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Will Soft Margins Mar Bed Bath & Beyond's (BBBY) Q2 Earnings?

Zacks Equity Research

Bed Bath & Beyond Inc. BBBY is slated to release second-quarter fiscal 2019 results on Oct 2.

Notably, the company delivered a positive earnings surprise in each of the preceding three quarters. Also, it reported an average trailing four-quarter bottom-line beat of 9.4%.

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

Which Way Are Q2 Estimates Headed?

The Zacks Consensus Estimate for second-quarter earnings is pegged at 29 cents, which remained stable over the past 30 days. This reflects a decline from 36 cents earned in the prior-year quarter.

For quarterly sales, the consensus estimate stands at $2.77 billion, indicating nearly 5.7% decrease from the year-ago quarter’s figure.

Factors at Play

Bed Bath & Beyond is battling margin pressures for 12 straight quarters now. Soft sales and merchandise margin have been denting the company’s gross margin. This, coupled with higher SG&A expenses, as a percentage of sales, persistently affected its operating margin. In fact, the soft margin trend has been a hurdle for bottom-line growth, which remains a concern in the quarter to be reported.

Moreover, the company has been witnessing soft comparable sales (comps) for a while due to a decline in sales from stores. This is denting the company’s top line, which lagged the consensus mark for the fourth straight time and fell 6.6% year over year in first-quarter fiscal 2019. Strained margins and soft comps trend remain a threat to the company’s top and bottom lines in the fiscal second quarter.

Nevertheless, Bed Bath & Beyond’s transformation plan appears encouraging. Notably, the company targets stabilizing top-line growth; resetting the cost structure; optimizing the asset base with its portfolio of retail banners; and refining the organization structure. Moreover, the company remains focused on expanding, renovating and relocating stores to adapt to the changing market conditions.

Additionally, the Next Generation Lab stores, where the company is testing various experiences and visual merchandising, are expected to boost customer experience. These efforts along with robust sales at the company’s customer-facing digital networks are likely to aid Bed Bath & Beyond’s top and bottom lines in second-quarter fiscal 2019.

What the Zacks Model Say

According to the Zacks model, a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has a good chance of beating estimates if it also has a positive Earnings ESP Earnings ES. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided, especially if they have a negative Earnings ESP. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Bed Bath & Beyond Inc. Price and EPS Surprise

Bed Bath & Beyond Inc. Price and EPS Surprise

Bed Bath & Beyond Inc. price-eps-surprise | Bed Bath & Beyond Inc. Quote

Bed Bath & Beyond has an Earnings ESP of 0.00% and a Zacks Rank #4, which make surprise prediction inconclusive.

Stocks Poised to Beat Earnings Estimates

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

Hasbro, Inc. HAS has an Earnings ESP of +7.14% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lumber Liquidators Holdings, Inc. LL has an Earnings ESP of +10.66% and a Zacks Rank #3.

Costco Wholesale Corporation COST has an Earnings ESP of +0.37% and a Zacks Rank #3.

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