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Bed Bath & Beyond (BBBY) Down 45.7% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for Bed Bath & Beyond (BBBY). Shares have lost about 45.7% in that time frame, underperforming the S&P 500.

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

Bed Bath & Beyond Misses Q4 Earnings & Sales Estimates

Bed Bath & Beyond reported fourth-quarter fiscal 2021 results, wherein the top and bottom lines not only missed the Zacks Consensus Estimate but also declined year over year. Results were affected by the global supply chain, adverse impacts of the Omicron variant, and geopolitical turbulence, which dampened consumer confidence. The lack of available inventory also weighed on results. The same is expected to persist in early fiscal 2022.

However, better product margin associated with its Owned Brands, pricing and promo optimization remained upsides. The company remains on track with its transformation plans.

Q4 in Detail

Bed Bath & Beyond reported an adjusted loss of 92 cents per share in the fiscal fourth quarter against earnings of 40 cents in the year-ago quarter. The figure also missed the Zacks Consensus Estimate of earnings of 3 cents.

Net sales of $2,051 million declined 22% year over year and missed the Zacks Consensus Estimate of $2,085 million. Core banner sales fell 14% year over year due to non-core banner divestitures and sluggishness in Bed Bath & Beyond banner sales.

Comparable sales (comps) fell 12% year over year and 8% on a two-year basis. For stores, comps declined 8% year over year, while the same dropped 18% across the digital channel.

The Bed Bath & Beyond banner’s comparable sales fell 15% year over year and 9% on a two-year basis, owing to the weakness in key categories. These include Bedding, Bath, Kitchen Food Prep, Indoor décor, and Home Organization, representing two-thirds of total Bed Bath & Beyond banner sales.

On the flip side, the company’s buybuy BABY banner’s comparable sales grew year over year in low-single digits, marking the fifth successive quarter of growth. This was mainly driven by double-digit growth in stores, offset by a mid-single-digit decline on the online front.

The adjusted gross profit slumped 31.3% to $589.8 million in the fiscal fourth quarter. However, the adjusted gross margin contracted 400 basis points (bps) to 28.8% due to the dismal merchandise margin, supply-chain headwinds, elevated freight and shipping costs, and higher-than-anticipated inflation.

SG&A expenses slumped 10.5% to $682.6 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 420 bps to 33.3% in the quarter under review.

Adjusted EBITDA was negative $30 million against $168 million reported in the year-ago period. The decline was mainly due to sluggish sales. The adjusted EBITDA margin contracted 780 bps year over year to 1.4%.

Financial Position

Bed Bath & Beyond ended the fiscal fourth quarter with cash and investments of $439.5 million. Long-term debt totaled $1,179.8 million and total shareholders' equity was $174.1 million as of Feb 26, 2022. In the fiscal fourth quarter, cash used in operating activities was $282.6 million and capital expenditure was $121.7 million.

The company repurchased shares worth nearly $230 million in the quarter under review and $40 million in March 2022, thereby completing its three-year share repurchase program of $1 billion announced in November 2021. It also had strong liquidity of $1.4 billion as of Feb 26, 2022.

In the reported quarter, the company opened one Bed Bath & Beyond store and one buybuy BABY store, while it shut down five stores.

Looking Ahead

Management issued a fiscal 2022 view. The company expects comparable sales in the second half of fiscal 2022 to improve on a sequential basis, driven by potential improvement in supply-chain conditions. The adjusted gross margin is likely to expand slightly, owing to the aforementioned factor. Adjusted SG&A expenses are predicted to remain flat year over year. This includes the earlier announced optimization plan worth $100 million to mitigate inflation. Adjusted EBITDA is envisioned to rise in the second half of fiscal 2022.

 

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

The consensus estimate has shifted -6350% due to these changes.

VGM Scores

At this time, Bed Bath & Beyond has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Bed Bath & Beyond has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.


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