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Bed Bath & Beyond (BBBY) Up 52.7% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

A month has gone by since the last earnings report for Bed Bath & Beyond (BBBY). Shares have added about 52.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Bed Bath & Beyond due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Bed Bath & Beyond Posts Q1 Loss, Misses on Sales

Bed Bath & Beyond posted dismal first-quarter fiscal 2020 results. Both top and bottom lines declined on a year-over-year basis. Results were affected by the COVID-19 situation that led to a huge sales loss stemming from temporary store closures and low margins due to shifting of consumers’ preference to the digital platform.

The company has now opened its stores for customers and is focused on improving omnichannel capabilities. Post store reopenings, management continued to witness strong online demand in June to the tune of more than 80%, driven by the expansion of Buy-Online-Pick-Up-In-Store (BOPIS) as well as Curbside Pickup services.

However, it refrained from providing any fiscal 2020 outlook, given the growing uncertainty of the pandemic.

Q1 in Detail

Bed Bath & Beyond reported an adjusted loss of $1.96 per share for the fiscal first quarter against earnings of 12 cents in the year-ago quarter. Moreover, the loss was wider than the Zacks Consensus Estimate of a loss of $1.42.

Net sales declined 49% to $1,307 million and lagged the Zacks Consensus Estimate of $1,332 million. This downside was mainly attributed to temporary store closures stemming from the coronavirus outbreak, which resulted in lost sales.

Meanwhile, digital sales rose roughly 82% with robust growth witnessed throughout the fiscal first quarter. Backed by BOPIS and Curbside Pickup services, which were available at approximately 60% of the company’s stores, digital sales surged more than 100% in April and May each. On the flip side, in-store sales plummeted 77% in the reported quarter.

Gross profit plunged 60.7% to $348.5 million in the reported quarter. Moreover, gross margin contracted 780 basis points (bps) to 26.7% on adverse channel and product mix resulting from consumers shifting preference to the digital platform. Also, rise in fulfillment costs, soft margins of products sold in the quarter and elevated fixed costs hurt margins to some extent.

Adjusted SG&A expenses fell 14.5% to $723.2 million, driven by cost-cutting actions and impacts of COVID-19. Meanwhile, adjusted SG&A, as a percentage of sales, expanded significantly from 32.9% to 55.3% in the reported quarter.

Further, the company incurred an operating loss of $460.9 million, almost in-line with the year-ago quarter’s reported figure.

Financial Position

Bed Bath & Beyond ended the fiscal first quarter with cash and investments of roughly $1.1 billion. Long-term debt totaled $1,725 million and total shareholders' equity was $1,461.1 million, as of May 30, 2020.

In the fiscal first quarter, the company used cash flow of about $394.6 million in operating activities and deployed nearly $42 million toward capital expenditures. However, the company has deferred $150 million of planned non-essential capital expenditure in light of the pandemic.

Post the end of the reported quarter, the company announced an $850-million revolving credit facility to help it stay afloat amid the crisis. In March, management withdrew $236 million from its revolving credit facility to strengthen cash position. That said, it boasts liquidity of more than $1.8 billion, which is likely to help it overcome the current hurdle.

Store Update

In the said quarter, the company launched one buybuy BABY store and Cost Plus World Market Store each, while it closed 21 Bed Bath & Beyond stores.

Business Developments

In sync with its efforts to reopen stores, the company has introduced Store Safety Plan to ensure the safety of customers. As part of its restructuring initiative, it is working toward supply-chain transformation to combat declining margins due to shift to the online platform as well as lowering the cost of goods. Apart from these, it intends to shut down 200 stores, particularly Bed Bath & Beyond stores, for the next two years. Also, it remains focused on reducing SG&A expenses. These efforts are expected to generate annualized savings of $250-$350 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted 26.99% due to these changes.

VGM Scores

At this time, Bed Bath & Beyond has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending downward for the stock, and the magnitude of these revisions looks promising. It's no surprise Bed Bath & Beyond has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.



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