BBBY sells domestics products such as bed linens, sheets, comforters, bedspreads, draperies, pillows and blankets. Bath accessories include towels, shower curtains, waste baskets, hampers and rugs. Kitchen textiles include tablecloths, placemats, napkins and dish towels. BBBY stores also sell home furnishings: kitchen and tabletop items, such as cookware, cutlery, flatware and glassware; basic housewares, including storage items and closet items; small electric appliances such as blenders, coffee makers, vacuum cleaners, toaster ovens and hair dryers; and miscellaneous gift items, including picture frames, luggage, small toys and seasonal merchandise.

In March 2002, the company acquired Harmon Stores, Inc., a health and beauty care retailer; terms were not disclosed. In June 2003, BBBY acquired Christmas Tree Shops, a retailer of home decor, giftware, housewares, food and seasonal items, for $200 million in cash. The company operated 24 Christmas Tree Shops in six states at FY 04 year end.

The company aims to sell its merchandise at prices 20% to 40% below those charged by department stores. Despite this pricing strategy, BBBY still posts healthy margins by shipping products directly to its stores. This eliminates the need for warehouses and distribution centers. Inventory is displayed on the store floors. In addition, advertising costs are kept to a minimum, as the company relies more on word of mouth than on advertising.

Despite its rapid growth, BBBY holds a very small portion of the domestics and home furnishings market, leaving significant opportunities for future growth. The company funds its new stores through operating cash flow, and has no long term debt. Each new store has posted an operating profit within the first 12 months of operation.

Socio-economic trends are contributing to the company's success. A robust housing market and relatively strong consumer spending indicate that consumers are moving into new homes, and have the money to furnish them with items from stores like Bed Bath & Beyond. In a fast-paced society, the company's stores offer a one-stop shop, offering convenience and reasonable prices to busy families wanting to conserve the amount of time they have away from work or ferrying children.

For the third November 2004 earnings grew by 21 percent. It also reported net income of $121.9 million, or 40 cents a share, compared with last year's profit of $100.5 million, or 33 cents a share.

Growth in any chain of stores comes from one of two sources: the addition of new stores and the increase in sales from existing stores.When a chain is still at the stage that each year it can add a high percentage of new stores, then its growth is likely to be very high. This is the stage for BBBY and is likely to continue for some years.

Eventually, however, this type of growth has to level off. Consider, for example, McDonalds and Wal-Mart. When this begins to happen, then any increase in earnings depends mainly on growth of sam-store sales. BBBY is far from this at the moment, but it is something to keep at the back of your mind.

Of course, long before this becomes an issue, management may well have come up with other ideas for expanding this very successful business.

In any case, currently BBBY is running at a same-store growth rate of around 3 percent, which is something that needs to be watched. Here is an excerpt from the company's most recent SEC form 10-K filing:

" The Company believes that it is the largest operator of stores selling predominantly better quality domestics merchandise and home furnishings typically found in better department stores, and that it is well positioned to compete successfully in its markets as measured by several factors, including pricing, breadth and quality of product selection, in-stock availability of merchandise, effective merchandise presentation, customer service and store locations. "

Website: www.bedbathandbeyond.com Report date: January 2005