Bears Bash Bed Bath & Beyond

Shares fell Thursday after the retailer reported higher quarterly earnings -- accompanied by a sharp increase in expenses

Bed Bath & Beyond (BBBY) share prices fell on Dec. 21, after the retailer announced quarterly results and higher expenses.

The Union (N.J.)-based company late Dec. 20 announced net earnings of $142.4 million during the quarter ended Nov. 25, up 5.8% from the same period last year.

Earnings rose as the company persuaded more customers to buy its products. Net sales for the quarter were up about 11.8% year over year to $1.619 billion. Sales at stores open more than a year grew by around 4.6%, compared with an increase of around 3.1% in last year's fiscal third quarter.

But Bed Bath & Beyond's selling, general, and administrative expenses shot up more than 20% year over year to $492.9 million during the quarter.

Investors sold the stock 3.7% to $38.45 per share in early afternoon trading on the Nasdaq Dec. 21.

Credit Suisse First Boston downgraded the stock to neutral from outperform on Dec. 21, explaining that "the company seems less likely to be able to drive operating margins higher going forward," analyst Gary Balter said in a note Dec. 21. (CSFB does and seeks to do business with the company.) Balter noted factors like the company's higher advertising costs.

Others were more sanguine.

Standard & Poor's equity analyst Michael Souers attributed the company's higher selling general and administrative expenses largely to charges related to the company's stock option accounting investigation. "We contend that BBBY continues to execute admirably in a challenging environment for home-related retailers," Souers said in a research note. (S&P, like, is owned by The McGraw-Hill Companies.) The analyst lowered fiscal year 2007 and 2008 earnings estimates, but kept a 12-month target price on the stock of $47 per share.

Bed Bath & Beyond is expecting to take a one-time charge of $40 million during the fourth quarter of fiscal 2006, as part of a program to reimburse employees for adverse tax impacts related its stock option accounting problems.

The board also approved a $1 billion share buyback program. "[T]his action [is] based upon its continued confidence in our company's long-term growth potential, financial outlook and excess cash flow generation" said CEO Steven Temares in a press release Dec. 20.

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