Bed Bath and Beyond

Hey all, BBBY is a company I have been looking at recently. It is a special retailer heavily focused on the US. The numbers are very stable over a period of 20 years (this is the time they show in their annual report). Since 1993 to 2013 the net eps has grown from 0.06$ to 4.56 $, the number of stores grew from 38 to 1471 and the total book value increased from about 50 million $ to about 4 billion $ - although the book value is misleading due to more than 5 billion $ treasury stock. Their margins are pretty good for a retailer. What is especially great is their moat: In their league of special retail (ie. very large shops) there seems not to be any real competitior, since their last direct competitior went bancrupt some years ago. Okey, there are competitors like Wal-Mart, but these are not specialised on bed, bath and kitchen retail. So I think everything looks pretty good. Let's try to find the negatives: -They have already grown so large in the US that there is only so much more they can grow more. They might expand overseas, but it is always harder to expand in a country and culture you do not know. -They are dependent on the future of housing (which can be good or bad): If housing in the US is good, people will also buy more equipment for their baths and kitchens. But since they still did pretty well in the 2008 crisis with all the crash in the housing market, I am not too worried here. -Their total contractional obligations are 5 billions, which can be regarded as hidden debt. - The company seems not to be extremely liked. I read some customer complaints. Although this can also be misleading - I am sure that no company is perfect, so always some people will complain about something. -Buying items over the internet might change the whole game. I do not see yet, that we all will buy everything online, but the trend could go into this direction. This might affect their moat, especially since their website is not really that admired. -With a P/E of 16 the stock is reasonably prized, but not really a screaming bargain. What do you all think? Do people from the US know this company? If so, what is your opinion about it? Thanks and best regards Christoph
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Comments

  • christoph, When I get the time (I know I often say this) I would love to write an real analysis.. But BBBY is a really great company which has been on my watchlist for the past 3-4 month. I really like the stability, and I the margins are nice as well. The only problem I have with the company is actually the price. Great company and I think Warren Buffett would love it as well. I would say that it is reasonable price, and in any case there is no real discount.. I would watch more closely at a price around $60... Let's hope the market crashes soon... LOL... /Stig
  • Christoph, what you post about the company sounds very intriguing. I will take Stig's post about waiting for a $60 price as well and factor that in. I happen to have a Bed, Bath, and Beyond very close by to where I live. Have been in there a few times and was impressed. I have not had a chance to do an intrinsic valuation analysis on it because today's Thanksgiving, so I'm off. But I'll get back to you with what I think of the company a bit later, probably no later than Sunday.
  • Andrew, That sounds fantastic! I have a lot of great stocks that I am just waiting to drop before I buy (if they ever do)... BBBY is for sure one of them! /Stig
  • Andrew & Stig, thank you both very much for your valuable insight! Andrew, I also think it is great to get first-hand information from someone who has actually been in one of the shops. So the way I interpret your comments is, that we all basically agree - good and stable company, which is not extremely cheap. But if you consider 60$ (opposed to currently 78$) as cheap enough, I am wondering, if it really makes that much of a difference? I recently read a statement by Charlie Munger where he said that if you want to hold the stock of a great company for 40 years, does it really matter that much, if you pay 20$ or 40$? Okey, when you pay 1000$ then it does make a difference. But the difference between 60$ and 78$ just does not seem that much to me, if I am planning to hold the stock forever. Anyway, I will try to look a bit deeper into this stock. Just glanced over the annual report for some minutes. Thanks again Christoph
  • christoph, I see where you are coming from. So a discount of 30% (60 compared to 78).... Well, I my opinion I would like to have a margin of safety of 40%. To me that means the difference between the intrinsic value and the market price. Then you might say then what does it mean compared to holding the stock forever. Isn't more important to have a stock for 50 years with a average return of more just a few % more? Sure! But this is the tricky part. The longer we go out in time, the more uncertain it gets. Not between good and bad stocks, but good and good stocks... What I can control now for sure is the price when I enter - and I would do as much as I can. Is there something wrong by buying at the fair value or close to? No, but that is simply not my game :) /Stig
