We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
After making a short-lived comeback in the last quarter, Bed Bath & Beyond Inc. reverted to a dismal surprise trend in first-quarter fiscal 2017. Both the top and bottom line fell short of our estimates in the first quarter and the latter also declined year over year. The disappointing results weighed on investors’ sentiment, as shares of the company declined 7.4% in the after-market trading session yesterday.
In fact, owing to its unimpressive past performance, the Bed Bath & Beyond stock has underperformed the Zacks categorized Retail – Miscellaneous industry in the last one year. Evidently, this Zacks Rank #4 (Sell) stock slumped 21.1% in the past one year, wider than the industry’s fall of 6%.
Results continued to be hurt by sluggish store traffic, which intensified this quarter. Also, results were dented by increased net-direct-to-consumer shipping costs, and higher coupon and advertising costs. This was somewhat compensated by continued strength witnessed across the company’s customer-facing-digital network.
Q1 in Detail
The company’s quarterly adjusted earnings of 58 cents per share declined 27.5% year over year and also came below the Zacks Consensus Estimate of 66 cents. Including the 5 cents adverse impact from the adoption of new accounting standard, earnings plunged 33.8% to 53 cents per share.
The home-furnishing retailer’s net sales inched up marginally by 0.1% to $2,742.1 million, while it fell short of the Zacks Consensus Estimate of $2,798 million. Sales primarily gained from a 2.1% rise in non-comp sales including PMall, One Kings Lane and new stores, largely countered by a 2% fall in comparable store sales (comps).
The decrease in comps was a result of lower transactions in stores, somewhat compensated by greater average transaction amount. While comps from customer-facing digital networks improved over 20%, comps at stores fell at a mid-single digit rate.
Bed, Bath & Beyond’s gross profit dipped 2.3% to $1,000.1 million in the reported quarter, with the gross profit margin contracting 90 basis points (bps) to 36.5%. The fall in gross margin stemmed from higher direct-to-customer shipping expenses, alongside rise in coupon expense on account of increased redemptions.
The decline in gross profit, along with a rise in selling, general and administrative expenses led the operating profit to deteriorate nearly 31% to $147 million. Likewise, the operating profit margin contracted about 240 bps from the prior-year quarter to 5.4%.
Bed Bath & Beyond Inc. Price, Consensus and EPS Surprise
Bed Bath & Beyond ended the quarter with cash and cash equivalents of about $469.3 million, long-term debt of $1,491.7 million, and total shareholders' equity of roughly $2,672.6 million.
In the first quarter, the company generated cash flow of about $204.6 million from operating activities, while deploying $80.8 million toward capital expenditure.
Share Buyback & Dividend
During the fiscal first quarter, the company bought back 3.3 million shares for nearly $127 million, under the current buyback plan of $2.5 billion. As of May 27, Bed Bath & Beyond had shares worth $1.6 billion remaining under its existing program, which is likely to conclude in fiscal 2020.
Further, the company declared a quarterly cash dividend of 15 cents per share, which is payable on Oct 17 to shareholders on record as of Sep 15.
Store Update
During the first quarter, Bed, Bath & Beyond introduced one Harmon Face Values store, alongside shutting down a namesake store. The company ended the first quarter with 1,546 stores, including 1,022 namesake stores across 50 states, the District of Columbia, Puerto Rico and Canada; 276 stores under the labels – World Market, Cost Plus World Market or Cost Plus; 113 buybuy BABY stores; 80 stores under the labels – Christmas Tree Shops, Christmas Tree Shops andThat! or andThat!; and 55 stores under Harmon, Harmon Face Values or Face Values names.
Looking Ahead
While the first quarter usually records the smallest part of the company’s annual sales and earnings, Bed, Bath & Beyond faced excess sluggishness in store transactions, along with greater costs. However, the company remains unsure if these challenges were specific to, or more prominent in this quarter – owing to soft sales and delayed start to the summer selling period. As the company expects better visibility into fiscal 2017 after the second quarter, it kept its previously issued outlook unchanged.
Old Guidance Revisited
In its fourth-quarter fiscal 2016 earnings conference call, the company had stated that fiscal 2017 is likely to benefit from the additional 53rd week in the fiscal. Considering the additional week, Bed Bath & Beyond projects net sales for fiscal 2017 to increase in the low to mid-single digit percentage range. While the company anticipates comps to improve in fiscal 2017, the range is likely to be between relatively flat and slightly positive. Further, the company anticipates the strong comps growth in the customer-facing digital channels to persist.
