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Bed Bath & Beyond (BBBY) Declines Despite Q3 Earnings Beat
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Bed Bath & Beyond Inc. delivered better-than-expected results in third-quarter fiscal 2017 as both earnings and sales topped estimates. This marked a turnaround from the earnings and sales miss reported in the preceding two quarters. However, the company’s top and bottom-line fell year over year. While sales gained from opportunistic marketing spend and increased promotional offerings as planned for the quarter, this led to higher advertising costs and lower margins which impacted the bottom line.
As a result, Bed Bath & Beyond’s shares lost 5.4% in the after-market trading session on Dec 20. In fact, this Zacks Rank #4 (Sell) company has declined 40.9% year to date, wider than the industry’s 11.7% downside. Nonetheless, the stock has improved 14.1% in the past month, outperforming the industry’s gain of 8%.
Q3 in Detail
The company’s quarterly adjusted earnings of 44 cents per share declined 48.2% year over year, but surpassed the Zacks Consensus Estimate of 36 cents.
Bed Bath & Beyond Inc. Price, Consensus and EPS Surprise
Further, the home-furnishing retailer’s net sales of $2,954.5 million were essentially flat with the prior-year quarter and beat the Zacks Consensus Estimate of $2,900 million. Sales were primarily hurt by soft comparable store sales (comps), somewhat compensated by gains from increase in non-comp sales including PMall, One Kings Lane and new stores.
Comps in the quarter under review dropped 0.3%, resulting from lower average transactions in stores, somewhat mitigated by greater average transaction amount. While comps from customer-facing digital networks improved, comps at stores fell at a low-single digit percentage rate.
Bed, Bath & Beyond’s gross profit declined 4.7% to $1,041.1 million in the quarter with gross profit margin contracting 180 basis points (bps) to 35.2%. The fall in gross margin stemmed from higher direct-to-customer shipping expenses, lower merchandise margin, rise in coupon expense on account of increased redemptions and rise in average coupon amount.
The decline in gross profit, along with a rise in SG&A expenses led the operating profit to deteriorate nearly 48.7% to $108.4 million. Likewise, the operating profit margin contracted about 340 bps from the prior-year quarter to 3.7%.
Financial Position
Bed Bath & Beyond ended the quarter with cash and cash equivalents of about $453.1 million, long-term debt of $1,492 million, and total shareholders' equity of roughly $2,748.8 million.
In the nine months of fiscal 2017, the company generated cash flow of about $491.8 million from operating activities, while deploying nearly $264 million toward capital expenditure.
Share Buyback & Dividend
During the fiscal third quarter, the company bought back 929,000 shares for nearly $24 million, under the current buyback plan of $2.5 billion. As of Nov 25, Bed Bath & Beyond had shares worth $1.5 billion remaining under its existing program.
Further, the company declared a quarterly cash dividend of 15 cents per share, which is payable on Apr 17, 2018 to shareholders on record as of Mar 16.
Store Update
During the fiscal third quarter, Bed, Bath & Beyond introduced 14 stores, including two namesake, three World Market stores, five buybuy BABY stores, two andThat! stores, and two Harmon stores. The company also shuttered six stores that comprised of five namesake and one buybuy Baby store.
As of Nov 25, 2017, the company had 1,558 stores in operation, including 1,020 namesake stores across 50 states, the District of Columbia, Puerto Rico and Canada; 280 stores under the labels — World Market, Cost Plus World Market or Cost Plus; 118 buybuy BABY stores; 83 stores under the labels — Christmas Tree Shops, Christmas Tree Shops andThat! or andThat!; and 57 stores under Harmon, Harmon Face Values or Face Values names.
Fiscal 2017 Forecasts
Bed Bath & Beyond now projects net sales for fiscal 2017 (which includes a 53rd week) to remain relatively flat to up slightly year over year, compared with the previous guidance of flat sales. Driven by year-to-date comps, performance so far in the fourth quarter and expectations for the rest of the year, the company projects comps to decline in the low-single digit percentage range.
Management still expects gross margin to decline in fiscal 2017 owing to lower merchandise margins and higher direct to customer shipping expenses and coupon costs. Further, SG&A expense deleverage is anticipated in fiscal 2017 due to higher payroll and payroll-related costs; advertising expenses; restructuring charges associated with store management incurred in second quarter and expenses related to Hurricane Harvey and Maira. Depreciation expense is likely to be in the range of $310-$320 million, while interest expense is anticipated to be $70 million.
Considering all these factors, the company continues to envision fiscal 2017 earnings per share of roughly $3.00, which reflects an over 30% decline from the year-ago period.
Additionally, the company projects capital expenditure for fiscal 2017 to range from $350-$400 million. Over half of this is likely to be spent on tech projects to support the company’s omni-channel initiatives.
Five Below, Inc. (FIVE - Free Report) has a long-term earnings growth rate of 26.5% and a superb earnings surprise history. Further, the company carries a Zacks Rank #2 (Buy).
KAR Auction Services, Inc (KAR - Free Report) , which carries a Zacks Rank #2, has delivered positive earnings surprises in the past three quarters. It has a long-term earnings growth rate of 13.4%.
Zacks’ Best Private Investment Ideas
While we are happy to share many articles like this on the website, our best recommendations and most in-depth research are not available to the public.
Starting today, for the next month, you can follow all Zacks' private buys and sells in real time. Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors.
