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Bear of the Day: Bed Bath & Beyond (BBBY)

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Bed Bath & Beyond Inc. (BBBY - Free Report) had another disastrous quarter, sending the shares to new 5-year lows. This Zacks Rank #5 (Strong Sell) can't figure out how to turn its business around.

Bed Bath & Beyond operates the Bed Bath & Beyond branded stores as well as numerous other brands including Cost Plus, buybuy BABY, Harmon, and Christmas Tree Shops. It also operates e-commerce sites for these brands as well as One Kings Lane and Chef Central, which only sell online.

A Big Miss

On Sep 26, Bed Bath & Beyond reported fiscal 2018 second quarter results which missed the Zacks Consensus Estimate by 13 cents. Earnings were $0.36 versus the consensus of $0.49.

But the bigger issue with the retailers is really same-store-sales.

Bed Bath & Beyond's same-store-sales fell 0.6% year-over-year with the press release saying that "included strong sales growth from the Company's customer-facing digital channels" even as sales from stores declined in the mid-single-digit percentage range.

It doesn't know how big the decline was at the stores? Of course it does so why not just say it?

It's still struggling to come up with a plan that gets it into the game against Amazon (AMZN - Free Report) . It believes it will be home decor, but shareholders will have to wait until 2020 to see if works.

Awful Guidance

The company is in the middle of its "turnaround" plan which is expected to continue until 2020.

It expects to see moderate declines in operating profit and net earnings per diluted share in fiscal 2018 and fiscal 2019.

For fiscal 2018, it now expects earnings to be at the low end of its previous guidance, at about $2.00.

When was the last time the company's earnings per share were that low? All the way back in the dark period just after the Great Recession.

Earnings in Fiscal 2009: $1.65
Earnings in Fiscal 2010: $2.30

Expected earnings in Fiscal 2018: $2.00
Analysts expected earnings in Fiscal 2019: $1.64

Earnings per share are, literally, expected to be back to 2009 levels next year except the company is in the midst of a huge share buyback program which means there are less shares this time around.

Why is there a Share Buyback Program?

In the second quarter of 2018, while business was horrible, it bought back $41 million in stock under its massive $2.5 billion share repurchase program.

As of Sep 1, 2018, there was still $1.4 billion left under the program.

The company also continues to pay a dividend, currently yielding 3.4%.

There's been no discussion of suspending either program.

Meanwhile, the business's operating margin continues to decline and was under 3%, at 2.9%, in the most recent quarter.

Is it a Value Stock or a Trap?

Shares have plunged another 33% year-to-date and are down 80.9% over the last 5 years.

It has a forward P/E of 7.5.

But 10 analysts have cut full year estimates for Fiscal 2018 and 9 have done so for Fiscal 2019.

With falling estimates, this stock is a value trap.

If you're looking for a retail stock that has attractive value fundamentals, you might want to consider Macy's (M - Free Report) instead. It has a forward P/E of just 8.7 but earnings are expected to rise 22% this year.

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