Wall Street Watch Thursday: A Rough Night for Bed Bath & Beyond

Bed bath and beyond
Bed bath and beyond

Bed Bath & Beyond (BBBY) peeled back the curtain on Wednesday, but then the shower rod fell down.

The home goods retailer posted disappointing quarterly results for its fiscal second quarter. Net sales may have climbed by a better than expected 12% -- fueled by new stores and a reasonable 3.5% increase in comparable store sales -- but things fell apart on the way to the bottom line.

The superstore chain earned $0.98 a share for the quarter, well short of the $1.02 a share that analysts were expecting. Bed Bath & Beyond also spent nearly $200 million repurchasing stock during the period. Buybacks are good, but it means that profitability would've been even lower on a per-share basis without the buying spree.

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Strong sales are an encouraging sign for retailers specializing in house wares and the companies that make the merchandise, but watching margins contract is problematic for Bed Bath & Beyond.

Net income wound up declining for the period. Don't be fooled by the per-share increase, which resulted from there being fewer shares outstanding.

Bed Bath & Beyond it sticking to its full-year guidance, but it remains to be seen if it will have to continue to aggressively repurchase its shares to make its bottom-line target.

Other Things Worth Watching

• Adobe Systems (ADBE) may want to see if it can Photoshop its horizon. The leading publisher of design software issued uninspiring guidance for its latest quarter. Adobe sees an adjusted profit of $0.53 a share to $0.58 a share in its fiscal fourth quarter, way off the $0.67 a share that Wall Street was expecting. Adobe's top-line outlook of no more than $1.125 billion is also shy of where analysts were parked.

• Another company hosing down its near term outlook is Norfolk Southern (NSC). The railroad operator warned that its third-quarter profit would miss analyst income estimates. Don't you hate it when the train pulls up just short of the station?

• Being a Zynga (ZNGA) executive is apparently a lot like being a drummer for Spinal Tap. TechCrunch was reporting on Wednesday afternoon that the social gaming leader's chief security officer was resigning. For those keeping score at home, we're now up to nearly 10 managers and executives who have left the company this summer.

Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. Motley Fool newsletter services have recommended buying shares of Bed Bath & Beyond and Adobe Systems. Motley Fool newsletter services have recommended creating a diagonal call position in Adobe Systems.

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