Bbby

In: Business and Management

Submitted By summeryun
Words 1052
Pages 5
BED BATH & BEYOND
Suggested Study Questions

1. How would you characterize the business risk of Bed Bath & Beyond? Review their financial performance.

BBBY is special since they are selling products that are produced by name brand companies, and if any products needing repair could be sent directly back to the name brand company. Therefore, there are no switching costs for BBBY since they have no control on the quality of the products they sell. However, there fixed operating costs have been high and if management adds fixed operating costs to their business operations, without an increase in sales, the firm’s profit would decline and result in a loss, which is an indication of relatively high business risk.

Another business risk of BBBY is that although it has a debt-free balance sheet and is generating interest income as opposed to the interest expenses, it has too much cash on hand. It is bearing the risk of not attracting or keeping investors, because of their desire to maximize returns. BBBY could be questioned by investors of its ability to manage their capital structure efficiently, and therefore questioned the ability to maximize shareholder value.

Capital Structure for Bed Bath and Beyond
An analysis of a repurchase of stock for $400 million cash, and recapitalization to 80% debt-to-total capital by borrowing $1.27 million reveals that BBBYs return on equity will be 113%, return on assets 61% and an after tax cost of debt of 28%. ROE is > ROA and ROA > after tax cost of debt. With the 80% debt-to-total capital structure ROE exceeds the other two capital structure scenarios of no debt and 40% debt-to-total capital. While all of this looks great there are other considerations. The household and personal products industries debt to total asset ratio is 34.69% while BBBY debt to total asset ratio is at 44%…...

Similar Documents

Bed Bath & Beyond Case Solutions

...The business risk of BBBY can be categorized as medium to low. On the low side that is due to the fact that BBBY is a common goods company and the risk of default in the common goods industry is relatively low. But BBBY also has a lot of competitors with a higher market share and some of them even offer a higher ROE, like Best Buy (23.4%) and William Sonoma’s just a little above BBBY’s (19.5%), compared to BBBY ROE of 20.1%. The main competitors are chains of superstores such as Target and Best Buy. While BBBY has no debt on its balance sheets due to the conservatism of its management team, it invested a lot of its money in short-term securities and lately these investments weren’t profitable enough due to the low interest earned. Therefore, it is clear that the company needs a new strategy as to the future of their excess funds. As mentioned above, we believe that the company does have a lot of excess cash that needs to be organized in a better way to provide its owners with a higher return. The company could pay out the excess cash as one time dividend or it could implement stock repurchasing. As for the first alternative, it is highly inefficient because if the company offers higher ROE than the current market does, it should keep the money in the company. Companies always do what is best for their shareholders. Therefore, it leaves us with only one option – to repurchase some of the shares back from the public to increase the price of the stock that will remain......

Words: 1168 - Pages: 5

Bed Bath Beyond

...billion, net income of $339 million and net sales of $4.5 billion, representing 22% growth in revenue and 32% growth in income as compared to the previous year. In addition to the 575 Bed Bath and Beyond stores, BBBY also owns 30 Harmon Stores, a discount health, and beauty aid retailer, and 24 Christmas Tree Shops, a retailer of home décor, giftware, and seasonal merchandise. Results of operations for both the Harmon Stores and the Christmas Tree Shops are included in the companies consolidated results of operations and have been since the date of acquisition. Bed Bath and Beyond is currently the largest superstore domestics retailer, although their market share is only 4%. Competitors like Target, Wal-Mart and JC Penney offer a wider variety of merchandise such as apparel and electronics. Since 2002 growth has been a result of acquiring the Christmas Tree Shops and the Harmon Stores. In addition BBBY believes that their product offerings, customer service and advertising program have contributed to the company's financial success. Business risk in the case of BBBY is low if you only consider that the products they sell are produced by name brand companies, so any products needing repair could be sent directly to the name brand company. By passing BBBY and that BBBY has no control over the quality of the products they sell and that there are no significant switching costs. However, their degree of operating advantage is high at 2.93 (Exhibit 1) which would indicate high......

