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Investment Overview for Bed Bath & Beyond (NASDAQ:BBBY)
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Below are key drivers of value that present opportunities for upside or downside to the current ${trefisprice}.
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Average Revenue per Square Foot for Bed Bath & Beyond Stores: We estimate the average revenue per square foot for Bed Bath & Beyond stores to increase marginally over the forecast period. Intense competition from big box retailers such as Wal-Mart and online retailers such as Amazon may make it difficult for the company to sustain the estimated average revenue per square foot. There could be a downside of 10% to our price estimate if the average revenue per square foot declines to $220 by the end of the forecast period. On the other hand, if the average revenue per square foot increases to $280 by the end of our forecast period, there could be about 7% increase in the Trefis price estimate.
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Number of Bed Bath & Beyond stores: We estimate that the company will add 15 Bed Bath & Beyond stores every year over the forecast period. There could be an upside of about 5% to the price estimate if the total number of store count reaches 1,200 by the end of the forecast period. This is a plausible scenario since there are currently over 990 Bed Bath & Beyond Stores and management sees a potential to operate 1,300 stores in the future. Furthermore, the company operates just 22 stores in Canada, so there is a potential to expand presence considerably in that country. However, if the total store count declines and witnesses a slow growth and stabilizes at 1,000 towards the end of the forecast period, there could be a 7% downside to the price estimate.
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Bed Bath & Beyond is one of the largest specialty retailers of home furnishings and bath and linen related items in the U.S. The company operates through four main retail avenues namely, Bed Bath & Beyond, Christmas Tree Shops, Harmon Face Values and buybuy BABY. The flagship Bed Bath & Beyond retail concept dominates the company’s total stores, accounting for 993 of the company’s 1,173 stores. The company depends primarily on in-store purchases as online sales account for just 1.5% of total revenues. Linen ‘n Things, the only pure play competitor to Bed Bath & Beyond, filed for bankruptcy and liquidated its stores in 2008. This has strengthened Bed Bath & Beyond’s position in this niche retailing segment. The company competes with other specialty stores along certain product lines, such as Williams-Sonoma (kitchen ware) and Pier 1 Imports (Home Furnishings and Home Textiles), other department stores such as Wal-Mart and Target, as well as online retailers such as Amazon.
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Large number of Bed Bath & Beyond stores compared to the company’s other retail concepts
With 993 of the company’s total store count of 1,173, Bed Bath & Beyond stores are by far the largest source of value for the company. Furthermore, as a specialty retailer, we estimate Bed Bath & Beyond has higher gross margins than its other retail store concept, Christmas Tree Shops, which is a discount retailer.
Average revenue per square foot for Christmas Tree Shops
We have estimated that Christmas Tree Shops has an average revenue per square foot at about $500. This is almost double the company's average revenue per square foot.
Major initiatives underway
Bed Bath & Beyond is focusing on several initiatives to stay ahead in the intense competitive environment. It is presently working on developing an enhanced website experience for its customers. This is very important if it wants to grab a share of the growing e-commerce market. It is building a new 800,000 square-foot e-commerce fulfillment center in Pendergrass, Georgia. It also focusing on developing a new IT data center to support its ongoing technology initiatives.
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Strengthening position in the market
During the recent recession, several competitors, including Linen ‘n Things, filed for bankruptcy. Linen ‘n Things, which was the only pure-play competitor to Bed Bath & Beyond, shut over 500 stores in 2008 after holding a liquidation sale, which naturally impacted Bed Bath & Beyond’s sales. However, in 2009 and 2010, Bed Bath & beyond witnessed a strong rebound in comparable sales and average revenue per square foot. A large part of the increase can be attributed to fewer retailers specializing in the linens and home furnishings segment. The strengthened position of Bed Bath & Beyond is a trend likely to remain in the near future.
Shifting consumer preferences may affect home furnishing industry
In the digital age, many consumers may prefer furnishing their home with a new HDTV or other electronics instead of linens and other Home Décor items. According to a survey by IBM, electronics is the product category most often chosen by multi-channel retail shoppers. Home Décor items ranked last, the lowest out of all discretionary spending items surveyed.
Macroeconomic trends
The products sold by Bed Bath & Beyond are often discretionary spending items (a consumer may choose to delay remodeling his home). In addition to general macroeconomic variables, sales of these items are sensitive to specific macroeconomic variables such as new home sales and house prices. The trend in these variables may affect the profitability of the company in the future.
Shifting competition from specialty retailers to big retail chains like Wal-Mart
Linen ‘n Things was the only pure-play competitor to Bed Bath & Beyond. However, after its bankruptcy, its sales have been divided among Bed Bath & Beyond and the big retail chains such as Wal-Mart and Target, as well as online players such as Amazon.
How Does Trefis Modelling Work?
How do we get the historical numbers for this chart?
Trefis has a team of in-house Analysts who gather historical data from company filings and other verifiable sources. When historicals are available, we explain how we got them at the bottom of the Trefis analysis section below.
Who came up with the Trefis forecast for future years?
The Trefis team of in-house Analysts considers a variety of factors when projecting any forecast. The rationale for our projections is explained in the Trefis analysis section below.
How does my dragging the trendline on the chart impact the stock price?
- We use forecasts for business drivers to calculate forecasted Revenues and Profits for each division of the company.
- We then use forecasted Profits in a Discounted Cash Flow (DCF) model to obtain the Price Estimate for the company.
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