Bed Bath & Beyond Beats Estimates, Poised to Test All-Time Highs

Leading retailer of diverse home-related goods Bed Bath and Beyond Inc. (BBBY) reported significantly better-than-expected earnings Wednesday after the bell, sending shares towards all-time highs.  Boosted by stronger-than-expected same-store sales and expanding margins, the company reported Q4 EPS of $0.86/share on revenue of $2.24 billion vs. consensus estimates of $0.73/share on $2.11 billion in revenue.  EPS and revenue were up 60% and 16.7% year-over-year, respectively.

Same-store sales grew 12%, coming in ahead of guidance of 3%-5%, prompting one analyst to remark that the company has “navigated admirably through the economic downturn.”  The competitive landscape remains favorable, as BBBY’s (former) main competitor, Linens ‘n Things, is currently going through bankruptcy proceedings.

Guidance also came in ahead of expectations, as management projected Q1 earnings of $0.44 – $0.48/ shares vs. consensus estimates of $0.42/share.  For the fiscal year, the company forecasted earnings of $2.53 – $2.65/share, also coming in ahead of expectations of $2.48/share.  On top of that, gross margins increased from 40.8% to 42.6%.

What does that all add up to?  A stock that is likely to test it’s all-time highs during Thursday’s trading session.  Current all-time highs, denoted by the line on the chart below, occurred during the week of 7/31/05.  Then, the stock peaked at $46.99, and shares closed out Wednesday’s after-hours session at $46.57.  Barring any larger event that stifles the market tomorrow morning, it is very likely that shares will test and perhaps break through to uncharted territory.

As we mentioned here at Wall St. Cheat Sheet a few weeks ago, when a well-known company hits an all-time high, it is a meaningful event. Shares of established companies only hit those levels via strong institutional backing, and since they’re the ones that move the needle on stock prices, you want to buy what they’re buying.  BBBY is merely the latest in a string of consumer stocks to report great earnings, and as long as the melt-up continues, these companies are likely to continue pushing higher.  If you’re looking for some low-volatility exposure to the consumer sector, I would recommend opening up a position on a breakout to all-time highs, using a buy-point of $47.09.

Disclosure: No holdings in BBBY.

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