Words: 861 - Pages: 4

Test

...& Beyond. BBBY’s Business Strategy BBBY’s strategy consisted of three major components. First, BBBY delivered outstanding value by offering name brand and better quality merchandise at every-day low prices. Its prices were 40 percent below department store prices and even lower than department store sale prices. Second, the superstore format enabled the company to offer a huge selection of merchandise with both breadth and depth in its product lines and 30,000 SKUs (stock keeping units). Last, BBBY provided well defined superior service from the time the customer drove into the parking lot to the time they left the store, and even when the customer returned merchandise. Delivering Value Bed Bath & Beyond provides value to the customer by offering the better quality merchandise found at department stores at prices at or below the department store sale prices and 20 to 40 percent below department store regular prices. These low prices meant that customers no longer had to look for a sale at the department store, but rather could shop any day at BBBY and get the sale price. The shelves were filled with quality name brands such as Fieldcrest, Laura Ashley, and Rubbermaid. When branded manufacturers did not allow heavy discounting on their brands, BBBY did not carry those products, but rather replaced them with comparable merchandise. BBBY was able to earn good margins despite selling goods at low prices for several reasons. First,......

Words: 1098 - Pages: 5

Case Bed, Bath & Beyond

...excess cash and issuing debt, BBBY could improve return to equity holders and raise earnings per share (by a share repurchase). Leverage can increase a firm’s expected earnings per share. An argument is that by doing so, leverage should also increase the firm’s stock price. Because BBBY has no debt, they pay no interest, and because in perfect capital markets there are no taxes, BBBY’s earnings would equal its EBIT. If BBBY has new debt, they will have interest payments each year, so their earnings will decrease (EBIT – interest). If BBBY uses the debt to repurchase shares, the number of outstanding shares will also fall. Because of this, the earnings per share can increase with leverage. This increase might appear to make shareholders better off and could potentially lead to an increase in the stock price. Besides this, BBBY faces the risk that the firm is not attracting investors. Investors want to maximize their returns and when the firm has a lot of cash, the investors may not be sure of the ability of BBBY to maximize the shareholder value. Another positive point about debt is the tax deduction. In favor: -Leverage increases the risk of equity even when there’s no risk that the firm will default. Thus, while debt may be cheaper when considered on its own, it raises the cost of capital for equity. -Cash can be a buffer in tough times. -When a firm has a lot of cash, there is more money available to invest. As you can read in the case, BBBY invests in a lot of......

Words: 1322 - Pages: 6

This Is Ntohing

...billion, net income of $339 million and net sales of $4.5 billion, representing 22% growth in revenue and 32% growth in income as compared to the previous year. In addition to the 575 Bed Bath and Beyond stores, BBBY also owns 30 Harmon Stores, a discount health, and beauty aid retailer, and 24 Christmas Tree Shops, a retailer of home décor, giftware, and seasonal merchandise. Results of operations for both the Harmon Stores and the Christmas Tree Shops are included in the companies consolidated results of operations and have been since the date of acquisition. Bed Bath and Beyond is currently the largest superstore domestics retailer, although their market share is only 4%. Competitors like Target, Wal-Mart and JC Penney offer a wider variety of merchandise such as apparel and electronics. Since 2002 growth has been a result of acquiring the Christmas Tree Shops and the Harmon Stores. In addition BBBY believes that their product offerings, customer service and advertising program have contributed to the company's financial success. Business risk in the case of BBBY is low if you only consider that the products they sell are produced by name brand companies, so any products needing repair could be sent directly to the name brand company. By passing BBBY and that BBBY has no control over the quality of the products they sell and that there are no significant switching costs. However, their degree of operating advantage is high at 2.93 (Exhibit 1) which would indicate high......

