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Bed Bath & Beyond (BBBY) Rises 67% YTD on Solid Growth Efforts

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Shares of Bed Bath & Beyond, Inc. (BBBY - Free Report) surged 66.7% year to date against the industry’s decline of 7.5%. The stock’s bullish run on the bourses can be attributable to the stellar performance in first-quarter fiscal 2021, wherein both top and bottom lines improved year over year. Results gained from customer acquisitions, solid core sales, robust comps and better-than-expected margins. Strength in Bed, Bath and Kitchen remained a key growth driver.

Net sales advanced 49% year over year, driven by Bed Bath & Beyond banner sales. Total enterprise comparable sales (comps) skyrocketed 86% year over year, marking the fourth successive quarter of comps growth. The metric also improved 3% from first-quarter fiscal 2019 on the back of a solid online show.

Speaking of its digital business, Bed Bath & Beyond’s continued momentum in the platform bodes well on the back of buy online and pick up in store service. Management in collaboration with DoorDash is expanding its same-day delivery service across the United States and Canada.

The company 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. As part of its three-year transformation plan, Bed Bath & Beyond is on an assortment expansion spree. It launched Nestwell, Haven, Wild Sage, Simply Essential and Our Table to date, and intends to launch two more Owned Brands in fiscal 2021. In the next two years, the company expects to introduce at least 10 Owned Brands. Management foresees the sales penetration of Owned Brands to grow from 10% to 30% in the first three years.

Per the plan, the company is on track with store fleet optimization efforts, which are likely to generate savings of nearly $100 million on an annual basis. It is also progressing well with the store remodeling program, wherein proof-of-concept stores will showcase destination categories, bed, bath, kitchen and storage products. The three-year-long plan will be executed across more than 450 stores, accounting for nearly 60% of its sales.

Per its store remodel program, Bed Bath & Beyond remodeled 26 stores in the fiscal first quarter and is on track to remodel 130-150 stores in fiscal 2021. As part of its streamlining efforts, the company has divested five underperforming businesses. These actions are part of the company’s three-year transformation plan, which is likely to generate annual SG&A savings of $85 million.

Additionally, it anticipates realizing savings of $200-$250 million, respectively, through cost-cutting actions and reduced discretionary costs as well as renegotiations with existing vendors. Out of the cost savings, management intends to reinvest roughly $150-$200 million in future initiatives.

 

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Driven by such well-chalked-out plans, Bed Bath & Beyond lifted the fiscal 2021 view. The company now envisions fiscal 2021 net sales of $8.2-$8.4 billion, up from its prior projection of $8-$8.2 billion. Comps are now forecast to rise in the low-single-digit range for the remaining three quarters versus the previously mentioned flat growth rate. Also, it reissued the adjusted earnings guidance for fiscal 2021 at $1.40-$1.55 per share. Adjusted EBITDA is projected to be $520-$540 million, up from the earlier expectation of $500-$525 million.

For second-quarter fiscal 2021, the company anticipates sales of $2.04-$2.08 billion, inclusive of core sales and planned sales reduction of 9-10% stemming from its store fleet optimization program. Comps growth is likely to be in low-single digits year over year. Adjusted earnings are likely to be 48-55 cents for the said quarter. Further, adjusted gross margin is envisioned to be 35-36% in the fiscal second quarter, implying a sequential improvement on the back of positive responses for Owned Brands and continued assortment curation.

Wrapping Up

Although higher freight costs, stemming from increasing online shipments, remain concerning, the Zacks Rank #3 (Hold) stock remains well-poised to drive growth, backed by a solid online show, healthy demand in Bed, Bath and Kitchen, and its transformational plans. Topping it, its VGM Score of B reflects inherent strength.

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