A month has gone by since the last earnings report for Bed Bath & Beyond (BBBY). Shares have lost about 19.4% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Bed Bath & Beyond due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.
Bed Bath & Beyond Q1 Earnings Beat, Sales Miss
Bed Bath & Beyond reported mixed first-quarter fiscal 2019 results, wherein the bottom line outpaced the Zacks Consensus Estimate but the top line missed. With this, the company’s earnings marked third straight beat, while sales lagged for the fourth straight time.
Q1 in Detail
Bed Bath & Beyond’s earnings came in at 12 cents per share in the fiscal first quarter, which outpaced the Zacks Consensus Estimate of 8 cents. However, the reported figure declined significantly from 32 cents earned in the year-ago quarter.
Net sales fell nearly 6.6% to $2,573 million and also came below the Zacks Consensus Estimate of $2,580 million. This downside can be primarily attributed to comparable sales (comps) decline of roughly 6.6%. Comps fell due to lower store transactions, somewhat offset by a rise in the average transaction amount. In fact, comps in stores fell in high-single digit percentage range, partly compensated with a slight improvement in comps at its customer-facing digital channels.
While gross profit plunged roughly 8% to $887.2 million, gross profit margin contracted 50 basis points (bps) to 34.5%. Decline in gross margin was mainly due to lower merchandise margin, partly mitigated with lower coupon expenses and net direct-to-customer shipping expense.
Moreover, SG&A expenses inched up 1% to $892.8 million in the quarter. As a percentage of net sales, SG&A increased 120 bps to 32.9% mainly owing to higher technology-related costs. Further, the company incurred operating loss of $406.8 million against income of $81.2 million in the year-ago quarter.
Bed Bath & Beyond ended the first quarter with cash and investments of roughly $923 million, which reflects an improvement of roughly 9% from the end of year-ago quarter. Long-term debt totaled $1,488.1 million and total shareholders' equity came in at $2,062 million as of Jun 1, 2019.
At first-quarter end, the company generated a cash flow of about $90.1 million from operating activities and deployed nearly $68.4 million toward capital expenditures.
Share Buyback & Dividend
In the reported quarter, Bed Bath & Beyond repurchased stock worth nearly $81.5 million, reflecting about 5.3 million shares.
Additionally, the company’s board declared a quarterly dividend of 17 cents per share, payable Oct 15, 2019, to its shareholders of record as of Sep 13.
In first-quarter fiscal 2019, Bed Bath & Beyond opened three outlets that included two buybuy BABY stores and one flagship store.
As of Jun 1, 2019, the company had 1,536 stores in operation, comprising 995 namesake stores across 50 states, the District of Columbia, Puerto Rico and Canada; 277 stores under the labels World Market, Cost Plus World Market or Cost Plus; 126 buybuy BABY stores; 81 stores under the labels Christmas Tree Shops, Christmas Tree Shops andThat! or andThat!; 55 stores under Harmon, Harmon Face Values or Face Values names; and two retail stores under the label One Kings Lane.
Additionally, the company’s joint venture operates 10 flagship stores in Mexico.
Management issued updates to accelerate the Transformation Plan. In fact, the company has established four major near-term priorities – stabilize and boost top-line growth; reset the cost structure; review and optimize its asset base with its portfolio of retail banners as well as refine the organization structure.
To meet these priorities, management remains focused on enhancing customers’ experience and maximizing shareholders’ value.
Management updated financial targets for fiscal 2019. It now expects net sales and adjusted earnings to come in at the lower end of its earlier guided range of $11.4-$11.7 billion and $2.11-$2.20 per share, respectively.
For fiscal 2019, capital expenditures are expected between $350 million and $375 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates revision. The consensus estimate has shifted -17.04% due to these changes.
At this time, Bed Bath & Beyond has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Bed Bath & Beyond has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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