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Bed Bath & Beyond (BBBY) to Post Q4 Earnings: What's in Store?

Zacks Equity Research

Bed Bath & Beyond Inc. BBBY is slated to release fourth-quarter fiscal 2018 results on Apr 10.

The company has delivered a positive earnings surprise in four of the last five quarters. However, it reported average earnings miss of 3.1% in the trailing four quarters. The Zacks Consensus Estimate for fourth-quarter earnings is pegged at $1.11, which remained stable over the past 30 days. This reflects a decline of about 25% from the prior-year quarter. For quarterly sales, the consensus mark stands at $3,333 million, mirroring nearly 10% decline year over year.

Bed Bath & Beyond Inc. Price and EPS Surprise

Bed Bath & Beyond Inc. Price and EPS Surprise | Bed Bath & Beyond Inc. Quote


Let’s see how things are shaping up prior to this announcement.

Factors at Play

We note that Bed Bath & Beyond is battling margin pressures for 10 straight quarters now. Higher coupon expenses and lower merchandise margin have been denting the gross margin. This coupled with higher SG&A expenses have been hurting the operating margin. Going ahead, margins will continue to remain weak. For fiscal 2018, management had earlier projected gross margin deleverage mainly on the investments in the customer value proposition and digital channels. Moreover, SG&A expenses are estimated to increase due to higher investments towards transformational efforts. However, the company expects to witness lower operating margin contraction than that in fiscal 2017.

Apart from margin woes, the company has been witnessing soft comparable store sales (comps) for a while due to decline in sales from stores. For fiscal 2018, management projects comps decline of about 1%. Strained margins and soft comps trend remain a threat to the company’s top and bottom lines in the fiscal fourth quarter.

In a recent move, the activist investors including Legion Partners Asset Management LLC, Macellum Advisors GP LLC and Ancora Advisors LLC are working to oust all 12 members of Bed Bath & Beyond’s board, per sources. Media reports also revealed that the group is likely to submit 16 nominees to take over the company's board at the Annual Meeting. The investor group wants to replace the company’s chief executive officer as well. The activist investor group owns a combined stake of 5% in the company. The reason behind this was the failure of the current management team to keep up with the evolving retail scenario.

Nevertheless, Bed Bath & Beyond responded to the activist investors by issuing a statement. The company notified that it is working in the best interest of its shareholders. Moreover, the company stated that the board consistently assesses its composition, reflecting the right talent and expertise. These apart, the company is going through a comprehensive transformation to develop its foundational structure and boost shareholder value.

In fact, on its third-quarter fiscal 2018’s conference call, Bed Bath & Beyond had stated that it is ahead of plan in relation to achieving its long-term financial targets. The company’s long-term financial goals include moderating declines in operating profit and net earnings per share in fiscal 2018 and 2019. Earnings are envisioned to be about $2.00 per share for fiscal 2018.

Additionally, Bed Bath & Beyond’s store-rationalization efforts bode well. In fiscal 2018, it targets opening 20 stores, mainly comprising Buybuy BABY and Cost Plus World Markets stores. Simultaneously, it expects to close nearly 40 underperforming stores, including mostly flagship ones, to boost profitability. Meanwhile, robust sales at its customer-facing digital networks are driving the company’s top line, which is likely to continue in the fiscal fourth quarter.

Zacks Model

Our proven model conclusively shows that Bed Bath & Beyond is likely to beat earnings estimates in the fiscal fourth quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Bed Bath & Beyond has an Earnings ESP of +2.17% and a Zacks Rank #3, which make us confident of an earnings beat.

Other Stocks Poised to Beat Earnings Estimates

Here are some other companies that you may want to consider as our model shows that these too have the right combination of elements to post an earnings beat:

Insight Enterprises, Inc. NSIT has an Earnings ESP of +5.22% and a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Nordstrom, Inc. JWN has an Earnings ESP of +1.55% and a Zacks Rank of 2.

MarineMax, Inc. HZO has an Earnings ESP of +16.67% and a Zacks Rank #3.

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