Operating strategy: Current Strategies and Future Implications o The functional layout of the Bed Bath & Beyond stores allows for convenient navigation through the 11 specialty stores within each superstore. The racetrack layout showcas
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Executive Summary Strategic Analysis: * Business strategy: Bed Bath & Beyond's boutique superstore strategy of offering an extensive product line and superior customer service translates into a customer-friendly shopping experience at a store with a variety of quality products at reasonable prices. o This is an effective strategy because customers can get everything in one place, while private label merchandise allows them to get a discount instead of having to pay a premium for the convenience. o Also, although the size of the BBBY stores could easily create an impersonal environment, the company is making a conscious effort to design their stores and policies around the needs of the customer. o Currently, BBBY has built a higher margin business and they need to be careful that in their future growth they do not sacrifice these margins to price wars. * Operating strategy: Current Strategies and Future Implications o The functional layout of the Bed Bath & Beyond stores allows for convenient navigation through the 11 "specialty stores" within each superstore. The "racetrack" layout showcases the merchandise and makes locating a particular product easier. o Local responsiveness is one of BBBY's strengths. This strength comes in part from the policy of allowing local managers to determine the appropriate product mix to best fit the local market tastes.
o BBBY ROE is 33.18% and the closest competitor, JC Penney has an ROE of 18.75% * "Off Balance Sheet" Financing Impact o (See attached spreadsheet for adjusted income statement and balance sheet after capital lease liabilities and interest payments) * Growth Strategy: o Yes, BBBY's growth strategy is sustainable, at least for the foreseeable future o BBBY has a net working capital of $54 million, enough to cover the expenditures to open new stores, at $3 million per store o Credit facility of $20 million gives BBBY an additional way (through debt) to finance expansion/growth * Statement of Cash Flows Assessment: o Increasing Net Earnings from 1992 to 1994 o In 1992 and 1994 CFO does not cover CapEx, however this is not necessarily negative, because it is an investment in the future growth of the company. o There is a net increase in cash in 1992 and 1993 but a net decrease in cash in 1994 * Sources and Uses of Cash: o Sources: Accounts payable, Proceeds from IPO, and Proceeds from revolving credit facility; in 1994 Accrued expenses is also a major source o Uses: Merchandise inventories, Deferred income taxes, Repayment of revolving credit facility; in 1994 Income taxes payable and Prepaid expenses are also major uses Company Forecast: * Drivers of future earnings include: o Same-store sales growth o
As you can see below, even though sales is growing at a 30% + clip it is still managing to outpace BBBY's COS and sustaining their healthy Gross Profit Margin of 40%. In the graph above we can see that BBBY's sales per sq. ft. remains stead y in the face of massive square footage increases. In addition to that same store sales grew at an amazing 10.6% this year. BBBY has announced plans to grow their stores by 30% a year for the next three years. With $35 million currently in Retained Earnings and a credit line of $20 million available to them, they have adequate capital to carry out these plans. Given that BBBY's store growth has a 97% correlation to growth in the Net Earnings we are confident that these store openings will have a positive effect on BBBY's financials. There is one issue to watch however. As is the case with most retail growth stories there is the possibility that keeping up this incredible pace could affect BBBY's margins. Keep an eye out to make sure that BBBY isn't growing sales by increasing advertising expenses, adding middle management, or engaging in price wars with competitors. We feel secure in saying that the BBBY model is less suseptable to pitfalls such as these given their model and past history of mainting costs while growing. - 4 -
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