Words: 334 - Pages: 2

Bed Bath and Beyond Cash and Debt-to-Total Capital

...the company's ability to manage their capital structure efficiently, and therefore question their ability to maximize shareholder value. While BBBY uses their cash for store growth and small acquisitions, they should also be focusing on using their cash to increase shareholder value. If BBBY were to use $400 million in excess cash and $636.3 million in borrowed funds to repurchase it's shares they would increase their basic earnings per share from 1.35 to 1.41 and their diluted earnings per share from 1.31 to 1.37. If BBBY were to use $400 million in excess cash, and borrow $1.27 billion to repurchase their shares, they would decrease their basic earnings per share from 1.35 to .70 and their diluted earnings per share from 1.31 to .72 (exhibit 2). Repurchasing shares with a 40% debt to total capital ratio would increase shareholder value, however repurchasing shares with an 80% debt to total capital ratio would significantly decrease shareholder value and therefore would not be advisable. Increasing debt increases shareholder value to a certain point. As this proforma shows, the point of diminishing return is somewhere between 40% and 80%. Capital Structure for Bed Bath and Beyond An analysis of a repurchase of stock for $400 million cash, and recapitalization to 80% debt-to-total capital by borrowing $1.27 million reveals that BBBYs return on equity will be 113%, return on assets 61% and an after tax cost of debt of 28%. ROE is > ROA and ROA > after tax cost of debt.......

Words: 509 - Pages: 3

Cost of Capital

...billion, net income of $339 million and net sales of $4.5 billion, representing 22% growth in revenue and 32% growth in income as compared to the previous year. In addition to the 575 Bed Bath and Beyond stores, BBBY also owns 30 Harmon Stores, a discount health, and beauty aid retailer, and 24 Christmas Tree Shops, a retailer of home décor, giftware, and seasonal merchandise. Results of operations for both the Harmon Stores and the Christmas Tree Shops are included in the companies consolidated results of operations and have been since the date of acquisition. Bed Bath and Beyond is currently the largest superstore domestics retailer, although their market share is only 4%. Competitors like Target, Wal-Mart and JC Penney offer a wider variety of merchandise such as apparel and electronics. Since 2002 growth has been a result of acquiring the Christmas Tree Shops and the Harmon Stores. In addition BBBY believes that their product offerings, customer service and advertising program have contributed to the company's financial success. Business risk in the case of BBBY is low if you only consider that the products they sell are produced by name brand companies, so any products needing repair could be sent directly to the name brand company. By passing BBBY and that BBBY has no control over the quality of the products they sell and that there are no significant switching costs. However, their degree of operating advantage is high at 2.93 (Exhibit 1) which would indicate high......

Words: 861 - Pages: 4

Bed Bath and Beyond

...While BBBY uses their cash for store growth and small acquisitions, they should also be focusing on using their cash to increase shareholder value. By paying out the access cash and issuing debt BBY could improve return to equity holder and rise earning per share But the question is how much debt is sufficient to improve the return without facing risk of bankruptcy. II. Statement of Facts and Assumptions. Bed Bath and Beyond is currently the largest superstore domestics retailer, although their market share is only 4%. Competitors like Target, Wal-Mart and JC Penney offer a wider variety of merchandise such as apparel and electronics. Since 2002 growth has been a result of acquiring the Christmas Tree Shops and the Harmon Stores. In addition BBBY believes that their product offerings, customer service and advertising program have contributed to the company's financial success. BBBY also owns 30 Harmon Stores, a discount health, and beauty aid retailer, and 24 Christmas Tree Shops, a retailer of home décor, giftware, and seasonal merchandise. Results of operations for both the Harmon Stores and the Christmas Tree Shops are included in the company’s consolidated results of operations and have been since the date of acquisition. I had assumed that Clarkson will operate at its full capacity, each type of asset grows proportionally with sales, account payable and accruals grow proportionally with sales and payout ratio will be remain same in 2004. III. Analysis. If BBBY......

Words: 595 - Pages: 3

Bbby

...warehouse. The new superstores would stack inventory from floor to ceiling in order to bypass the need for a central warehouse. This approach gave Bed Bath & Beyond or BBBY a competitive advantage in that it could open their superstores anywhere in the U.S. without constraint. They didn’t have to consider shipping or warehouse restrictions because their inventory was on site and if they didn’t have what the customers wanted in stock then they would have the item shipped to the customer within the next day. Essentially, they could build a superstore in any market they desired which was a huge competitive advantage. Competitors whom used central warehouses were constrained to certain markets which lead to over saturation of the markets they already operated in and this was something BBBY didn’t have to worry about. By August 1994, BBBY had 49 stores and only four of which weren’t superstores. They now operated in 1.8 million square feet with each store carrying 30,000 SKUs. Since BBBY held such a large amount and variety of household items, they were able to be the one-stop shop for consumers looking for all household items excluding large items such as appliances and carpeting. Bed Bath & Beyond operated in the U.S. domestics and housewares industry that was estimated to be $48 billion in 1993. With BBBY operating in such a large market, there is always room for growth especially if you see year over year sales growth. Bed Bath & Beyond saw significant sales......

