Bed Bath & Beyond Q1 Preview: Can Shares Find New Life?

·4-min read

In the first quarter of 2022, we witnessed numerous valuation slashes following many quarterly reports. Companies unveiled that many of the worse-than-expected results were driven by margin compression, a hawkish Fed, and of course, geopolitical issues.

It wasn’t the reactions we’ve historically been accustomed to since stocks typically move up during earnings season. However, it’s crucial to remember that we’ve found ourselves in a highly unique economic situation coming out of a once-in-a-lifetime pandemic, and it’s been nearly impossible to predict what happens next.

Nonetheless, the market continues to roll on, giving investors little chance to breathe. One company slated to release quarterly results on Wednesday before the bell rings is the retailer Bed Bath & Beyond BBBY.

Bed Bath & Beyond Inc. is an omnichannel retailer offering top-quality and differentiated products, services, and solutions across specialty retail stores. As of November 2021, the company had 995 stores in operation, comprising 809 namesake stores across 50 states, the District of Columbia, Puerto Rico, and Canada.

Additionally, the company operates an e-commerce website featuring specially commissioned, limited-edition items from emerging fashion and home designers such as Chef Central and Decorist. Let’s examine how the company shapes up heading into the quarterly release.

Share Performance & Overview

Year-to-date, BBBY shares have tumbled, decreasing more than 50% in value and extensively underperforming the S&P 500. Shares were on a strong uptrend throughout the earlier months of 2022, but a worse-than-expected quarterly earnings sent shares on a downwards spiral and have yet to recover.

The red arrow in the chart pinpoints the date of the worse-than-expected quarterly earnings report.

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Zacks Investment Research


Image Source: Zacks Investment Research

The chart still looks rough after extending the timeframe to cover the last year. BBBY shares have struggled immensely, losing close to 80% of their value and coming nowhere close to the general market’s performance.

In addition, shares react very poorly to EPS misses, as displayed in the chart.

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Zacks Investment Research


Image Source: Zacks Investment Research

Currently, BBBY is a Zacks Rank #3 (Hold) with an Earnings ESP Score of -10.3%.

Zacks Earnings ESP (Expected Surprise Prediction) looks to find companies that have recently seen positive earnings estimate revision activity. The idea is that more recent information is generally more accurate and can better predict the future, providing investors an edge during earnings season.

When combining a Zacks Rank #3 or better and a positive Earnings ESP, stocks produced a positive surprise 70% of the time, while they also saw 28.3% annual returns on average, according to our 10-year backtest.

However, BBBY doesn’t fit within those parameters, undoubtedly a concerning development heading into the quarterly report.

Estimates

For the quarterly release, the Zacks Consensus EPS Estimate resides at -$1.30, reflecting a sizeable quad-digit decrease in earnings from year-ago quarterly EPS of $0.05. Over the last 60 days, two analysts have negatively revised their quarterly outlook, causing the Consensus Estimate Trend to fall 4%.

A rapidly softening earnings outlook is undoubtedly a significant concern.

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Zacks Investment Research


Image Source: Zacks Investment Research

Pivoting to the top line, the Zacks Consensus Sales Estimate for the quarter resides at $1.52 billion, a 23% decrease in revenue compared to year-ago quarterly sales of $1.95 billion. For FY23, revenue is forecasted to slide 8%.

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Zacks Investment Research


Image Source: Zacks Investment Research

In addition, the company has continuously struggled to exceed top and bottom-line estimates, reporting revenue under expectations in six of its last ten quarterly reports and reporting EPS under expectations in seven of its previous ten quarterly reports.

Bottom Line

Due to the poor share performance, softening earnings outlook, and inconsistent quarterly results, it’s safer for investors to heed caution with this stock and deploy a defense-first approach.

The above reasons, paired with its negative Earnings ESP Score, indicate that the company may struggle to report strong quarterly results, definitely not something that investors take well, as displayed in the charts above.

For investors seeking exposure to the retail industry, such as what BBBY provides, a great bet within the sector is Beacon Roofing Supply BECN. The company sports the highly coveted Zacks Rank #1 (Strong Buy) and has an overall VGM Score of an A.

Beacon Roofing Supply is the largest publicly-traded distributor of residential and non-residential roofing materials, along with complementary building products in the United States and Canada.

Additionally, analysts have been revising their earnings estimates across the board over the last 60 days with a 100% revision agreement percentage – undoubtedly a bullish signal.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

The company also sports a beautifully low 7.7X forward earnings multiple, well below its five-year median of 12.8X and nowhere near 2017 highs of 24.1X. Furthermore, the value represents a staggering 56% discount relative to the S&P 500’s forward P/E ratio of 17.5X.

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Zacks Investment Research


Image Source: Zacks Investment Research


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