  • Stig, very interesting and valuable point. It might be a bit of a stretch, but I might even be tempted to say that your view is closer to Buffett, and mine is closer to Munger. I might completely overinterpret things here, but after reading several statements from Buffett and Munger, I have the impression that they both put slightly different weights on the four Buffett rules. My Impression is the following: Munger is rather willing to pay a higher price, if he finds the perfect company. Buffett looks a bit more on the prize. Since we speak of Buffett and Munger, obviously none of both strategies is clearly better. These are just different preferences. To illustrate both approaches a bit more: Let's say you have company A, which is just perfect - stable, greatest management, top in class. The gold standard in its league. Company B is also great -the Buffett rules are easiliy fulfilled - but it is just very slightly inferior to A. Maybe it is just not top in class, everything else is great. Now let's say the stock of company A is twice or three times more expensive than B. Which stock do you prefer? There is no obvious and correct answer to that question. I got this impression of Buffett's and Munger's (slightly !) different views in several sources: I have read that Munger basically said "If you have a perfect company and want to hold the stock for 40 years, then the prize is not extremely important". Buffett on the other hand repeatedly talked about his "bargain buys", which according to him mostly were disastrous. But I have a hard time belieivng this- Buffett is not stupid, and if all of these "bargain buys" were failing, he surely would change his strategy. But I read such a statemtn from him just 1 or 2 years ago. I am very interested: Has anyone else read statements from Buffett and Munger that lead to the same direction? Or am I completely off here and am totally overinterpreting things I read? I am very curious for any opinions. One last note: Regarding BBBY the above statements are somewhat flawed, because I am not 100% sure that BBBY is really "the perfect company" and not just a very good one. So the stretch to compare my view to the one from Munger gets even larger. Christoph
  • christoph, Any comparison to Warren Buffett is well received...LOL... I did you are right about the distinction between Buffett and Munger. That said I read somewhere that he would actually prefer Munger's approach. Buffett apparently thinks he is still too much of a bargain hunter... LOL... Unfortunately I cannot give you a source. But I am quite sure of it. Some might even say that it is a typical Warren Buffett 'quote'. He does not like to brag, though he really could! I really like the way you set up the two scenarios. I have thought the exact same way, and I am not sure which approach I would choose. I think one reason why I am a bit more Warren Buffett (as you put it) is because I have limited funds which BSH is actually moving the market big time. I think BSH has to - if they want it or not - look (a bit less) at the price and more about the quality. I think it is hard for BSH to get 40%-50% MOS today while it was quite easy just 20 years ago. I would love to hear how other users see the difference! /Stig
  • I haven't conducted an assessment of Bed, Bath and Beyond but I agree that they are great retail stores. I go there often with my wife. I'm in no place to argue with Charlie Munger, but for me, I will only buy what I perceive to be great values, no matter how good the company. I think this is one of the areas that Buffett and Munger had some disagreement over the years.
  • Christoph, I just conducted an intrinsic value assessment of Bed, Bath, and Beyond. According to the Buffettsbooks.com calculator, it is only worth $37. Not sure how you add the treasury stock back to get its value, would appreciate some feedback on that. Finally, according to my own intrinsic value analysis from Thomson Reuters, the Bed Bath and Beyond stock is essentially fully valued at this time. I would not personally buy this stock right now.
  • Hey guys, thanks for all of your great answers: @Andrew: The total book value right now is about 4 billion $. Treasury stock is a bit more than 5 billion $. And these 5 billion $ are kept as liability, not as asset on the balance sheet. So if you just ignore the treasury stock, your book value would be about 9 billion $. If you even consider it as asset (which would be true the case, if the company had not bought its own stock, but the stock of any other company), then the book value would even be 4 +5 + 5 = 14 billion $. Your analysis from Thompson Reuters - that the stock is fully valued right now - seems to fit my own judgement: Good company, but no obvious discount in its stock prize to the intrinsic value. @Stig & EquityJim (and possibly Andrew ?): So if you regard yourself rather in the "Buffett-corner": What do you think about the following stock: Parke Bancorp (PKBK). I have been soooooooooooooo close to buying this, but then I didnt. When you look at the numbers, everything is great and the prize is really very cheap. The things that are not so great in the numbers are the low market capitalisation and no dividend. But I would ignore this, since everything else looks so great. But then I read on and on... and find some sources that a part of their assets are "non-performing". They acknowledge this, are tackling the problem... but I just got more and more unsure. And finally I asked myself: Am I sure that this company will still exist in 30 years and still be profitable? Would I prefer this company over Wells Fargo or M&T Bancorp? And here my personal answer was no. Still, whenever I look at these numbers, I am immediately tempted to buy. Might be a great chance. I am just only 95% sure, which is not sufficient for me. What are your thoughts of this pick? Christoph