Words: 3496 - Pages: 14

Bed Bath and Beyond

...financial performance. Business risk in the case of BBBY is low if you only consider that the products they sell are produced by name brand companies, so any products needing repair could be sent directly to the name brand company. By passing BBBY and that BBBY has no control over the quality of the products they sell and that there are no significant switching costs. However, their degree of operating advantage is high which would indicate high business risk. If management adds fixed operating costs to their business operations, without an increase in sales, the firm's profit declines and it becomes possible for total costs—variable plus fixed—to exceed sales and the firm to report a loss.  2. Do you think Bed Bath & Beyond has too much cash? Should Bed Bath & Beyond lever up? Consider both the 40% and 80% debt-to-total capital proposals. While BBBY's balance sheet is strong, there are risks of having too much cash. Namely the risk of not attracting or keeping investors, because of their desire to maximize their returns. When an investor sees to much cash on the balance sheet, they may question the company's ability to manage their capital structure efficiently, and therefore question their ability to maximize shareholder value. While BBBY uses their cash for store growth and small acquisitions, they should also be focusing on using their cash to increase shareholder value.  If BBBY were to use $400 million in excess cash and $636.3 million in......

Words: 776 - Pages: 4

Bbby Questions

...Q. 1: Explain how Bed Bath & Beyond practices the retailing concept. A. 1: Bed Bath and Beyond practices the retailing concept by being value-driven and goal oriented. By maintaining annual sales of 6 billion (not to mention the 15 years of consecutive profit), BB&B has clearly met the customer's standards by offering convenient and multiple store locations, excellent store atmosphere, and an assortment of indispensable merchandise. BB&B also practices the retailing concept by giving their customer a total retail experience. When a customer ventures into a BB&B store, they aren't just looking to purchase a product, they are seeking a pleasant shopping experience. For those who have never shopped at a BB&B (hard to believe since they have become such an enormous and highly regarded franchise), one can tell why customers have chosen to become such long-term investors with the company. Bed Bath & Beyond stores are generally located off all major highways or large plazas with well-proportioned parking lots and easy access to the main doors. Inside Bed Bath & Beyond franchises, the store is regularly staffed with a large quantity of friendly and ‘well-kept' sales associates who are willing to approach and help the customer in finding their particular needs. Also, BB&B offers good value to their customers by keeping them informed in regards to special store promotions whether by mailing list or basic in store flyers. Q. 2: Evaluate Bed Bath & Beyonds's growth plans. A.......

Words: 722 - Pages: 3

Bbby

...February 28, 2014 Volume XL, Issue II Bed Bath & Beyond Inc. Nasdaq: BBBY Dow Jones Indus: 16,321.71 S&P 500: 1,859.45 Russell 2000: 1,183.03 Index Component: S&P 500 Initially Probed: Volume XXXVIII, Issue VII & VIII @ $69.77 Last Probed: Volume XXXIX, Issue XI & XII @ $76.52 Trigger: No Type of Situation: Business Value Price: Shares Outstanding (MM): Fully Diluted (MM): Average Daily Volume (MM): $ 67.82 209.7 212.3 (1.2%) 2.6 Market Cap (MM): Enterprise Value (MM): Percentage Closely Held: $ 14.2 $ 13.4 Insiders ~4% 52-Week High/Low: 5-Year High/Low: $ 80.82/56.37 $ 80.82/19.52 Trailing Twelve Months Price/Earnings: Price/Stated Book Value: 13.8x 3.4x Net Cash & Investments (MM): Upside to Estimate of Intrinsic Value: $ 781 Dividend: Yield: $ NA NA Net Revenue Per Share: LTM: 2012: 2011: 2010: $ $ $ $ Earnings Per Share: 2012: 2011: 2010: Overview Bed Bath & Beyond Inc. (“BBBY” or “the Company”) is a major operator within the retail sector. BBBY operates roughly 1,500 stores and employs approximately 57,000 people throughout North America, and the firm generates annual revenue of over $10 billion. The stores are primarily located in the U.S., and consist of the following brands: Bed Bath & Beyond, Christmas Tree Shops, Harmon, buybuy BABY, and Cost Plus World Market. BBBY’s product line includes a wide range of domestic merchandise and home furnishings. Examples of......

