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Bed Bath & Beyond Stock Tanks on Soft Q4 Performance Update

Shares of Bed Bath & Beyond Inc. BBBY declined approximately 25% during the after-market trading session on Feb 11, following the company’s update on fourth-quarter fiscal 2019 performance. The company announced preliminary, unaudited financial numbers for December and January - the first two months of fourth-quarter fiscal 2019.

Management stated that the company is facing short-term hurdles in its efforts to stabilize the business. Notably, it is witnessing soft store traffic trends, along with challenges in execution.

The Zacks Rank #5 (Strong Sell) company reported comparable sales decline of 5.4% for the first two months of the fiscal fourth quarter. This reflected a low double-digit percentage decline in transactions in stores, partly countered by a mid-single-digit percentage rise in the average transaction amount. The decline can be attributed to soft store traffic, issues related to inventory management and higher promotional activity and markdowns. Comparable sales decreased around 11% (on a directional basis) from stores. Meanwhile, comparable sales improved 20% in the digital business.

Bed Bath & Beyond Inc. Price, Consensus and EPS Surprise

The company’s comparable sales also reflect gains from shift of the Cyber Monday holiday week into the fiscal fourth quarter of 2019, compared with fiscal third quarter in the last year. Adjusting for this shift in both periods, comparable sales declined 13% for the first two months of the fiscal fourth quarter.

Gross margin for the aforesaid period decreased 300 basis points (bps) owing to lower merchandise margin due to increased promotions. Additionally, the company’s gross margin was hurt by increased proportion of digital sales within its total sales mix.

Selling, General & Administrative Expenses (SG&A), as a percentage of net sales, grew 390 bps. Adjusted SG&A, as a percentage of net sales, rose 190 bps. This rise was due to increased fixed cost like occupancy and technology-related expenses, on lower sales. Moreover, higher advertising and consulting expense contributed to the increase.

Notably, Bed Bath & Beyond is taking steps to deliver long-term sustainable growth. The company is fast tracking efforts to rebalance portfolio, reorganize cost structure, and improve leadership.

Also, the company is focused on cost containment, refining organization structure, reviewing and optimizing asset base, and learnings from Next Generation Lab stores. Despite these efforts, industry experts believe that the company has to redefine its business model and make it more contemporary with the present retail scenario to withstand competition. From embracing new technologies to providing fast delivery and from bringing in new marketing strategies to innovative products, the company has to look at every nook and cranny.

3 Stocks to Consider

DICK'S Sporting Goods, Inc. DKS presently has an expected long-term earnings growth rate of 5.7% and sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Helen of Troy Limited HELE has a long-term earnings growth rate of 8.6% and carries a Zacks Rank #1.

e.l.f. Beauty, Inc. ELF delivered positive earnings surprise of 62.5%, on average, in the trailing four quarters. It currently carries a Zacks Rank #2 (Buy).

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Bed Bath & Beyond Inc. (BBBY): Free Stock Analysis Report
 
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