Moreover, management expects gross margin to decline in fiscal 2017 owing to rise in shipping and coupon expenses. However, the rate of decline in the fiscal is expected to be less than the fiscal 2016 level. Also, selling, general and administrative expense deleverage is anticipated in fiscal 2017 due to payroll and payroll-related expenses as well as technology expenses including depreciation and the impact of current expense structures of One Kings and PMall. Depreciation expense is likely to be in the range of $310–$320 million, while interest expense is anticipated at about $80 million.
Considering all factors, the company envisions fiscal 2017 earnings per share to decline in the range of low-single digits percentage to 10%.
Additionally, the company projected capital expenditure for fiscal 2017 to be relatively flat with fiscal 2016 level, with cash flows expected to remain positive. Management also stated that it targets opening 30 new stores and closing nearly 15 to 20 stores, in fiscal 2017. Its store opening plans pertain to all store concepts, including new formats and new markets.
Key Picks in BBBY’s Space
Some better-ranked stocks in the same industry include Big 5 Sporting Goods Corp. (BGFV - Free Report) , Build-A-Bear Workshop, Inc. (BBW - Free Report) and Office Depot, Inc. (ODP - Free Report) .
Big 5 Sporting has a long-term earnings growth rate of 9%, and has a superb earnings surprise history. Further, the company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Build-A-Bear, with a long-term earnings growth rate of 22.5%, currently flaunts a Zacks Rank #1.
Office Depot which carries a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 10.9%.
The Best & Worst of Zacks
Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 ""Strong Buys"" free of charge. From 1988 through 2015 this list has averaged a stellar gain of +25% per year. Plus, you may download 220 Zacks Rank #5 ""Strong Sells."" Even though this list holds many stocks that seem to be solid, it has historically performed 6X worse than the market. See these critical buys and sells free >>
Unique Zacks Analysis of Your Chosen Ticker
Pick one free report - opportunity may be withdrawn at any time
Image: Bigstock
Bed Bath & Beyond (BBBY) Q1 Earnings & Sales Lag, Stock Dips
After making a short-lived comeback in the last quarter, Bed Bath & Beyond Inc. reverted to a dismal surprise trend in first-quarter fiscal 2017. Both the top and bottom line fell short of our estimates in the first quarter and the latter also declined year over year. The disappointing results weighed on investors’ sentiment, as shares of the company declined 7.4% in the after-market trading session yesterday.
In fact, owing to its unimpressive past performance, the Bed Bath & Beyond stock has underperformed the Zacks categorized Retail – Miscellaneous industry in the last one year. Evidently, this Zacks Rank #4 (Sell) stock slumped 21.1% in the past one year, wider than the industry’s fall of 6%.
Results continued to be hurt by sluggish store traffic, which intensified this quarter. Also, results were dented by increased net-direct-to-consumer shipping costs, and higher coupon and advertising costs. This was somewhat compensated by continued strength witnessed across the company’s customer-facing-digital network.
Q1 in Detail
The company’s quarterly adjusted earnings of 58 cents per share declined 27.5% year over year and also came below the Zacks Consensus Estimate of 66 cents. Including the 5 cents adverse impact from the adoption of new accounting standard, earnings plunged 33.8% to 53 cents per share.
The home-furnishing retailer’s net sales inched up marginally by 0.1% to $2,742.1 million, while it fell short of the Zacks Consensus Estimate of $2,798 million. Sales primarily gained from a 2.1% rise in non-comp sales including PMall, One Kings Lane and new stores, largely countered by a 2% fall in comparable store sales (comps).
The decrease in comps was a result of lower transactions in stores, somewhat compensated by greater average transaction amount. While comps from customer-facing digital networks improved over 20%, comps at stores fell at a mid-single digit rate.
Bed, Bath & Beyond’s gross profit dipped 2.3% to $1,000.1 million in the reported quarter, with the gross profit margin contracting 90 basis points (bps) to 36.5%. The fall in gross margin stemmed from higher direct-to-customer shipping expenses, alongside rise in coupon expense on account of increased redemptions.
