Bed Bath & Beyond (NASDAQ:BBBY) is one of the largest specialty retailers of home furnishings and bath & linen related items in the U.S. In this analysis, we discuss the factors that affect the future growth potential of the company. Bed Bath & Beyond competes with other specialty stores along certain product lines, such as Williams-Sonoma (kitchen ware) and Pier 1 Imports (home furnishings and home textiles) and other department stores such as Wal-Mart (NYSE:WMT) and Target (NYSE:TGT).
We have a price estimate of $65 for Bed Bath & Beyond, implying a 10% discount to the current market price.
- The products sold by Bed Bath & Beyond are often discretionary spending items. 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 impact the company’s profitability in the future.
- As the economy recovers, this could lead to greater home ownership. This would benefit Bed Bath & Beyond since new home owners are likely to spend more money furnishing their houses than rental customers.
- In this digital age, many consumers may prefer furnishing their homes with a new HDTV or other electronics instead of linens and home décor items. According to a survey by IBM, electronics is the product category most often chosen by multi-channel retail shoppers while home décor ranked the lowest in discretionary spending items surveyed.
Increase in online presence
- According to trade publication Internet Retailer, Bed Bath & Beyond’s website ranks a lowly 189 in e-commerce, representing just 1% of its sales.  Other retailers like Target, Wal-Mart and Best Buy are working hard on expanding their online presence.
- If Bed Bath & Beyond succeeds in increasing its online sales, this would help increase its average revenue per square foot. The management has indicated that it aims to strengthen its online presence, but has not given a detailed plan on how it plans to do so.
- Bed Bath & Beyond expects to open 1,300 stores over the next few years. At present, it enjoys a pan-U.S. presence with 995 stores across 50 U.S. states.
- Recently, the company decided to acquire Cost Plus for $550 million with the aim to expand sales of specialty foods at its stores.  Cost Plus generates a significant portion of its sales from food and other consumable products. Such strategic acquisitions could play a key role in diversifying the company’s revenues.
- Big retailers like Target and Wal-Mart are focusing on diversifying their merchandise assortments. Previously, 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 big retail chains such as Wal-Mart and Target as well as online players such as Amazon (NASDAQ:AMZN).