Bed Bath & Beyond Inc. ( BBBY Quick Quote BBBY - Free Report) has been gaining from solid demand in Bed, Bath and Kitchen along with its transformation plan, including store fleet optimization efforts and store remodeling programs, as well as product launches. Solid digital sales and improved store sales remain other key growth drivers. Shares of this Zacks Rank #3 (Hold) company have gained 10.8% in the past three months against the industry’s decline of 14.2%. The consensus estimate for fiscal 2021 earnings per share has moved up 0.7%. For the said period, its earnings estimates are pegged at $1.54 per share, suggesting a surge of 252.5% from the year-ago reported figure. That said, let’s delve deeper into the factors driving the stock.
Image Source: Zacks Investment Research Factors Narrating Bed Bath & Beyond’s Growth Story
Bed Bath & Beyond has been witnessing strong momentum in the digital platform since the onset of the pandemic. In first-quarter fiscal 2021, digital sales rose 84% from first-quarter fiscal 2019. The metric also 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.
Stores fulfilled 31% of digital sales, of which 14% were BOPIS orders. Management in collaboration with DoorDash is expanding its same-day delivery services across the United States and Canada. The company is progressing well with its three-year transformation plan. As part of the plan, it has been expanding its product assortment via the launch of Owned Brands, including Nestwell, Haven, Simply Essential, Wild Sage, Our Table and Squared Away. Management expects to introduce at least 10 Owned Brands in the next two years. The new Owned Brands will cater to consumer needs across segments such as bed, bath, kitchen and dining, storage and organization as well as home decor. These products will form part of the company’s key category, which contributes more than 60% to its revenues. Sales penetration of Owned Brands is likely to grow from 10% to 30% within the first three years. On the store front, 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 in the fiscal first quarter and is on track to remodel 130-150 stores in fiscal 2021. It is on track with proof-of-concept stores, which will feature destination categories, bed, bath, kitchen, and storage products. The company also divested the five underperforming businesses. This is likely to generate annual SG&A savings of $85 million. Management remains focused on its restructuring program aimed at simplifying field operations, reducing management positions and outsourcing several functions. The company intends to expedite the comprehensive restructuring program to achieve improved profits over the next two-three years. It also anticipates realizing savings of $200-$250 million through cost-cutting actions and reduced discretionary costs as well as renegotiations with existing vendors. Out of cost savings, management intends to reinvest roughly $150-$200 million in future initiatives. The company has been witnessing core sales growth, robust comps, better-than-expected margins and a sequential increase in the customer base. It also regained market share in the home space with growth in Bed, Bath and Kitchen. This led to stellar performance in first-quarter fiscal 2021, wherein both top and bottom lines improved year over year. Net sales surged 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. Adjusted earnings of 5 cents per share for the fiscal first quarter came ahead of the year-ago quarter’s figure of a loss of $1.96, owing to strong margins and lower expenses. Management lifted the fiscal 2021 view. The company now envisions fiscal 2021 net sales of $8.2-$8.4 billion, up from the previously mentioned $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 flat growth rate. It also reissued the adjusted earnings guidance for fiscal 2021 at $1.40-$1.55 per share. Adjusted gross margin is likely to remain at 35%. Adjusted EBITDA is projected to be $520-$540 million, up from the earlier mentioned $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. Year-over-year comps growth is likely to be in low-single digits. Adjusted earnings are likely to be 48-55 cents for the said quarter. Adjusted gross margin is envisioned to be 35-36% for the fiscal second quarter, implying a sequential improvement on the back of positive responses for Owned Brands and continued assortment curation. Adjusted EBITDA is expected to be $150-$160 million. Conclusion
Despite the upsides, higher freight costs, stemming from increasing online shipments, are expected to persist in fiscal 2021. However, we believe that Bed Bath & Beyond is well-poised to continue with its solid run, backed by a solid online show, healthy demand in Bed, Bath and Kitchen, and its transformational plans.
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