Bridgewater Associates and Bed, Bath & Beyond
Bridgewater Associates’ new positions in 2Q14 include Coca-Cola Co. (KO) and Bed, Bath & Beyond Inc. (BBBY). Positions sold include Perrigo Co. Plc. (PRGO), Priceline Group Inc. (PCLN), and Monsanto Co. (MON). The fund increased its position in Juniper Networks (or JNPR). It decreased its stake in Symantec Corp. (or SYMC), Cisco Systems Inc. (or CSCO), and Las Vegas Sands Corp. (or LVS).
The $13.34 billion portfolio includes exchange-traded funds (or ETFs) that have the largest positions. The rest of the positions are smaller.
Bridgewater Associates disclosed a new position in Bed, Bath & Beyond (BBBY). It accounted for 0.11% of the fund’s total portfolio.
Bed, Bath & Beyond is a retailer that sells a wide assortment of domestic merchandise and home furnishings. Domestic merchandise includes categories like bedroom items, bath items, and kitchen textiles. Home furnishings include categories like kitchen and tabletop items, fine tabletop, basic housewares, general home furnishings, consumables, and certain products for children.
The company and its subsidiaries operate a chain of retail stores under the names Bed, Bath & Beyond in the U.S. and Canada. It also operates World Market, Cost Plus World Market, Christmas Tree Shops, Harmon, Harmon Face Values, and buybuy BABY in the U.S.
The company’s 1,500 stores range in size from 15,000–50,000 square feet. Some stores are more than 80,000 square feet. The company also includes Linen Holdings—a business-to-business distributor of a variety of textile products, amenities, and other goods.
Results below expectations
Shares fell after the company’s latest 1Q14 results missed estimates. The second quarter outlook was also below analysts’ estimates. Its comparable sales in fiscal 1Q14 increased by ~0.4%—compared to an increase of ~3.4% in last year’s fiscal first quarter. Net sales for fiscal 1Q14 were ~$2.657 billion—an increase of ~1.7% from the same quarter last year.
Bed, Bath & Beyond said ~24% of the increase in sales was attributed to the growth in comparable sales. Also, ~76% of the increase was attributed to an increase in the company’s new store sales and Linen Holdings.
Gross profits were lower at 38.8% of net sales. This was due to an increase in coupon expense, “resulting from an increase in redemptions and a slight increase in the average coupon amount, an increase in net direct to customer shipping expense, which was impacted by the company’s free shipping threshold, and a shift in the mix of merchandise sold to lower margin categories,” the company said in its 10Q filing.
In its quarterly filing, Bed, Bath & Beyond said that for all of fiscal 2014, the company expects to open ~22 new stores. It has the potential to open up to six additional stores before the end of the fiscal year. It will continue to renovate or reposition stores within various markets. It also plans to continue to add new functionality and assortment to its selling websites, mobile sites, and applications.
Since the end of 1Q12, Bed, Bath & Beyond said it returned ~90% of its cash flows from operations to its shareholders through share repurchase programs. During 1Q14, it repurchased ~$273 million of its common stock. This represented ~4.2 million shares.
As of May 31, 2014, the remaining balance of the existing $2.5 billion share repurchase program—authorized in December, 2012—was ~$861 million. In July, the board authorized a new $2 billion share repurchase program. From 2004 through 1Q14, the company returned ~$6.6 billion to its shareholders through share repurchases.
Recently, Bed, Bath & Beyond declared that it entered into an accelerated share repurchase agreement with Goldman Sachs & Co. It plans to repurchase an aggregate of $1.1 billion of the company’s shares.
The company also announced that it sold 20-year bonds worth $1.5 billion. It will use the proceeds for buyback. Last month, the company said it’s in discussions with lenders to enter into a $250 million senior unsecured revolving credit facility. This is expiring in 2019.
These moves led to speculation that the company could have seen activist pressure or received a buyout offer. Analysts believe that the company is an attractive takeover target for a private equity firm. The shares are down 23% year-to-date (or YTD).
In the next part of the series, we’ll discuss Bridgewater Associates’ exit positions.