Why Is Bed Bath & Beyond (BBBY) Up 33.1% Since Last Earnings Report?

A month has gone by since the last earnings report for Bed Bath & Beyond (BBBY). Shares have added about 33.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Bed Bath & Beyond due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Bed Bath & Beyond Q2 Earnings Top Estimates, Fall Y/Y

Bed Bath & Beyond reported mixed second-quarter fiscal 2019 results, wherein the bottom line outpaced the Zacks Consensus Estimate but the top line missed the same. With this, the company’s earnings marked fourth straight beat, while sales lagged for the fifth straight time. Also, its earnings and sales declined on a year-over-year basis. Comparable sales (comps) continued to decline in the second quarter.

Q2 in Detail

Bed Bath & Beyond’s earnings came in at 34 cents per share in the fiscal second quarter, which outpaced the Zacks Consensus Estimate of 26 cents. However, the reported figure declined 5.6% from 36 cents earned in the year-ago quarter.

Net sales fell nearly 7.4% to $2,719 million and also came below the Zacks Consensus Estimate of $2,763 million. This downside can be primarily attributed to comparable sales decline of roughly 6.7%. Comps fell due to lower store transactions, somewhat offset by a rise in the average transaction amount. In fact, comps in stores fell in high single-digit percentage range, while decreased slightly at its customer-facing digital channels.

Gross profit declined roughly 6.9% to $920.7 million in the reported quarter. Nevertheless, gross profit margin expanded 20 basis points (bps) to 33.9%. Improvement in gross margin was mainly driven by the company’s margin enhancement initiatives.

Moreover, SG&A expenses decreased 5.2% to $858.4 million driven by gains from its cost structure optimization efforts. As a percentage of net sales, SG&A increased 80 bps to 31.6% mainly owing to higher technology-related costs. Further, the company incurred operating loss of $182.3 million against income of $78.9 million in the year-ago quarter.

Financial Position

Bed Bath & Beyond ended the second quarter with cash and investments of roughly $1 billion, compared with $1.1 billion in cash and investment at the end of second-quarter fiscal 2018. Long-term debt totaled $1,488.2 million and total shareholders' equity came in at $1,903 million as of Aug 31, 2019.

At the end of the first six months of fiscal 2019, the company generated a cash flow of about $255.9 million from operating activities and deployed nearly $125 million toward capital expenditures.

Share Buyback & Dividend

In the reported quarter, Bed Bath & Beyond repurchased stock worth nearly $16.5 million, reflecting about 1.4 million shares. Additionally, the company’s board declared a quarterly dividend of 17 cents per share, payable Jan 14, 2020, to its shareholders of record as of Dec 13.

Store Update

In second-quarter fiscal 2019, Bed Bath & Beyond closed two outlets.

As of Aug 31, 2019, the company had 1,534 stores in operation, comprising 993 namesake stores across 50 states, the District of Columbia, Puerto Rico and Canada; 277 stores under the labels World Market, Cost Plus World Market or Cost Plus; 126 buybuy BABY stores; 81 stores under the labels Christmas Tree Shops, Christmas Tree Shops andThat! or andThat!; 55 stores under Harmon, Harmon Face Values or Face Values names; and two retail stores under the label One Kings Lane.

Additionally, the company’s joint venture operates 10 flagship stores in Mexico.

Recently, the company-owned One Kings Lane (the digitally-driven home retailer) declared that it will expand its physical retail footprint with a third location in Boston's Seaport District on Oct 17.

Transformation Plan

Management issued updates to accelerate the Transformation Plan. In fact, the company has established four major near-term priorities – stabilize and boost top-line growth; reset the cost structure; review and optimize its asset base with its portfolio of retail banners as well as refine the organization structure. To meet these priorities, management remains focused on enhancing customers’ experience and maximizing shareholders’ value.

Outlook

Management now expects net sales to be around $11.4 billion and adjusted earnings in the range of $2.08-$2.13 per share for fiscal 2019.

For fiscal 2019, capital expenditures are still expected between $350 million and $375 million.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -85.07% due to these changes.

VGM Scores

At this time, Bed Bath & Beyond has a nice Growth Score of B, however its Momentum Score is doing a bit better with an A. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Bed Bath & Beyond has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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