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Bed Bath & Beyond (BBBY) Q1 Earnings Miss Estimates, Improve Y/Y

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Bed Bath & Beyond Inc. (BBBY - Free Report) witnessed a stellar performance in first-quarter fiscal 2021, wherein both top and bottom lines improved meaningfully year over year. While net sales surpassed the Zacks Consensus Estimate, earnings per share missed the same. Results gained from solid core sales, robust comps and better-than-expected margins. Notably, management witnessed an increase in the customer base on a sequential basis. Also, it regained market share in the home space with growth in Bed, Bath and Kitchen.

Going ahead, it remains optimistic about sustained momentum, driven by normalized back-to-school season, pent-up customer demand and strong progress in its multi-year transformation plan. Per the plan, the company is on track with store fleet optimization efforts and store remodeling programs. Markedly, it has already launched five private labels, including Nestwell, Haven, Wild Sage, Simply Essential and Our Table, and divested five underperforming businesses, in sync with the turnaround plan.

Shares of the company grew more than 11% during the trading session on Jun 30. This can be attributable to impressive sales growth and a raised fiscal 2021 view. Consequently, this Zacks Rank #3 (Hold) stock has rallied 15.1% in the past three months, outperforming the industry’s 11.3% growth.

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Q1 in Detail

Bed Bath & Beyond reported adjusted earnings of 5 cents per share for the fiscal first quarter against a loss of $1.96 in the year-ago quarter. However, the figure missed the Zacks Consensus Estimate of 8 cents. This uptick was mainly attributed to improved margins and lower expenses.

Net sales were $1,954 million, which surged 49% year over year, driven by Bed Bath & Beyond banner sales. Moreover, it surpassed the Zacks Consensus Estimate of $1,873 million. Further, in-store sales fell 20% as compared to first-quarter fiscal 2019.

Notably, Bed Bath & Beyond banner sales grew 96% year over year due to significant store closures in the prior-year quarter. Moreover, the unit witnessed 3% comps growth as compared to first-quarter fiscal 2019. Also, buybuy BABY banner retained momentum with sales growth of more than 20% year over year. Comps in buybuy banner grew in low-single digits as compared to first-quarter fiscal 2019, on the back of solid digital sales to the tune of more than 50%. The buybuy BABY banner is anticipated to attain more than $1.5 billion in sales by 2023.

Meanwhile, digital sales rose 84% in the quarter from first-quarter fiscal 2019. Moreover, the metric accounted for 38% of total sales in the first quarter of fiscal 2021, as customers continued to opt for its buy online and pick up in store service. Encouragingly, management is expanding its same-day delivery services across the United States and Canada. Stores fulfilled 31% of digital sales, of which 14% were BOPIS orders. Apart from these, ship-from-store and same-day delivery accounted for 17% of the remaining orders.

During the quarter, total enterprise comparable sales (comps) skyrocketed 86% year over year, marking the fourth successive quarter of comps growth. Also, the metric improved 3% from first-quarter fiscal 2019 on the back of a solid online show.

Adjusted gross profit advanced 95.4% to $681 million in the fiscal first quarter. Moreover, adjusted gross margin expanded 820 basis points (bps) to 34.9% on positive product mix from the launch of Owned Brand, solid digital sales and improved store sales.

SG&A expenses fell 9% to $658.8 million in the reported quarter, driven by the sale of non-core assets along with reduced rent and occupancy expenses. On the flip side, increased marketing investments in the "Home, Happier" campaign along with the launch of Owned Brands remained a drag. Meanwhile, adjusted SG&A expenses, as a percentage of sales, contracted significantly from 55.3% to 33.7% in the quarter under review.

Adjusted EBITDA came in at $86 million against a loss of $291 million in the year-ago period. The upside is mainly due to robust sales and better-than-expected gross margins, which were somewhat offset by increased marketing investments in the "Home, Happier" campaign along with the launch of Owned Brands.

Financial Position

Bed Bath & Beyond ended the fiscal first quarter with cash and investments of roughly $1,127.3 million. Long-term debt totaled $1,182.6 million and total shareholders' equity was $1,106.8 million as of May 29, 2021. In the quarter, cash used in operating activities came in at $28.7 million along with nearly $74 million in capital expenditures.

Further, the company repurchased shares worth nearly $130 million in the quarter under review. Going ahead, it continues to estimate share repurchases worth $325 million for fiscal 2021 or nearly $200 million for the rest of the fiscal year. Also, capital expenditures for fiscal 2021 are still expected to be $400 million.

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

Looking Ahead

For second-quarter fiscal 2021, the company anticipates sales of $2.04-$2.08 billion, inclusive of core sales and planned sales reduction of about 9-10% stemming from its store fleet optimization program. Comps growth is likely to be in low-single digits year over year. Further, adjusted gross margin is envisioned to be 35-36%, implying a sequential improvement on the back of positive responses for Owned Brands and continued assortment curation. However, higher freight costs acted as a headwind. Again, adjusted EBITDA is expected to be $150-$160 million with adjusted earnings between 48 cents and 55 cents for the said quarter.

Driven by decent fiscal first-quarter results and an upbeat second-quarter view, management lifted the fiscal 2021 view. The company now envisions fiscal 2021 net sales in a band of $8.2-$8.4 billion, up from its prior projection of $8-$8.2 billion. Bed Bath & Beyond now foresees comps rising in the low-single-digit range for the remaining three quarters versus the previously communicated guidance of a flat growth rate. Also, adjusted EBITDA is projected to be $520-$540 million, up from the earlier expectation of $500-$525 million. Apart from these, Bed Bath & Beyond re-issued the adjusted earnings guidance in the range of $1.40-$1.55 per share for fiscal 2021. Adjusted gross margin outlook remains the same at roughly 35%.

Store Updates

In the reported quarter, Bed Bath & Beyond did not open any stores, while it shut down 16 stores. Also, it announced opening a flagship Chelsea store in New York this summer, which will feature new concepts, fixtures, open sightlines, improved merchandise and convenient checkout and BOPIS facilities.

Per its store remodel program, Bed Bath & Beyond remodeled 26 stores during the reported quarter and is on track to remodel 130-150 stores in fiscal 2021. Over the next three years, it is likely to remodel 450 stores, which represents nearly 60% of its store revenue base.

Stocks in the Retail Space

DICK’S Sporting Goods (DKS - Free Report) has a Zacks Rank #1 (Strong Buy) and an expected long-term earnings growth rate of 7.1%. You can see the complete list of today’s Zacks #1 Rank stocks here.

L Brands currently has a long-term expected earnings growth rate of 13% and a Zacks Rank #2 (Buy).

Five Below (FIVE - Free Report) , also a Zacks Rank #2 stock, has an expected long-term earnings growth rate of 32.6%.

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