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Why Bed Bath & Beyond (BBBY) is Not a Rational Pick Now
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Bed Bath & Beyond Inc. , a leading operator of domestic merchandise and home furnishing stores in the U.S., remains deeply entrenched in the bearish territory as the stock has lost nearly 16% over the past six months.
Investors should exercise caution when it comes to the stock as it is unlikely to show any major improvement in the near future. Let’s delve deeper and try to find out what is taking this Zacks Rank #4 (Sell) company down the hill.
Though Bed Bath & Beyond provides us with an encouraging earnings picture, we cannot ignore the fact that its exposure to the international markets has been weighing on its quarterly performance mainly due to the strengthening U.S. dollar. The company’s bottom line for fourth-quarter fiscal 2015 included an adverse impact of about 2 cents from foreign currency headwinds. Further, the top line bore the brunt of these headwinds.
Going forward, persistence of these unfavorable currency fluctuations is likely to weigh on the company’s results, thus posing concerns.
Moreover, the company’s margins remained pressurized mainly due to soft merchandise margins and a rise in net direct-to-customer shipping costs. During the fourth quarter, gross profit margin contracted 110 basis points (bps), while the operating margin shrunk about 130 bps. Further, the company witnessed a rise in selling, general and administrative (SG&A) expenses due to higher advertising and technology related expenses.
Management expects all these factors to linger in the future and therefore, anticipates gross margin and SG&A expense deleverage in fiscal 2016. We expect the pressurized margins and higher expenses to dent the company’s bottom line.
Moreover, Bed Bath & Beyond’s customers remain sensitive to macroeconomic factors including an increase in fuel and energy costs, credit availability, unemployment levels and high household debt levels that may negatively impact their discretionary spending, in turn affecting the company’s growth and profitability. Also, the seasonal nature of its business may significantly impact results if any particular season fails to deliver.
With Bed Bath & Beyond’s share price tumbling and estimates witnessing downward revisions, it would not be prudent to keep the stock in your portfolio, at least for the time being.
Stocks that Warrant a Look
Some better-ranked stocks in the same industry include Cabelas Inc. , ULTA Salon, Cosmetics & Fragrance Inc. (ULTA - Free Report) and Marinemax Inc. (HZO - Free Report) , each carrying a Zacks Rank #2 (Buy).
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Why Bed Bath & Beyond (BBBY) is Not a Rational Pick Now
Bed Bath & Beyond Inc. , a leading operator of domestic merchandise and home furnishing stores in the U.S., remains deeply entrenched in the bearish territory as the stock has lost nearly 16% over the past six months.
Investors should exercise caution when it comes to the stock as it is unlikely to show any major improvement in the near future. Let’s delve deeper and try to find out what is taking this Zacks Rank #4 (Sell) company down the hill.
Though Bed Bath & Beyond provides us with an encouraging earnings picture, we cannot ignore the fact that its exposure to the international markets has been weighing on its quarterly performance mainly due to the strengthening U.S. dollar. The company’s bottom line for fourth-quarter fiscal 2015 included an adverse impact of about 2 cents from foreign currency headwinds. Further, the top line bore the brunt of these headwinds.
Going forward, persistence of these unfavorable currency fluctuations is likely to weigh on the company’s results, thus posing concerns.
Moreover, the company’s margins remained pressurized mainly due to soft merchandise margins and a rise in net direct-to-customer shipping costs. During the fourth quarter, gross profit margin contracted 110 basis points (bps), while the operating margin shrunk about 130 bps. Further, the company witnessed a rise in selling, general and administrative (SG&A) expenses due to higher advertising and technology related expenses.
Management expects all these factors to linger in the future and therefore, anticipates gross margin and SG&A expense deleverage in fiscal 2016. We expect the pressurized margins and higher expenses to dent the company’s bottom line.
Moreover, Bed Bath & Beyond’s customers remain sensitive to macroeconomic factors including an increase in fuel and energy costs, credit availability, unemployment levels and high household debt levels that may negatively impact their discretionary spending, in turn affecting the company’s growth and profitability. Also, the seasonal nature of its business may significantly impact results if any particular season fails to deliver.
With Bed Bath & Beyond’s share price tumbling and estimates witnessing downward revisions, it would not be prudent to keep the stock in your portfolio, at least for the time being.
Stocks that Warrant a Look
Some better-ranked stocks in the same industry include Cabelas Inc. , ULTA Salon, Cosmetics & Fragrance Inc. (ULTA - Free Report) and Marinemax Inc. (HZO - Free Report) , each carrying a Zacks Rank #2 (Buy).
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>