Words: 7236 - Pages: 29

Bbby

...upload the answers to the BBBY Case study: 1. Assess Bed, Bath & Beyond’s (BBBY) business, operating, and expansion strategies. Are these strategies consistent with one another? What, if any, changes would you make to these strategies? Raja Business Strategy: BBBY’s continued success can be attributed through their value to customers, superstore format, superior customer service and everyday low prices. BBBY delivered value to the consumer by offering quality merchandise at or below department store sale prices. Superstore layout allowed BBBY to carry a wide range of merchandise in large quantities. BBBY provides exceptional customer service and their customers provided word-of-mouth publicity for the brand. Operating Strategy: BBBY focuses more on offering the better quality products at or below sale prices compared to department stores and this strategy helped customers not to wait for sale. BBBY sustains a strong position in the home furnishings industry, with Strouds, Lechters, JC Penney, and Linens n Things being the most prominent competitors. BBBY’s competitors are competing with its successful superstore format with reasonable success. The superstore format allowed BBBY to carry widespread inventory at stores, and removed their dependency on warehouses. BBBY avoided substantial costs on warehouses by building superstores and it allowed them decentralize their store network and operations management. Decentralized network helped BBBY to find stores......

Words: 1016 - Pages: 5

No Pa

...Accounting and Finance for Technology Abstract Objective: To analyze the effects of Bed Bath & Beyond’s (BBBY) rapid expansion strategy on the company and to determine if such a strategy is sustainable. Methods: We used data extracted from financial statements and applied sustainability ratios such as the DuPont ratio. Results: Bed Bath & Beyond will greatly benefit from pursuing its expansion policy in both the short and long term. Key Words: Sustained long-term growth, excellent customer service, promote-from-within policy. Table of Contents Executive Summary 3 Business, Operating and Expansion Strategies 3 Consistency in Strategy and Potential Changes 5 Current Performance and Keys to its Current Success 6 Competitors 7 Strouds 7 Lechters 8 JC Penney 8 Linens ‘n Things 8 Competitive Analysis 9 The Bargaining Power of Suppliers 9 Bargaining Power of Buyers 9 The Threat of New Entrants 9 Threat of Substitutes 9 Industry Rivalry 10 ROE and DuPont ratio analysis 10 3-Point DuPont Ratio 10 5-Point DuPont Ratio 10 ROE and growth rate 11 Strategic Considerations and Recommendation 12 References 13 Appendix A 14 Appendix B 14 Appendix C 14 Appendix D 15 Appendix E 15 Appendix F 15 Appendix G 16 Executive Summary Team United is an external independent consulting group hired by the board of directors of Bed Bath & Beyond (BBBY) to review and analyze the company’s business, operating, and expansion strategies. We......

Words: 3400 - Pages: 14

Snapshot

...of their differentiated products. Be hindered: * Slow increasing rate with intensely competition. The maturity of the U.S. market. * Industry consolidation makes the large companies stronger, but LNT fall behind some big companies like BBBY. So it’s hard to catch up. * Financial crisis. * Government policies affect the industry performance. e.g. interest rate adjustment. High interest rate, low purchase. 3. How had Bed Bath & Beyond come to surpass Linens’n Thins over time despite its similar initial founding in the early 1970s (in terms of strategy and execution)? * BBBY expanded inventory, no debt and promoted only from within the company, while relying on store managers for inventory control. However, LNT just focus on increase market share. They didn’t care about the efficiency. * BBBY’s merchandising innovation was better than LNT’s. and more flexibility than LNT. 4. As a private equity, why did Apollo group acquire LNT? Is a private equity firm more likely to turn around LNT than a publicly traded firm (the pros and cons of public vs. private ownership)? Why did this acquisition fail? * The main reason is the low price for purchasing. It sold at $1.3 billion compared to BBBY $10.7 billion. * Apollo group believed that they can fix LNT’s problem and then run it or resell it to make profit. * A private equity firm is not more likely to turn around LNT than publicly traded firm. Because in order to fix LNT’s......

Words: 453 - Pages: 2