales increased 1.7% on top of a prior year increase of 1.3%. Increased expenses related to high rates of coupon redemption took a toll on profitability as net income declined to $225.4 million from $237.2 million. However, earnings per share increased to $1.19, excluding a four cent benefit of non-recurring items, from $1.12. The earnings per share figure was in line with analysts’ estimate and was driven by massive share repurchase activity. Bed Bath & Beyond spend $1.3 billion buying back its own stock during the quarter.

The sales growth the company did have was driven by digital inroads. Online same store sales grew more than 40% while in store sales were essentially flat. However, as CEO Steven Temares noted during a conference call, it is no longer possible to distinguish between channels.

“This past holiday season reflects this continuing evolution in retailing, as we saw more customers interact with us online and through their mobile devices than ever before,” Temares said.

As is the case with many retailers, customers are taking advantage of Bed Bath & Beyond’s omnichannel capabilities to interact with and consummate transactions in a variety of ways.

“For example, a customer may go to our store and be assisted by an associate to create a wedding or baby registry. This registry gift could then be purchased from one of our Web sites,” Temares explained. “Or a shopper may research a particular item on our Web sites, and read various customer reviews, before visiting a store to make a purchase. This same customer may choose to execute the sale via a mobile device and choose either in-store pickup, or home delivery, which could then be fulfilled from a distribution facility, from a store, or directly from a vendor. As we have consistently said, we believe an integrated shopping experience must exist among all channels to provide a seamless and efficient customer experience.”

Delivering against this expectation is a costly proposition which is why the retailer is investing heavily in technology. Of the $330 million in capital expenditures the company is forecast to make this year, half will go toward technology enhancements, CFO Sue Lattman told investors.

“We recognize that the capital investments we are making and incremental expenses related to them are increasing our technology costs and depreciation, as well as other expenses, as a percentage of net sales in the short term,” Temares said. “However, we are confident we are making the appropriate investments to position our company for long-term profitable growth, and to further enhance shareholder value in an evolving retail environment.”

The company currently offers 200,000 unique SKUs online which is a 40% increase since last January. Many of the new items are shipped directly from the company’s suppliers so handling costs are avoided. The company has also introduced new categories unrelated to its core offering of home goods such as jewelry, watches, audio and electronics, furniture, lighting, rugs, pet care and even lawn and garden.

With its online assortment growing, Bed Bath & Beyond is also pursuing flexible fulfillment options and opening a new distribution facility in Las Vegas early this year.