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Bed Bath & Beyond Inc. (BBBY): This Stock Is a Sleeper

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Bed Bath & Beyond Inc. (NASDAQ:BBBY)Bed Bath & Beyond Inc. (NASDAQ:BBBY) has outperformed Target Corporation (NYSE:TGT) and Wal-Mart Stores, Inc. (NYSE:WMT) year to date, as well as over a three-year time frame. It also managed to grow during the height of The Great Recession. This is a testament to its quality management and strong brand. While future prospects for the company are much brighter than the average retailer, there are a few things you should watch out for.

Expansion

Bed Bath & Beyond Inc. (NASDAQ:BBBY) currently owns and operates approximately 1,100 stores in North America. Bed Bath & Beyond aims to increase this number to 1,300 stores. Considering the company’s recent successes and stellar balance sheet, this type of expansion makes sense. It’s not too big, meaning it should be manageable.

Online traffic

Bed Bath & Beyond Inc. (NASDAQ:BBBY) is trying to increase its online presence. Help is required in this area considering numbers provided by Alexa.com.

Over the past three months for bedbathandbeyond.com, pageviews-per-user declined 7.51%, time-on-site dropped 4%, and searches (often indicates first-time shoppers) plummeted 13%. Another negative is that the most overrepresented age demographic is 65+. If Bed Bath & Beyond wants to see continued long-term growth, it needs to target a younger age demographic. On the other hand, it might not matter (see below).

Bed Bath & Beyond Inc. (NASDAQ:BBBY) recently acquired Cost Plus World Market and Linen Holdings, which has helped drive top-line growth. Online traffic for worldmarket.com has been steady, and the most overrepresented age demographic is 25-34. This fact proves Bed Bath & Beyond made a smart acquisition as it allows the company to target different age groups.

Concerns

Placed, an analytics provider, ran an interesting study earlier this year. The study, titled, “Aisle to Amazon” aimed to indicate which physical retailers were most susceptible to Amazon.com, Inc. (NASDAQ:AMZN). After studying 15,000 consumers, the study showed that Bed Bath & Beyond was the most vulnerable retailer to Amazon.com, Inc. (NASDAQ:AMZN). This was based on how many shoppers visited Bed Bath & Beyond Inc. (NASDAQ:BBBY) just to price-shop and then bought their product(s) at Amazon.com, Inc. (NASDAQ:AMZN).

Another concern is rising interest rates. The 30-year fixed mortgage rate now stands at 4.51%, and it’s only going to move up. A 4.51% rate won’t impact homebuyers, but as this number approaches 6%, there will likely be a slowdown in home buying. This, of course, would be bad news for Bed Bath & Beyond as it’s a place where new homeowners like to shop.

A third concern relates to increased promotions, higher markdowns, and growing operating costs. And while they’re fairly generic for retailers, these trends might affect margins going forward.

Bed Bath & Beyond vs. peers

Bed Bath & Beyond Inc. (NASDAQ:BBBY) has seen consistent revenue and earnings increases and it always delivers profits. There might not be a dividend, but this can be looked as a positive as it allows the balance sheet to remain impeccable, and it provides for more capital for expansion plans. It should also be noted that growth has been possible without debt — a very good sign.

Part of the reason this company is able to perform so well in a difficult environment is because it offers different price points for its merchandise, depending on the quality of that item. This draws different types of consumers to its stores.

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