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Bed Bath & Beyond (BBBY) Down 5% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Bed Bath & Beyond (BBBY). Shares have lost about 5% 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 Q4 Earnings & Sales Beat Estimates

Bed Bath & Beyond posted fourth-quarter fiscal 2020 results, wherein both top and bottom lines surpassed the Zacks Consensus Estimate. Results gained from advanced omni-channel capabilities and other growth strategies, including store remodeling and upgrading, improved technologies, store optimization efforts, enhanced supply chain and increased investments in buybuy BABY and Harmon banners. Also, the solid performance in baby, toddler safety, feeding, toys, educational, playroom and apparel contributed to quarterly growth.

Q4 in Detail

Bed Bath & Beyond reported adjusted earnings of 40 cents per share for the fiscal fourth quarter, up 5.3% year over year. Further, the figure exceeded the Zacks Consensus Estimate of 27 cents. This uptick was mainly attributed to improved margins and lower expenses.

Net sales were $2,619 million, down 16% year over year due to the sale of non-core businesses and store closures. Moreover, it surpassed the Zacks Consensus Estimate of $2,613 million. Further, in-store sales fell 27% in the reported quarter.

Meanwhile, digital sales rose roughly 86% in the quarter. Several omni-channel services, such as Buy-Online-Pick-Up-In-Store and Curbside Pickup, contributed to digital sales growth. Notably, the company witnessed 3.1 million new customers in the digital space, with more than 300 million visitors on its online platforms. Also, the mobile channel accounted for more than half of its digital sales in the fiscal fourth quarter. Its mobile app was downloaded more than 21 million times, with the buybuy BABY mobile app being downloaded 150,000 times.

With roughly 87% of orders ready for pick up within two hours, BOPIS now accounts for 14% of digital sales in the quarter under review. Also, stores fulfilled 41% of digital sales, out of which 17% were BOPIS orders. Apart from these, its newly launched same-day delivery service is gaining traction with more than 220,00 same-day delivery orders in the fiscal fourth quarter. Out of these, 78% of orders came from websites while the rest were from Shipt and Instacart. Encouragingly, management launched Harmon Face Values on Instacart with the added benefit of same-day delivery for healthy and personal care products.

During the quarter, total enterprise comparable sales (comps) grew 4% year over year, marking the third successive quarter of comps growth. The metric gained from strength in the Bed Bath & Beyond banner and strong digital comps. However, comparable store sales fell 20% year over year.

Gross profit advanced 18.6% to $926.2 million in the fiscal fourth quarter. Moreover, adjusted gross margin expanded 20 basis points (bps) to 32.8% on positive product mix, higher markdowns, better promotions, and lower distribution and fulfillment costs. On the flip side, adverse digital channel mix and elevated shipping costs acted as deterrents.

Meanwhile, adjusted SG&A expenses fell 19.9% to $763 million, driven by the sale of non-core businesses and reduced occupancy costs.

Further, the company incurred an operating loss of $23.7 million compared with a loss of $81.2 million in the year-ago quarter.

Financial Position

Bed Bath & Beyond ended the fiscal fourth quarter with cash and investments of roughly $1,353 billion. Long-term debt totaled $1,190.4 million and total shareholders' equity was $1,276.9 million as of Feb 27, 2021. In the quarter, cash provided by operating activities came in at $75.7 million along with nearly $66 million in capital expenditures.

That said, management boasts liquidity of nearly $2.1 billion, driven by a free cash flow of $62 million.

Further, the total share repurchase program has been raised to $1 billion, up from $825 million announced earlier. The company now intends to repurchase shares worth $325 million, an increase from $300 million guided earlier. Also, capital expenditures for fiscal 2021 are likely to be $400 million.

Looking Ahead

Management noted that its non-core portfolio sale is complete. As a result, it retained its fiscal 2021 view. The company still expects net sales to be $8-$8.2 billion along with flat total enterprise comps year over year. It continues to anticipate adjusted EBITDA of $500-$525 million. Moreover, adjusted gross margin is likely to be roughly 35%, with adjusted SG&A expenses of nearly 31%. Apart from these, Bed Bath & Beyond envisions in-store traffic to improve in fiscal 2021.

However, fiscal 2021 remains exposed to threats related to COVID-19 such as uncertainty surrounding vaccine rollouts, changes in consumer demand and shopping behavior, which in turn might affect store traffic and online sales. Also, higher freight costs remain a concern.

For first-quarter fiscal 2021, Bed Bath & Beyond expects net sales to grow more than 40% year over year. Also, gross margin is likely to improve on a sequential basis to the tune of 34%. Adjusted EBITDA is forecasted to be $80-$90 million.

Store Updates

The company shut down 118 Bed Bath & Beyond stores during the reported quarter. Meanwhile, it opened three buybuy BABY stores, one Bed Bath & Beyond store, and a Harmon Face Values store. Management remains on track to close roughly 200 underperforming Bed Bath & Beyond stores by the end of fiscal 2021. Also, it revealed plans to open seven baby stores in fiscal 2021.

Further, the company intends to invest roughly $250 million to remodel nearly 450 stores over the next three years. Keeping in these lines, 130-150 stores are likely to be remodeled in fiscal 2021, with 26 stores in the fiscal first quarter itself.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -22.22% due to these changes.

VGM Scores

At this time, Bed Bath & Beyond has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Charting a somewhat similar path, 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.

Outlook

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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