Bed Bath & Beyond (BBBY) Lags Q3 Earnings & Sales Estimates
Bed Bath & Beyond Inc. BBBY came out with third-quarter fiscal 2021 results, wherein the top and the bottom lines not only missed the Zacks Consensus Estimate but also declined year over year. Results were affected by weak comps, lack of availability of products and supply chain headwinds. The company noted that the quarter started on a dismal note in September and October with sales picking up in November. It also witnessed solid demand but was unable to fulfill it due to supply chain issues, which resulted in an adverse impact of $100 million.
Despite the drab quarterly results, shares of BBBY jumped nearly 8% on Jan 6. Efforts including pricing, promo optimization and product mix plans in order to mitigate the slower-than-expected start to the quarter bore fruits. Strength in the Beyond+ loyalty program, its customer acquisition strategy and double-digit growth in the buybuy BABY banner bode well. It also remained on track with its transformation plans and realized roughly $1.3 billion in sales during the first year of transformation.
Management revealed plans to expand the Owned Brands strategy to BABY this year. Also, it is progressing well with the launch of its digital marketplace and a partnership with Kroger KR to the most sought-after home and baby products such as bedding, storage, baby furniture and gear from Bed Bath & Beyond, buybuy Baby, Owned Brands and other national brands. The products will be available for sale at Kroger.com and a few Kroger stores from 2022. Kroger’s online platform will help Bed Bath & Beyond reach more customers, thus, expanding base.
Bed Bath & Beyond Inc. Price, Consensus and EPS Surprise
Bed Bath & Beyond Inc. price-consensus-eps-surprise-chart | Bed Bath & Beyond Inc. Quote
Q3 in Detail
Bed Bath & Beyond reported an adjusted loss of 25 cents per share in the fiscal third quarter against earnings of 8 cents in the year-ago quarter. The figure also missed the Zacks Consensus Estimate of breakeven earnings.
Net sales of $1,878 million declined 28% year over year and missed the Zacks Consensus Estimate of $1,956 million. Core banner sales fell 14% year over year due to non-core banner divestitures and sluggishness in Bed Bath & Beyond banner sales.
Comparable sales (comps) fell 7% year over year and 4% on a two-year basis. For stores, the comps declined 5% year over year while it dropped 9% across the digital channel. Digital sales accounted for 35% of total net sales in the reported quarter.
During the five-day holiday period, store traffic improved with stores across the United States recording mid-single-digit comps growth. Meanwhile, overall comparable sales grew high single digits from the Thanksgiving to Cyber Monday period.
Bed Bath & Beyond banner comparable sales fell 10% year over year and 5% on a two-year basis, owing to weakness in key categories, including Bedding, Bath, Kitchen Food Prep, Indoor Decor and Home Organization, which represents two-thirds of total Bed Bath & Beyond banner sales. On the flip side, the company’s buybuy BABY banner sales grew in the mid-teens, marking the fourth successive quarter of growth. This was mainly driven by double-digit growth in stores and single-digit growth on the online front.
Adjusted gross profit slumped 27.1% to $675 million in the fiscal third quarter. However, adjusted gross margin expanded 50 basis points (bps) to 35.9% due to higher merchandise margin, favorable product mix and implementation of new pricing actions, which somewhat offset inflationary pressure and supply chain issues. The metric expanded 360 bps on a two-year basis.
SG&A expenses slumped 22% to $698 million in the reported quarter, driven by reduced costs stemming from the sale of non-core assets along with lower rent and occupancy expenses. Adjusted SG&A expenses, as a percentage of sales, increased 320 bps to 37.2% in the quarter under review.
Adjusted EBITDA was $41 million compared with $121 million in the year-ago period. The decline was mainly due to sluggish sales. Adjusted EBITDA margin contracted 240 bps to 2.2%.
Financial Position
Bed Bath & Beyond ended the fiscal third quarter with cash and investments of $509.1 million. Long-term debt totaled $1,179.7 million and total shareholders' equity was $553.6 million as of Nov 27, 2021. In the fiscal third quarter, cash used in operating activities was $311 million and capital expenditure was nearly $83 million.
The company repurchased shares worth nearly $120 million in the quarter under review. It also had strong liquidity of $1.6 billion as of Dec 25, 2021. It estimates share repurchases worth $625 million for fiscal 2021. It is also accelerating its previously announced $1 billion three-year share repurchase program from fiscal 2022 and fiscal 2023.
Store Updates
In the reported quarter, Bed Bath & Beyond opened one Bed Bath & Beyond store and one buybuy BABY store, while it shut down five stores. The company expects to remodel 130 stores in the fiscal fourth quarter.
Looking Ahead
For fourth-quarter fiscal 2021, the company anticipates sales of $2.1 billion, inclusive of core sales and planned sales reduction as part of its store fleet optimization program. Comps are likely to decline in high-single digits. The adjusted gross margin is envisioned to be 32.5-33%, reflecting the adverse impacts of global supply-chain challenges. Adjusted EBITDA is expected to be $80-$100 million, with adjusted earnings between breakeven and 15 cents for the said quarter.
In view of the drab fiscal third-quarter results and bleak fourth-quarter expectations, management slashed the fiscal 2021 view. The company now envisions net sales of $7.9 billion for fiscal 2021, down from the previously guided $8.1-$8.3 billion. Adjusted EBITDA is projected to be $290-$310 million, down from the earlier mentioned $425-$465 million. However, comps are likely to grow in high-single digits compared to flat comps guided earlier.
Bed Bath & Beyond also expects adjusted earnings in the range of a loss of 15 cents to breakeven, down from the earlier stated guidance of 7-10 cents for fiscal 2021. The adjusted gross margin is likely to be 34-34.5% compared with the previously mentioned 34-35%.
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This Zacks Rank #5 (Strong Sell) stock has plunged 23.8% in a year’s time compared with the industry’s 13.5% decline.
Stocks to Consider
We have highlighted two better-ranked stocks in the Retail - Wholesale sector, namely Capri Holdings CPRI and Costco Wholesale Corporation COST.
Capri Holdings, which operates membership warehouses, presently sports a Zacks Rank #1 (Strong Buy). The company has a trailing four-quarter earnings surprise of 1024.9%, on average. Shares of CPRI have rallied 45.5% in the past year. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Capri Holdings’ sales and EPS for the current financial year suggests respective growth of 12.6% and 1.2% from the year-ago period’s reported figures. CPRI has an expected EPS growth rate of 56.4% for three to five years.
Costco Wholesale presently has a Zacks Rank #2. The company has a trailing four-quarter earnings surprise of 8.3%, on average. Shares of COST have rallied 49.7% in the past year.
The Zacks Consensus Estimate for Costco Wholesale’s sales and EPS for the current financial year suggests respective growth of 10.7% and 13.2% from the year-ago period’s reported figures. CPRI has an expected EPS growth rate of 8.8% for three to five years.
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