My chosen organization is Bed, Bath and Beyond, Inc. (BBBY)
1. How sensitive do you think your organization is to economic expansions (upswings) and contractions (downswings or recessions)? Explain. If you believe that your organization's performance is not sensitive to general economic business cycles, then explain why it is stable as the economy moves up and down. CAUTION: You must be specific in your reasoning, with the focus directly on your SLP organization rather than making general comments that apply to any organization. On December 19, 2012, Bed, Bath & Beyond reported "net earnings of $1.03 per diluted share ($232.8 million) in the fiscal third quarter..." This is an increase of approximately 8.4% versus net earning of $0.95 per diluted share ($228.5 million) in the same quarter 2011. Consumer spending in Bed Bath & Beyond is a barometer of where we'll likely see the e early signs of a recovery. Because indicators show that as consumers are very likely to improve their homes when they're willing to spend on discretionary items. Instead of buying luxury items or new cars, consumers are spending on their homes for extra comfort and simple conveniences.
Associated Press reported that yield curve for BBBY was flat. A yield curve is "a line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity dates." At the end of January, 2013, Goldman Sachs downgraded BBBY from neutral to sell with a price target from $66 to $56. Since then, with Oppenheimer's upgrade, the price went up to $59. BBBY's flat yield curve means there's little difference between short and long-term rates for bonds of the same credit quality. According to its third quarter earnings as reported by Nasdaq on December 19, 2012, the company reported $1.03 per share with revenues of $2.7 billion versus their original estimate of $2.25 billion. On a year-over-year basis, the company's revenue grew during each of the past four quarters, this is up 1.8% from the previous year's figures. If the Federal Reserve decided to raise interest rates, it could lead to higher taxes in the future but it also depends on other variables in the economy. For example, it could cause financial hardship to those consumers with large mortgages However, a rise in interest rates could be a benefit to those with savings. Moreover, a rise in housing prices could spur consumers to spend. Therefore, a rise in interest rates may have less impact on reducing growth of consumer spending, therefore it may not have a an impact on Bed, Bath & Beyond. Year over year, Bed Bath & Beyond Inc. has been able to grow revenues. With around 5,600 suppliers, the company has maintained a diversified supplier base with the largest supplier representing around 8% of the total purchases. Over the past 4 years their total revenue, EPS and cash flow has consistently grown. In fact from 2009 to 2012, they grew from $7.2 billion to $9.5 billion. Their EPS has grown from $2.10 to $4.06 and free cash flow rose from $256 million to $982 million. Most impressively, the company has been able to reduce the percentage of sales devoted to selling, general and administrative costs from 26.65% to 24.87%. This was a driver that led to a bottom line growth from $425.1 million in 2009 to $989.5 million in 2012. Therefore, my assessment of the overall financial health of Bed, Bath and Beyond Inc. is that it is still a strong investment.
2. The Fed has forecasted future economic conditions and they are found in the Fed's Beige Book. Please choose the one most important economic condition that might affect your company's future performance. Confine yourself to only one. Bed Bath & Beyond Inc’s strengths can be seen in multiple areas: such as growth in revenues and growth in earnings per share. Investors can also see a…