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Bed Bath & Beyond (BBBY) Q3 Earnings: What's in the Cards?

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Bed Bath & Beyond Inc. (BBBY - Free Report) is slated to release third-quarter fiscal 2018 results on Jan 9.

The company delivered a negative earnings surprise in the preceding quarter. However, it posted an average earnings beat of 1% in the trailing four quarters. For the to-be-reported quarter, the Zacks Consensus Estimate is pegged at 17 cents, which remained stable over the past 30 days. This reflects a sharp decline from 44 cents earned in the prior-year quarter.

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

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

Let’s see how things are shaping up prior to this announcement.

Factors at Play

Bed Bath & Beyond has been witnessing strained gross and operating margins for the last nine quarters now. Higher net direct-to-customer shipping expenses along with increased coupon expenses and lower merchandise margin have been denting margins. Also, higher SG&A expenses have been hurting operating margin.

For fiscal 2018, management continues to project gross margin deleverage mainly owing to the investments in the customer value proposition and constant shift to the digital channels. Moreover, SG&A expenses are estimated to increase due to higher investments toward transformational efforts. These expenses might be detrimental to margins in the to-be-reported quarter.

Moreover, the company is grappling with soft comparable sales (comps) due to decline in number of store transactions. Strained margins and soft comps remain a threat to the company’s top and bottom line in the fiscal third quarter.

In the past three months, shares of the company have lost 18.2%, wider than the industry’s 12% decline.

Nevertheless, Bed Bath & Beyond’s store expansion and transformation initiatives bode well. In fiscal 2018, it targets opening 20 stores, mainly comprising Buybuy BABY and Cost Plus World Markets stores, to boost profitability. Meanwhile, the company’s top line is being driven by its robust customer-facing digital networks.

Moreover, Bed Bath & Beyond expects to allocate more than half of its capital spending toward technology-related projects to improve the omni-channel capabilities. These endeavors are likely to boost sales and profitability in the to-be-reported quarter. The Zacks Consensus Estimate for quarterly revenues stands at $3,041 million, up 2.9% from the year-ago quarter number.

Zacks Model

Our proven model does not conclusively show that Bed Bath & Beyond is likely to beat earnings estimates in the fiscal third quarter. This is because a stock needs to have both — a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) — for this to happen. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Bed Bath & Beyond has a Zacks Rank #3 but an Earnings ESP of 0.00% makes surprise prediction difficult.

Stocks Poised to Beat Earnings Estimates

Here are some companies that you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Ralph Lauren Corporation (RL - Free Report) has an Earnings ESP of +1.72% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Tractor Supply Company (TSCO - Free Report) has an Earnings ESP of +1.54% and a Zacks Rank of 2.

Fastenal Company (FAST - Free Report) has an Earnings ESP of +0.83% and a Zacks Rank #2.

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