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BBBY Earnings Analysis: Overstatement of Net Income?

Bed Bath & Beyond Inc. (NASDAQ:BBBY) discussed its earnings after markets closed on Wednesday, on Thursday the stock soared. Today, the stock is wobbling, already down, since the opening bell. We analyze the preliminary financial results for the quarter ended 2013-08-31 to see if the market is actually expecting higher growth from the company. We also analyze the quality of its earnings; it is possible that Bed Bath & Beyond Inc. could be overstating net income.

Bed Bath & Beyond Inc. (NASDAQ:BBBY)

Is there Aggressive Accounting at Bed Bath & Beyond? Get our full Earnings Quality Report to find out.


Our analysis is based on the company’s performance over the last twelve months (unless stated otherwise) and is peer-based (see the end of this post for the peer list). The table below shows the preliminary results along with the recent trend for revenues, net income and returns.

Quarterly (USD million) 2013-08-31 2013-05-31 2013-02-28 2012-11-30 2012-08-31
Revenues 2,823.7 2,612.1 3,401.5 2,701.8 2,593.0
Revenue Growth % 8.1 (23.2) 25.9 4.2 16.9
Net Income 249.3 202.5 373.9 232.8 224.3
Net Income Growth % 23.1 (45.8) 60.6 3.8 8.5
Net Margin % 8.8 7.8 11.0 8.6 8.7
ROE % (Annualized) 24.8 20.0 37.1 23.6 23.0
ROA % (Annualized) 15.8 12.9 23.6 14.9 15.0

Does the market expect higher growth from BBBY?

Bed Bath & Beyond Inc.’s current Price/Book of 4.2 is about median in its peer group. BBBY’s operating performance is higher than the median of its chosen peers (ROE of 26.6% compared to the peer median ROE of 14.4%) but the market does not seem to expect higher growth relative to peers (PE of 16.3 compared to peer median of 18.8) but simply to maintain its relatively high rates of return.

The company attempts to achieve high profit margins (currently 9.2% vs. peer median of 5.1%) through differentiated products. It currently operates with peer median asset turns of 1.9x. The company’s net margin continues to trend downward but is still within one standard deviation above its five-year average net margin of 8.5%.

Earnings Quality

Bed Bath & Beyond Inc has reported relatively strong net income margin for the last twelve months (9.2% vs. peer median of 5.1%). This margin performance combined with relatively low accruals (1.4% vs. peer median of 3.5%) suggests possible aggressive accounting and an overstatement of its reported net income.

The company’s accruals over the last twelve months are modestly positive. However, this modestly positive level is also less than the peer median which suggests some amount of building of reserves.

Trend Charts for BBBY

BBBY Peer List

We used the following peer-set for our analysis: Williams-Sonoma, Inc. (NYSE:WSM), Pier 1 Imports, Inc. (NYSE:PIR)Kirkland’s, Inc. (NASDAQ:KIRK), easyhome Ltd. (TSE:EH), Lowe’s Companies, Inc. (NYSE:LOW) and Sears Holdings Corporation (NASDAQ:SHLD).

Is there Aggressive Accounting at Bed Bath & Beyond? Get our full Earnings Quality Report to find out.


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