Bed Bath and Beyond
Bed, Bath and Beyond Case Analysis
1. Study BBBY’s historical results in the “Historical Performance” worksheet contained in the “BBBY” EXCEL workbook. What overall conclusion about BBBY’s recent operating and financial condition do the numbers support? Back up your conclusion by listing the six most critical observations you discern from your analysis of the numbers.
Conclusion:
BBBY is a home goods industry leader in sales growth, margins and return on equity. The company continues to generate excess cash through profitable operations despite large capital expenditures for growth. The company needs to create a plan to invest their excess cash to optimize company results and increase shareholder value.
Observation #1:
Return on Equity (ROE) is very strong at 49.9% which is entirely attributable to their Return on Invested Capital (ROIC). Since BBBY has not financed the business with any debt, the ROIC equals ROE. However, these returns are negatively impacted by the large balance of non-operating assets (i.e. marketable securities) because they are not offset against any non-operating liabilities. The combination of Return on Net Operating Assets (RNOA) with negative financial leverage and the spread has resulted in lower ROE.
#2:
BBBY has $400M excess of Cash and Marketable Securities than needed for planned growth and operations. Holding excess cash during periods of declining interest rates will have a negative impact on returns.
#3:
BBBY has created profitable strategies that result in high Profit Margins: * Decentralized product mix decisions to store leaders to carry profitable, high volume products that local consumer demand. * Private-label items that provided value based goods to consumers with high margins for BBBY. * Everyday low pricing strategy with markdowns only for excess inventory of discontinued items * Cost conscious culture that resembles Walmart * Low advertising costs; low cost mailers and
1. Study BBBY’s historical results in the “Historical Performance” worksheet contained in the “BBBY” EXCEL workbook. What overall conclusion about BBBY’s recent operating and financial condition do the numbers support? Back up your conclusion by listing the six most critical observations you discern from your analysis of the numbers.
Conclusion:
BBBY is a home goods industry leader in sales growth, margins and return on equity. The company continues to generate excess cash through profitable operations despite large capital expenditures for growth. The company needs to create a plan to invest their excess cash to optimize company results and increase shareholder value.
Observation #1:
Return on Equity (ROE) is very strong at 49.9% which is entirely attributable to their Return on Invested Capital (ROIC). Since BBBY has not financed the business with any debt, the ROIC equals ROE. However, these returns are negatively impacted by the large balance of non-operating assets (i.e. marketable securities) because they are not offset against any non-operating liabilities. The combination of Return on Net Operating Assets (RNOA) with negative financial leverage and the spread has resulted in lower ROE.
#2:
BBBY has $400M excess of Cash and Marketable Securities than needed for planned growth and operations. Holding excess cash during periods of declining interest rates will have a negative impact on returns.
#3:
BBBY has created profitable strategies that result in high Profit Margins: * Decentralized product mix decisions to store leaders to carry profitable, high volume products that local consumer demand. * Private-label items that provided value based goods to consumers with high margins for BBBY. * Everyday low pricing strategy with markdowns only for excess inventory of discontinued items * Cost conscious culture that resembles Walmart * Low advertising costs; low cost mailers and