  • Guys, check out the current prize of BBBY! I just saw that their earnings & outlook were considered disappointing and the stock has dropped by about 15% one week ago! And here is the EXTREME disappointment: eps of 1.12$ last quarter instead of the expected 1.15$ and for next quarter the outlook is only 1.60$ to 1.67$ (Q4 2012 was 1.68$). This is really horrible! (sorry for my sarcasm) I have just bought into this. Christoph
  • christoph, I was thinking about you when I read about BBBY. I was actually thinking that you would probably buy more now (????). I think the price looks more appealing now - even considering the news. I really feel the market is overreacting to bad new (which is not that bad). I think I said somewhere that I would buy at around $50... LOL... I am tempted, but I think I will hold my horses for now. /Stig
  • I have been to Bed Bath and beyond quite a bit. The best part is the are always mailing 20% or $5 coupons. You can use one coupon per item and the coupons never expire. If you forget your coupon you can bring your receipt in and they will give you the difference. Americans(especially women) love coupons. Look at JcPenny they decided to go with everyday low prices and not use coupons now they might go out of buisness. With that said they don't sell anything you can't find elsewhere or cheaper. They face competition from Target, Walmart, Macy's, JcPenny, Sears, Kmart, Amazon, Overstock.com, Ebay, Burrlington coat factory, just to name a few
  • Hi all, first of all thank you very much for your comment. Stig, I am not 100% sure how to understand, if I have bought more now. So, the status is this: I previously had not bought shares (because of the prize), but have bought only yesterday. If you have not done so already, I would strongly advise to download the annual report 2012: [url=http://phx.corporate-ir.net/External.File?item=UGFyZW50SUQ9MTg4MjQ0fENoaWxkSUQ9LTF8VHlwZT0z&t=1]http://phx.corporate-ir.net/External.Fi ... lwZT0z&t=1[/url] On the second page is an overview of the numbers of the last 20 years. And these numbers are just amazing. Their eps has decreased only in one year, which was during the financial crisis. In all other years they have grown revenue, earnings, number of stores. And that without any long-term debt. So this is my retail stock I will stick with. Although I must admit that Walmart also looks pretty good. But it is already so big that I see only limited room fro growth. And such big companies are too much in the focus - for example, if they lay off a huge number of employees, it is in the news immediately. A smaller company like BBBY has not such problems. Regarding competition for BBBY: Of course they do not sell anything you could not get somewhere else. But as far as I understood there is no other company that has such large stores size and is only focusing on furniture and bath articles. Sure, Wal Mart also has huge stores. But they sell everything - food, furniture, etc. Christoph
  • WOW!!! This looks really good. Let me look closer at BBBY and come back. Though I would not call BBY cheap, the numbers are outstanding. There is really what I look for. Reasonable P/B (1.7ish taken treasury stock into considerations) PE is not high 12-13... EPS steady increase Number of shares aggressive bought back No debt... As said... I really have to look closer at this. And as always - thank you for sharing your knowledge Christoph. I will let you know if I enter this stock. BTW just bought BRK an hour ago.. (just one though) - So I am one a roll! /Stig
  • Interesting. So you say the price has fallen, Christoph? If that's the case, I too am interested in the stock. And I agree, its performance has been breathtaking. Still, I don't have my database available to me right now and I want to see if it's worth owning this stock at the price it's at right now.
  • Andrew, I think BBY has fallen something like 15% the last days after the last quarter was announced. I will check it out - perhaps it is also something from you. The numbers looks great. I often like to check stability on Morningstar. Check this link: [url=http://financials.morningstar.com/income-statement/is.html?t=BBBY®ion=usa&culture=en-US&ownerCountry=USA]http://financials.morningstar.com/incom ... ountry=USA[/url] Anyway, let me look more into the stock. When you have your database available I would be curious to know which IV you have found. I will look into that myself, but it will require a bit more math (considering the buy back). On the face of it the current price looks really good, but it is too soon to tell IMO. Have you found an IV BTW christoph? /Stig
  • My take on Bed, Bath and Beyond is that it is a great company, with outstanding return on equity of 22%/year average, good earnings growth year to year of about 15%, no debt, great management, customer loyalty, sales growth is exceeding inventory growth, the price to free cash flow looks good.... but the one number that I can't get past is the current price even with the drop. It doesn't look good to me. I put the intrinsic value at $41 but others may be willing to see more upside than I do or maybe there are assets (real estate or others) that I didn't find. With the current P/E of 13.66, I'd like to see growth of 26% per year or better (per Lynch's guidance). My analysis: [img]http://farm8.staticflickr.com/7382/11987352524_1ed79054cd_c.jpg[/img]
  • EquityJim, in order to do the "Intrinsic Value Calculation" you should have in mind that the company has been repurchasing shares at a great pace since 2005. At this moment BBBY has $5,786 millions as treasury stock, that's even more than the equity of the company ($4,130 millions). In my opinion, $60/share would be a nice price for a company with a ROE>20% (P/E ratio = 12.2 and P/B adding back shares ≈ 1.28).
