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Bed Bath & Beyond (BBBY) Lags Q3 Earnings, Stock Down

Zacks Equity Research

Bed Bath & Beyond Inc. BBBY reported the third consecutive quarter of a top- and bottom-line miss. The company continued to reel under the impact of sluggish mall traffic, which more than offset online sales growth in the third quarter of fiscal 2016.

Following the earnings announcements, shares of the company slipped 2.6% in the after-market trading session yesterday. In fact, Bed Bath & Beyond has been a disappointment for investors for quite some time now. This is evident from this Zacks Rank #4 (Sell) stock’s 5.6% decline year-to-date, which has widely underperformed the Zacks categorized Retail – Miscellaneous/Diversified industry’s growth of 12.2%.
 



The company’s quarterly earnings of 85 cents per share declined nearly 22% year over year and were substantially below the Zacks Consensus Estimate of $1.00.

BED BATH&BEYOND Price, Consensus and EPS Surprise
 

BED BATH&BEYOND Price, Consensus and EPS Surprise | BED BATH&BEYOND Quote

Deeper Insight

The home-furnishing retailer’s net sales climbed marginally by 0.1% to $2,955.5 million but missed the Zacks Consensus Estimate of $3,058 million. This reflects the company’s dull sales trend, as it has been delivering lower-than-expected top-line results for nearly 13 straight quarters now, with the exception of the fourth quarter of fiscal 2015.

Sales were hurt by softness in comparable store sales (comps), which dropped roughly 1.4% in the quarter. While comps from customer-facing digital networks improved more than 20%, comps at stores fell at a low-single digit rate.

The company also stated that it excluded the impact of One Kings Lane’s buyout from its comps calculation, and will continue to do so through the first year of acquisition.

Moving ahead, Bed, Bath & Beyond’s gross profit fell 2% to $1,092.8 million in the reported quarter, while the gross profit margin contracted 80 basis points (bps) to approximately 37%.

The decline in gross profit, along with a rise in selling, general and administrative expenses caused the operating profit to deteriorate 27.9% to $211.3 million. Likewise, the operating profit margin contracted about 280 bps from the prior-year quarter to 7.1%.

Financial Position

Bed Bath & Beyond ended the quarter with cash and cash equivalents of about $473 million, long-term debt of $1,491.5 million, and total shareholders' equity of roughly $2,615 million.

During first three quarters of fiscal 2016, the company generated cash flow of about $742.7 million from operating activities, while deploying $276.4 million toward capital expenditure.

Share Buyback & Dividend

During the third quarter, the company bought back 1.8 million shares for nearly $76 million, under its current buyback plan of $2.5 billion. As of Nov 26, 2016, Bed Bath & Beyond had shares worth $1.9 billion remaining under its existing program, which is likely to conclude in the back half of fiscal 2019 or through fiscal 2020.

Also, the company, which paid its first quarterly dividend in Jul 2016, announced a quarterly cash dividend of 12.5 cents per share, payable on Apr 18, 2017, to shareholders on record as of Mar 17.

Outlook

Management remains committed toward driving future growth on the back of its strategic investments, omni-channel development and enhancement of its product assortments through innovation. Considering these factors, its planning assumptions and the current business trends, together with the expected impact from the company’s recent acquisitions of One Kings Lane, and PersonalizationMall.com, management provided its fiscal 2016 earnings guidance.

Considering all factors, the company now envisions fiscal 2016 earnings per share (EPS) at the lower end of its historical range of $4.50 to a little over $5.00.

Stocks to Consider

Some better-ranked stocks in the same industry worth considering are Big 5 Sporting Goods Corp. BGFV, ULTA Salon, Cosmetics & Fragrance, Inc. ULTA and Ross Stores, Inc. ROST, each with a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Big 5 Sporting has an average positive earnings surprise of 4.8% in the trailing four quarters. The stock, with a long-term growth rate of 12%, has seen positive estimate revisions in the last 60 days.

ULTA Salon’s solid long-term EPS growth rate of 19.5% and positive estimate revisions over the past seven days help it stand strong in the industry. Further, the company flaunts a spectacular earnings history.

Ross Stores has delivered back to back positive earnings surprises in the last two quarters. Moreover, the company’s long-term growth rate of 11.4% and positive estimate revisions over the past 60 days, bode well.

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