UNION, N.J.–Bed Bath & Beyond beat many expectations, including its own, by posting an increase of 31 percent in its first-quarter net income, which totaled $180.6 million.
Net sales for the quarter, which ended on May 28, climbed 9.7 percent to $2.1 billion and increased 7 percent on a same-store basis, providing much of the boost to the bottom line. Gross margin picked up 34 basis points to 40.6 percent and selling, general and administrative expenses—while increasing 3.5 percent in dollars—dropped 163 basis points as a percentage of sales to 27 percent.
As Steven Temares, Bed Bath’s CEO, noted in a conference call to industry analysts yesterday afternoon (quoted from a transcript obtained from SeekingAlpha.com), the quarter as a whole exceeded the specialty retailer’s own assumptions. Temares said gross margin firmed thanks to a reduction in markdowns as a percentage of net sales, while SG&A fell as a percentage of sales because of lower payroll and occupancy expenses.
In a note to the investment community, Brad Thomas, analyst of retail hardlines for Keybanc Capital Markets, noted that Bed Bath had beaten Wall Street’s estimates for earnings and sales the first quarter. Observing the retailer’s gross-margin improvement, Thomas cautioned that the company will likely see pressures on margins later this year as the high price of cotton keeps input costs firm.
Temares acknowledged these pressures in speaking to the analysts yesterday. Yet he added that higher commodity prices, high unemployment, the laggard housing market and weak consumer confidence would not change Bed Bath’s strategy “to offer a broad assortment of merchandise at everyday low prices with superior customer service.”