Bed Bath & Beyond Inc. Share Pop 'Premature'

Bed Bath & Beyond Inc. BBBY traded sharply higher Wednesday on better-than-expected second quarter results. Yet analysts voiced caution about the retailer's shrinking profit margin.

Oppenheimer's Brian Nagel said the quarterly results were "not suggestive of a significant turning point" for the company and that Wednesday's share-price pop "may prove premature."

Maintaining a Perform rating and $69 target, Nagel noted that although same-store sales growth was a surprising 3.4 percent, the company's gross margin fell to 38.5 percent, from 39.4 percent in the prior year

Deutsche Bank's Michael Baker said the retailer's strength in net sales was offset by continued pressure on profits from a 20-percent-off coupon program and costs to improve the company's e-commerce operations.

Although executives sought to highlight a 50 percent second-quarter gain in e-commerce sales, "the company has more work to do" in improving operations for the segment, Baker said, suggesting that higher costs there will continue through the second half of 2014.

Baker trimmed his 2014 earnings estimate to $5.04 from $5.07 on a narrower margin outlook and maintained a Hold rating and $57 target.

Although also maintaining a Neutral rating, Credit Suisse's Gary Balter took an upbeat approach.

"The consensus is that this company is going to be roadkill for the Internet machine," Balter said in a note. But the company's recent plan to speed-up its share buyback program spurred Balter to boost his earnings estimates slightly.

"This management team ranks among the deepest and most talented in our coverage universe," Balter said.

Balter, too, cautioned on margin pressures, but said the company's ability to maintain market share "makes the likelihood of its demise greatly exaggerated."

Bed Bath & Beyond closed Wednesday up 7.4 percent at $67.33 per share.