Shares of Bed Bath & Beyond Inc. BBBY fell more than 7% after the close of the trading session on Jul 8, on 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.
Bed Bath Beyond Inc. Price, Consensus and EPS Surprise
Bed Bath Beyond Inc. price-consensus-eps-surprise-chart | Bed Bath Beyond Inc. Quote
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.
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.
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.
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.
We note that this Zacks Rank #3 (Hold) stock has surged 86.6% in the past three months compared with the industry’s 27.2% growth.
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Office Depot ODP has an expected long-term earnings growth rate of 6.8% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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Hibbett Sports HIBB has an expected long-term earnings growth rate of 7.7%. Also, the company has a Zacks Rank #2 (Buy).
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