The decline in gross profit, along with a rise in selling, general and administrative expenses led the operating profit to deteriorate nearly 31% to $147 million. Likewise, the operating profit margin contracted about 240 bps from the prior-year quarter to 5.4%.
Bed Bath & Beyond Inc. Price, Consensus and EPS Surprise
Bed Bath & Beyond Inc. Price, Consensus and EPS Surprise | Bed Bath & Beyond Inc. Quote
Financial Position
Bed Bath & Beyond ended the quarter with cash and cash equivalents of about $469.3 million, long-term debt of $1,491.7 million, and total shareholders' equity of roughly $2,672.6 million.
In the first quarter, the company generated cash flow of about $204.6 million from operating activities, while deploying $80.8 million toward capital expenditure.
Share Buyback & Dividend
During the fiscal first quarter, the company bought back 3.3 million shares for nearly $127 million, under the current buyback plan of $2.5 billion. As of May 27, Bed Bath & Beyond had shares worth $1.6 billion remaining under its existing program, which is likely to conclude in fiscal 2020.
Further, the company declared a quarterly cash dividend of 15 cents per share, which is payable on Oct 17 to shareholders on record as of Sep 15.
Store Update
During the first quarter, Bed, Bath & Beyond introduced one Harmon Face Values store, alongside shutting down a namesake store. The company ended the first quarter with 1,546 stores, including 1,022 namesake stores across 50 states, the District of Columbia, Puerto Rico and Canada; 276 stores under the labels – World Market, Cost Plus World Market or Cost Plus; 113 buybuy BABY stores; 80 stores under the labels – Christmas Tree Shops, Christmas Tree Shops andThat! or andThat!; and 55 stores under Harmon, Harmon Face Values or Face Values names.
Looking Ahead
While the first quarter usually records the smallest part of the company’s annual sales and earnings, Bed, Bath & Beyond faced excess sluggishness in store transactions, along with greater costs. However, the company remains unsure if these challenges were specific to, or more prominent in this quarter – owing to soft sales and delayed start to the summer selling period. As the company expects better visibility into fiscal 2017 after the second quarter, it kept its previously issued outlook unchanged.
Old Guidance Revisited
In its fourth-quarter fiscal 2016 earnings conference call, the company had stated that fiscal 2017 is likely to benefit from the additional 53rd week in the fiscal. Considering the additional week, Bed Bath & Beyond projects net sales for fiscal 2017 to increase in the low to mid-single digit percentage range. While the company anticipates comps to improve in fiscal 2017, the range is likely to be between relatively flat and slightly positive. Further, the company anticipates the strong comps growth in the customer-facing digital channels to persist.
Moreover, management expects gross margin to decline in fiscal 2017 owing to rise in shipping and coupon expenses. However, the rate of decline in the fiscal is expected to be less than the fiscal 2016 level. Also, selling, general and administrative expense deleverage is anticipated in fiscal 2017 due to payroll and payroll-related expenses as well as technology expenses including depreciation and the impact of current expense structures of One Kings and PMall. Depreciation expense is likely to be in the range of $310–$320 million, while interest expense is anticipated at about $80 million.
Considering all factors, the company envisions fiscal 2017 earnings per share to decline in the range of low-single digits percentage to 10%.
Additionally, the company projected capital expenditure for fiscal 2017 to be relatively flat with fiscal 2016 level, with cash flows expected to remain positive. Management also stated that it targets opening 30 new stores and closing nearly 15 to 20 stores, in fiscal 2017. Its store opening plans pertain to all store concepts, including new formats and new markets.
Key Picks in BBBY’s Space
Some better-ranked stocks in the same industry include Big 5 Sporting Goods Corp. (BGFV - Free Report) , Build-A-Bear Workshop, Inc. (BBW - Free Report) and Office Depot, Inc. (ODP - Free Report) .
Big 5 Sporting has a long-term earnings growth rate of 9%, and has a superb earnings surprise history. Further, the company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Build-A-Bear, with a long-term earnings growth rate of 22.5%, currently flaunts a Zacks Rank #1.
Office Depot which carries a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 10.9%.
The Best & Worst of Zacks
Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 ""Strong Buys"" free of charge. From 1988 through 2015 this list has averaged a stellar gain of +25% per year. Plus, you may download 220 Zacks Rank #5 ""Strong Sells."" Even though this list holds many stocks that seem to be solid, it has historically performed 6X worse than the market. See these critical buys and sells free >>