Notes on Bed Bath & Beyond Earnings

In the face of a poor consumer environment, Bed Bath & Beyond (BBBY) released earnings last week that topped consensus on both the top and bottom lines. I've been behind this name since early January, because it is one of the best retail plays in the market, along with Wal-Mart (WMT).

Although earnings were down year-over-year on lower gross margins and the lack of leverage from comps (which came in at just 0.8%), core free cash flow remained strong at $70 million thanks to a conservative pace at rolling out new stores. Management has said they are taking the process of expanding the company's store base – currently at 890 of the flagship Bed Bath & Beyond name, with 1,300 targeted domestically – slowly to see if they can take advantage of advantageous leasing opportunities that might arise in a soft environment.