Why Is Bed Bath & Beyond (BBBY) Down 2.6% Since Last Earnings Report?

A month has gone by since the last earnings report for Bed Bath & Beyond (BBBY). Shares have lost about 2.6% 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 the most recent earnings report in order to get a better handle on the important drivers.

Bed Bath & Beyond’s Q1 Earnings & Sales Lag Estimates

Bed Bath & Beyond posted drab first-quarter fiscal 2022 results. Both top and bottom lines not only missed the Zacks Consensus Estimate but also declined year over year. Results were affected by the ongoing macro-economic environment, the shift in customer preference, rising inflation, supply-chain challenges, and significant dislocation in sales and inventory.

In a bid to address the headwinds, management announced significant changes in senior leadership. In doing so, the company named Sue Gove, an independent director of its board and chair of the board's strategy committee, as its interim chief executive officer. The move comes after the exit of the earlier president and chief executive officer, Mark Tritton.

Earlier, under Tritton’s leadership, the company undertook a transformation strategy to stay afloat. As part of it, BBBY divested its non-core assets, invested in technology, infrastructure and digital capabilities, and launched Owned Brands.

That said, the company remains committed to serving as a one-stop destination for home solutions. It is also focused on top-tier execution, cost management efforts, improved supply-chain reliability, better capital spending, robust digital capabilities and a stronger balance sheet.

Currently, it is adjusting its supply-chain infrastructure and cost structure to reflect lower sales. Also, the company halted its new store and remodel programs for the rest of fiscal 2022.

In another development, the company remains on track with evaluating options for the potential sale of buybuy BABY. It has been able to identify certain strategies to increase the synergies and growth potential of the brand.

Q1 in Detail

Bed Bath & Beyond reported an adjusted loss of $2.83 per share in the fiscal first quarter against earnings of 5 cents in the year-ago quarter. The figure was also wider than the Zacks Consensus Estimate of a loss of $1.33.

Net sales of $1,463 million declined 25% year over year and missed the Zacks Consensus Estimate of $1,514 million. This might be due to muted demand for household goods and a challenging macroeconomic environment.

Comparable sales (comps) fell 23% year over year. For stores, comps declined 24% year over year, while the same dropped 21% across the digital channel.

The Bed Bath & Beyond banner’s comparable sales fell 27% year over year, owing to sluggish demand in the Home sector and rapid changes in consumer spending patterns. These include Bedding, Bath, Kitchen Food Prep, Indoor décor, and Home Organization, representing two-thirds of the total Bed Bath & Beyond banner sales. The company’s buybuy BABY banner’s comparable sales declined year over year in the mid-single digits.

The adjusted gross profit slumped 48.9% to $348.1 million in the fiscal first quarter. However, the adjusted gross margin contracted 1110 basis points (bps) to 23.8%, including transient costs related to the 620-bps unfavorable impact of markdown inventory reserves and the 220-bps negative impact of supply chain-related port fees.

Excluding the transient costs, the metric came in at 32.2%.  However, the company has been working with suppliers and accelerating markdowns to right-size inventory levels.

SG&A expenses slumped 3.2% to $637.5 million in the reported quarter, driven by reduced costs stemming from lower rent and occupancy expenses. Adjusted SG&A expenses, as a percentage of sales, expanded 990 bps year over year to 43.6% due to lower sales.

Adjusted EBITDA was negative $224 million against $86.1 million reported in the year-ago period. The decline was mainly due to sluggish sales and dismal margins. The adjusted EBITDA margin contracted 1090 bps year over year to 15.3%.

Financial Position

Bed Bath & Beyond ended the fiscal first quarter with cash and investments of $107.5 million. Long-term debt totaled $1,379.9 million and total shareholders' deficit was $220.3 million as of May 28, 2022. It also had strong liquidity of $0.9 billion as of May 28, 2022.

In the fiscal first quarter, cash used in operating activities was $383.6 million and capital expenditure was $104.9 million. For fiscal 2022, capital expenditure is expected to be $300 million, down from the earlier mentioned $400 million.

Store Updates

In the reported quarter, the company opened five buybuy BABY stores, while shutting down two Bed Bath & Beyond stores and one Harmon store.

As of May 28, 2022, the company had 955 stores in operation, comprising 769 namesake stores across 50 states, the District of Columbia, Puerto Rico and Canada; 135 buybuy BABY stores; and 51 stores under Harmon, Harmon Face Values or Face Values names. Additionally, the company’s joint venture operates 12 flagship stores in Mexico.

Looking Ahead

Management issued a fiscal 2022 view. The company expects comparable sales in the second half of fiscal 2022 to improve on a sequential basis, driven by inventory optimization plans, including incremental clearance activity. Adjusted SG&A expenses are predicted to decline year over year on aggressive cost-cutting actions.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

The consensus estimate has shifted -118.88% due to these changes.

VGM Scores

Currently, Bed Bath & Beyond has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Bed Bath & Beyond has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.

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