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Shares of Bed Bath & Beyond Inc. BBBY plunged more than 22% on Sep 30, following the sluggish second-quarter fiscal 2021 results. Both top and bottom lines declined year over year. The stock’s dismal performance can be attributable to supply-chain challenges, higher-than-expected cost inflation and a drop in store traffic stemming from rising COVID-19 Delta cases, particularly in key markets like Florida, Texas and California. It also faced delays in bringing items to stores.
All these factors occurred in the normally strong August month, which led to a sharp decline in sales from the prior year. Industry-wide concerns, including port congestions and elevated transportation costs, further dampened the quarterly results. Management noted these headwinds are likely to persist during part of the holiday season, thus, crushing hopes of a swift economic recovery.
The company remains on track with its multi-year transformation plan. It witnessed continued strength in its buybuy BABY banner, driven by double-digit growth in apparel and travel gear. Bed Bath & Beyond reopened its flagship store in Chelsea, NY, as part of its store remodel plan.
The company’s other high-margin Owned Brands have been performing beyond expectations. It is likely to launch its seventh and eighth Owned Brands in October and November. Management continues to bank on the enhanced digital channel, which has already reached the pre-pandemic levels. It has entered the next phase of its supply-chain modernization via the partnership with Ryder.
The Zacks Rank #3 (Hold) stock has plunged 47.1% in the past three months against the industry’s 0.4% growth.
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Q2 in Detail
Bed Bath & Beyond reported adjusted earnings of 4 cents per share for the fiscal second quarter against earnings of 50 cents in the year-ago quarter. The figure also missed the Zacks Consensus Estimate of 53 cents. The decline is mainly attributed to dismal margins, stemming from higher freight costs.
Net sales of $1,985 million declined 26% year over year and missed the Zacks Consensus Estimate of $2,064 million. Core banner sales fell 11% year over year due to drab performance in the Bed Bath & Beyond banner and the impact of fleet optimization. However, comparable store sales rose 3% year over year.
Bed Bath & Beyond banner sales fell 4% year over year, owing to weakness in key categories, including Bedding, Bath, Kitchen Food Prep, Indoor Decor and Home Organization, which represents two-thirds of total Bed Bath & Beyond banner sales. On the flip side, the company’s buybuy BABY banner sales grew in high-teens, marking the third successive quarter of positive growth. This was mainly driven by double-digit growth in both stores and online.
Digital sales declined 9% in the quarter under review, accounting for 34% of total net sales. The company expanded its same-day delivery reach via a partnership with Roadie in the fiscal second quarter.
In the quarter, total enterprise comparable sales (comps) inched down 1% year over year, as traffic slowed down in August.
Adjusted gross profit slumped 30% to $674.4 million in the fiscal second quarter. Adjusted gross margin contracted 190 basis points (bps) to 34% due to higher freight costs, which more than offset higher merchandise margin.
SG&A expenses slumped 23% to $653 million in the reported quarter, driven by reduced costs stemming from the sale of non-core assets along with lower rent and occupancy expenses. Adjusted SG&A expenses, as a percentage of sales, increased 150 bps to 33% in the quarter under review.
Adjusted EBITDA was $84.6 million, down 57% from $199 million in the year-ago period. The decline is mainly due to drab sales and dismal gross margins. Adjusted EBITDA margin contracted 310 bps to 4.3%.
Bed Bath & Beyond ended the fiscal second quarter with cash and investments of $1.1 billion. Long-term debt totaled $1,179.6 million and total shareholders' equity was $934.2 million as of Aug 28, 2021. In the fiscal second quarter, cash used in operating activities was $75 million and capital expenditure was nearly $76 million.
The company repurchased shares worth nearly $100 million in the quarter under review. It also boasts strong liquidity of $2 billion. It estimates share repurchases worth $325 million for fiscal 2021 or nearly $100 million for the rest of the fiscal year.
In the reported quarter, Bed Bath & Beyond did not open any stores, while it shut down 5 stores. The company expects to remodel 130-150 stores in fiscal 2021, out of which approximately 70 stores have been remodeled in the quarter under review.
Bed Bath & Beyond Inc. Price, Consensus and EPS Surprise
Bed Bath & Beyond Inc. price-consensus-eps-surprise-chart | Bed Bath & Beyond Inc. Quote
For third-quarter fiscal 2021, the company anticipates sales of $1.96-$2 billion, inclusive of core sales and planned sales reduction as part of its store fleet optimization program. Comps is likely to remain flat year over year. The adjusted gross margin is envisioned to be 34-35%, reflecting the adverse impacts of global supply-chain challenges. Adjusted EBITDA is expected to be $80-$85 million, with adjusted earnings between break-even and 5 cents for the said quarter.
Driven by drab fiscal second-quarter results and bleak third-quarter expectations, management slashed the fiscal 2021 view. The company now envisions net sales of $8.1-$8.3 billion for fiscal 2021, down from the previously mentioned $8.2-$8.4 billion. It now foresees comps to remain flat to marginally up for the remaining quarters versus the previously communicated low-single-digit range. Adjusted EBITDA is projected to be $425-$465 million, down from the earlier mentioned $500-$525 million.
Bed Bath & Beyond also expects adjusted earnings guidance of 7-10 cents, down from the earlier stated $1.40-$1.55 per share for fiscal 2021. The adjusted gross margin is likely to be 34-35% as compared with the previously mentioned 35%.
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