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

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Bed Bath & Beyond (BBBY - Free Report) is a leading operator of specialty retail stores in the U.S. and Canada, offering a wide assortment of “everyday low price” products, primarily including domestic merchandise (such as bed linens, bath accessories, and kitchen textiles) and home furnishings (such as cookware, dinnerware, glassware and basic house ware).

Q3 Results Disappoint

In what was supposed to be a stronger holiday season than 2020, Bed Bath & Beyond’s third-quarter results missed the mark across the board.

Revenue plunged 28% to $1.88 billion, far lower than the $2.61 billion it recorded last year and below analysts’ consensus estimate of $1.97 billion.

Net losses also widened, and on an adjusted basis, BBBY reported a loss of $0.25 per share; Wall Street was looking for a profit of $0.01 per share,

Comparable sales fell 7% year-over-year and core sales were down 14%.

CEO Mark Tritton attributed BBBY’s weak performance to a tough September and October; global supply chain disruptions and hot inflation caused a lack of inventory in its stores, and cost Bed Bath & Beyond $100 million during Q3. However, the retailer took action and implemented market-driven pricing and a number of other initiatives to soften the blow, which helped produce flat comps for November.

But pain from the supply chain crisis probably isn’t over quite yet, as BBBY expects sales to see a high-single-digit percentage decline for Q4 and a full-year loss of $0 to $0.15 per share.

Bottom Line

BBBY is now a Zacks Rank #5 (Strong Sell).

10 analysts have cut their full year earnings outlook over the past 60 days, and the consensus estimate has fallen 68 cents to a loss of $0.13 per share. However, Bed Bath & Beyond’s earnings are expected see double-digit growth for fiscal 2021, up 87.1%, but sales are forecasted to slump over 14%.

Despite Q3’s lackluster performance, BBBY actually shot up 10% during the trading session following its earnings report, but many analysts credit the rally to Reddit traders and the company’s popularity as a meme stock.

Wells Fargo analyst Zachary Fadem, quoted by Barron’s, said the combination of BBBY’s high short interest and its planned $265 share buyback program fueled the stock’s rise. And in a note to clients, Fadem wrote that the “fundamentals are deteriorating, [long-term] goals appear aggressive, and cash appears to be dwindling into a period of heightened business investment."

Shares of Bed Bath & Beyond are down 34% over the past one-year period, and the stock may continue to experience even more wild ups and downs as the supply chain crisis lingers. Potential investors should proceed with caution.

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