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Can Bed Bath & Beyond's Strategies Bring Back Lost Sheen?

Zacks Equity Research

Bed Bath & Beyond Inc. BBBY, a leading operator of domestic merchandise and home furnishing stores in the U.S., remains committed toward driving long-term growth backed by strategic investments, omni-channel development and enhancement of product assortments through innovation.

Further, the company is distinctly placed in the market backed by strong countrywide network, as well as strategic efforts to align merchandise with regional climate and demographics. We believe the its store enhancement strategies will go a long way in attracting existing as well as new customers. The company's constant shareholder-friendly moves and capital allocation strategy also remain noteworthy.

However, the company's trend of reporting dismal quarterly results has considerably weighed down its stock price, which has underperformed the broader industry in the last six months. Shares of this Zacks Rank #3 (Hold) company have declined nearly 8% in the last six months, while the Zacks categorized Retail – Miscellaneous industry grew 1.6%.

Though the company’s estimates have been stable ahead of fourth-quarter fiscal 2016 earnings release, it has posted dismal top-line and bottom-line results in the trailing three quarters. Consequently, the company has an average negative surprise of 5.3% in the preceding four quarters.

Further, the Zacks Consensus Estimate for fiscal 2016 has declined by 1 cent to $4.51 per share in the last 30 days. Further, the current Zacks Consensus Estimate of $1.78 per share for fourth-quarter fiscal 2016 reflects 4.1% decline from the prior-year quarter. However, analysts polled by Zacks expect revenues of $3.50 billion for the fiscal fourth quarter, reflecting nearly 2.5% growth from the year-ago quarter.

The company has been reeling under sluggish mall traffic, with increasing shift toward online shopping. This has largely offset the growth in online sales in the past few quarters. Moreover, margins have been under pressure owing to increased direct-to-customer shipping expenses and rise in coupon costs. The company anticipates the factors to linger as is reflected in its bleak outlook for fiscal 2016.

Additionally, the company’s exposure in international markets keeps it vulnerable to the adverse currency fluctuations, which is a serious threat.

While the company’s near-term view is strained by soft performance and the likely fall in margins, we hold some confidence in its long-term prospects driven by strategic initiatives, capital allocation strategy and shareholder-friendly moves.

Stocks to Consider

Some better-ranked stocks include Big 5 Sporting Goods Corp. BGFV, sporting a Zacks Rank #1 (Strong Buy), MarineMax Inc. HZO and Foot Locker Inc. FL, both carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Big 5 Sporting, with a long-term earnings growth rate of 12%, has surged 8.3% in the last six months.

MarineMax has gained 14.7% in the last six months. Moreover, the company has to its credit a positive surprise history with an average beat of 131.2% recorded in the last four quarters.

Foot Locker has jumped 13.6% year to date. The stock has a long-term earnings growth rate of 9.7%.

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Foot Locker, Inc. (FL): Free Stock Analysis Report
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Bed Bath & Beyond Inc. (BBBY): Free Stock Analysis Report
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