Bed Bath & Beyond Update

BBBY : NASDAQ : US$75.59
BUY 
Target: US$84.00

COMPANY DESCRIPTION:
Bed Bath & Beyond sells a wide assortment of merchandise including home furnishings, domestics, giftware, health and beauty care items, and infant and toddler merchandise. BBBY operates around 1,000 Bed Bath & Beyond stores, 265 Cost Plus World Markets, 75 Christmas Tree Shops, 80 buybuy BABY locations, and 45 Harmon stores.
All amounts in US$ unless otherwise

Consumer & Retail — Specialty Retail
DEEP DIVE: E-COMMERCE REMAINS AN UNDERAPPRECIATED CATALYST
Investment recommendation
We are updating our June   report now that both of BBBY’s new e-commerce sites have gone live, with a mid-August launch of bedbathandbeyond.com and June revamp of buybuybaby.com. We have adjusted our incremental e-commerce sales forecasts slightly higher for H2/13 and beyond as we expect the online channel to more than double from its current level of
2% of total sales to 5% by the end of FY14. We forecast ecommerce sales will increase 41% yr./yr. in FY13, followed by +49% in FY14. Our updated projections for the higher margin ecommerce business push our FY14 top-line growth estimate 260bps higher to +7.1% and our EPS estimate $0.06 higher to $5.71, versus consensus of $5.60. We don’t think the stock’s current valuation of 13x our FY14 EPS estimate and 8x FY14E EV/EBITDA fully reflects BBBY’s growth potential.
Investment highlights
 We think BBBY gained 10bps of market share to 22.6% in Q2. E-commerce growth is vital to sustaining share gains in
our view now that BBBY has lapped its acquisitions.
 Incorporating our updated long-term projections into our DCF model and rolling it forward one year raises our price
target from $79 to $84.

 

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