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Bed Bath & Beyond (BBBY) Declines Despite Q3 Earnings Beat
Bed Bath & Beyond Inc. delivered better-than-expected results in third-quarter fiscal 2017 as both earnings and sales topped estimates. This marked a turnaround from the earnings and sales miss reported in the preceding two quarters. However, the company’s top and bottom-line fell year over year. While sales gained from opportunistic marketing spend and increased promotional offerings as planned for the quarter, this led to higher advertising costs and lower margins which impacted the bottom line.
As a result, Bed Bath & Beyond’s shares lost 5.4% in the after-market trading session on Dec 20. In fact, this Zacks Rank #4 (Sell) company has declined 40.9% year to date, wider than the industry’s 11.7% downside. Nonetheless, the stock has improved 14.1% in the past month, outperforming the industry’s gain of 8%.
Q3 in Detail
The company’s quarterly adjusted earnings of 44 cents per share declined 48.2% year over year, but surpassed the Zacks Consensus Estimate of 36 cents.
Bed Bath & Beyond Inc. Price, Consensus and EPS Surprise
Bed Bath & Beyond Inc. Price, Consensus and EPS Surprise | Bed Bath & Beyond Inc. Quote
Further, the home-furnishing retailer’s net sales of $2,954.5 million were essentially flat with the prior-year quarter and beat the Zacks Consensus Estimate of $2,900 million. Sales were primarily hurt by soft comparable store sales (comps), somewhat compensated by gains from increase in non-comp sales including PMall, One Kings Lane and new stores.
Comps in the quarter under review dropped 0.3%, resulting from lower average transactions in stores, somewhat mitigated by greater average transaction amount. While comps from customer-facing digital networks improved, comps at stores fell at a low-single digit percentage rate.
Bed, Bath & Beyond’s gross profit declined 4.7% to $1,041.1 million in the quarter with gross profit margin contracting 180 basis points (bps) to 35.2%. The fall in gross margin stemmed from higher direct-to-customer shipping expenses, lower merchandise margin, rise in coupon expense on account of increased redemptions and rise in average coupon amount.
The decline in gross profit, along with a rise in SG&A expenses led the operating profit to deteriorate nearly 48.7% to $108.4 million. Likewise, the operating profit margin contracted about 340 bps from the prior-year quarter to 3.7%.
Financial Position
Bed Bath & Beyond ended the quarter with cash and cash equivalents of about $453.1 million, long-term debt of $1,492 million, and total shareholders' equity of roughly $2,748.8 million.
In the nine months of fiscal 2017, the company generated cash flow of about $491.8 million from operating activities, while deploying nearly $264 million toward capital expenditure.
Share Buyback & Dividend
During the fiscal third quarter, the company bought back 929,000 shares for nearly $24 million, under the current buyback plan of $2.5 billion. As of Nov 25, Bed Bath & Beyond had shares worth $1.5 billion remaining under its existing program.
Further, the company declared a quarterly cash dividend of 15 cents per share, which is payable on Apr 17, 2018 to shareholders on record as of Mar 16.
Store Update
During the fiscal third quarter, Bed, Bath & Beyond introduced 14 stores, including two namesake, three World Market stores, five buybuy BABY stores, two andThat! stores, and two Harmon stores. The company also shuttered six stores that comprised of five namesake and one buybuy Baby store.
As of Nov 25, 2017, the company had 1,558 stores in operation, including 1,020 namesake stores across 50 states, the District of Columbia, Puerto Rico and Canada; 280 stores under the labels — World Market, Cost Plus World Market or Cost Plus; 118 buybuy BABY stores; 83 stores under the labels — Christmas Tree Shops, Christmas Tree Shops andThat! or andThat!; and 57 stores under Harmon, Harmon Face Values or Face Values names.
Fiscal 2017 Forecasts
Bed Bath & Beyond now projects net sales for fiscal 2017 (which includes a 53rd week) to remain relatively flat to up slightly year over year, compared with the previous guidance of flat sales. Driven by year-to-date comps, performance so far in the fourth quarter and expectations for the rest of the year, the company projects comps to decline in the low-single digit percentage range.
Management still expects gross margin to decline in fiscal 2017 owing to lower merchandise margins and higher direct to customer shipping expenses and coupon costs. Further, SG&A expense deleverage is anticipated in fiscal 2017 due to higher payroll and payroll-related costs; advertising expenses; restructuring charges associated with store management incurred in second quarter and expenses related to Hurricane Harvey and Maira. Depreciation expense is likely to be in the range of $310-$320 million, while interest expense is anticipated to be $70 million.
Considering all these factors, the company continues to envision fiscal 2017 earnings per share of roughly $3.00, which reflects an over 30% decline from the year-ago period.
Additionally, the company projects capital expenditure for fiscal 2017 to range from $350-$400 million. Over half of this is likely to be spent on tech projects to support the company’s omni-channel initiatives.
Key Picks in BBBY’s Space
Hibbett Sports Inc. (HIBB - Free Report) has a long-term earnings growth rate of 2.2% and a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Five Below, Inc. (FIVE - Free Report) has a long-term earnings growth rate of 26.5% and a superb earnings surprise history. Further, the company carries a Zacks Rank #2 (Buy).
KAR Auction Services, Inc (KAR - Free Report) , which carries a Zacks Rank #2, has delivered positive earnings surprises in the past three quarters. It has a long-term earnings growth rate of 13.4%.
Zacks’ Best Private Investment Ideas
While we are happy to share many articles like this on the website, our best recommendations and most in-depth research are not available to the public.
Starting today, for the next month, you can follow all Zacks' private buys and sells in real time. Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors.
Click here for Zacks' private trades >>