  • [quote="Stig"]Andrew, I think BBY has fallen something like 15% the last days after the last quarter was announced. I will check it out - perhaps it is also something from you. The numbers looks great. I often like to check stability on Morningstar. Check this link: [url=http://financials.morningstar.com/income-statement/is.html?t=BBBY®ion=usa&culture=en-US&ownerCountry=USA]http://financials.morningstar.com/incom ... ountry=USA[/url] Anyway, let me look more into the stock. When you have your database available I would be curious to know which IV you have found. I will look into that myself, but it will require a bit more math (considering the buy back). On the face of it the current price looks really good, but it is too soon to tell IMO. Have you found an IV BTW christoph? /Stig[/quote] Stig, according to my database, BBBY is undervalued significantly enough that I would buy it. The stock currently is worth $67 but the IV I have is $75. So money still can be made on this stock. What's more, the stock has excellent credit scores and insiders are roughly buying as much as selling. In addition, it's earnings quality is spectacular. Its EPS is projected to appreciate from 4.74 to 6.74 in 2018. It has fabulous performance against the industry. Its ROE has been above 15% every year for the last 10 years. Its management is not a lot to brag about...its inventory turnover is low compared to the industry, for example. ROIC, ROA, and ROE are all spectacular and well above the industry average. In addition, BBBY's free cash flow is 7.5% vs. the industry's 2.4%. It's return on operating assets is 53%. Another large plus is that BBBY has no long term debt. As far as a moat, I can't agree it has one because of the ever-present Amazon and internet. However, it truly has some outstanding numbers. I am actually going to buy some for myself.
  • edited January 2014
    I'd like to understand how the repurchase of stock affects the intrinsic value calculation. First, I believe that the intrinsic value calculator is an appropriate means to determine future cash flows for a retailer like BBBY. I see where BBBY has been repurchasing their stock as reflected in their financials but it looks to me like that is taken into account when analyzing the company. What I mean by that is that the repurchase is reflected in the EPS growth and BV/share growth by reducing the denominator (number of shares) which makes an equal increase in the growth, so I think it is already factored into the calculation. If the company had choosen not to repurchase shares, the net result to EPS growth and BV/share growth would be the same. They would have more cash, or more stores, or inventory or whatever else they did with the money but the results would be the same to the value. I'd like Stig or others that have a better grasp of the Financials to tell me if I'm missing something (and its likely that I am). :D
  • Jim, Great discussion about the BV growth! You are right that the buyback it is reflected in EPS (denominator get lower), but not in the book value per share. Since BV per share is simply: Total Equity / # Outstanding shares - Equity gets artificial low when you buy back shares. That also means that when you add back the treasury shares you can find the 'real book value growth' - and that is what we are looking for since it is a reflection of the earnings power and owner's earnings. Let me work a bit on my sheet and show you. Sorry that I am so slow saying... "wait a minute all the time"... but things have been very busy lately. Hopefully I should have something more concrete this weekend. I am really excited about BBBY, and I will let you know for sure. /Stig
  • Jim, Like this... I hope it makes senses... There is a bit more to say to this (and I have to verify some numbers and so on), but this is the principle. - (For those of you who saw this last night I just changed a few things) Let me return with more analysis later.. Really have to go now... Talk to you soon! /Stig
  • christoph, [quote]-Their total contractional obligations are 5 billions, which can be regarded as hidden debt.[/quote] Where did you find the $5B? /Stig
  • Stig, Thanks for the clarification on the BV/share. That really changes the IV, making this an attractive company. Am I correct in thinking that if Bed, Bath and Beyond had retired the repurchased stock instead of holding it as treasury stock, we would not need to add it back to BV. I noticed that BBBY purchased World Market a few years ago which is another great retail store.
  • Jim, Well, this is actually a quite tricky discussion. I would say that it should. BV gets distorted, BUT! if we are just looking at 'BV growth' in terms of valuation it does not matter if it is retired or in treasury. It is still money that is earned (and what is the aim). We purely look at accounting the discussion is different. It is the same as goodwill in that sense. Some people would omit goodwill. That is okay not to put that much value into that, but we should always remember that goodwill is still purchased with real dollars. /Stig
  • Guys, I am a believer! I just put a limit order out. /Stig
  • [quote="Stig"]Guys, I am a believer! I just put a limit order out. /Stig[/quote] Out of curiosity. What IV did you come up with Stig??
  • MIKE, I am in the area of $90-120 and even though the margin of Safety is not huge, I think the stability so much that I am willing to buy into the stock anyway. Do you own BBBY? /Stig
  • [quote="Stig"]MIKE, Do you own BBBY? /Stig[/quote] I do not Stig, but I have been following along since Christoph brought it to everyone's attention, as I am an interested in this. It's hard to dismiss all the fantastic numbers of this company. I used Preston's Calc and like Equity Jim, came up with $41. Quite frankly I did not know how to value it properly in terms of the treasury stocks. Mike
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