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What to Expect from BBBY’s 2Q17 Earnings

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Part 3
What to Expect from BBBY’s 2Q17 Earnings PART 3 OF 6

Why Analysts Are Expecting BBBY’s Net Margins to Fall in 2Q17

2Q17 estimates

For 2Q17, analysts are expecting Bed Bath & Beyond (BBBY) to post gross margin, EBITDA (earnings before interest, tax, depreciation, and amortization) margin, and net margin of 36.7%, 10.3%, and 4.4%, respectively. In 2Q16, the margins stood at 37.4%, 11.8%, and 5.6%, respectively.

Why Analysts Are Expecting BBBY&#8217;s Net Margins to Fall in 2Q17

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Factors that could lower BBBY’s net margins

Analysts are expecting BBBY’s cost of sales to rise from 62.6% in 2Q16 to $63.1% in 2Q17. The rise in coupon expenses due to redemptions is expected to increase the cost of sales.

In 2Q17, the SG&A (selling, general, & administrative) expenses are expected to rise from 28.0% in 2Q16 to 29.1%. The increase in labor costs, advertising spending, technology-related expenses, and acquisitions are projected to raise BBBY’s SG&A expenses. The rise in SG&A expenses is expected to lower the company’s EBITDA margins by 1.5% to 10.3% in 2Q17.

With the increase in technology-related spending, analysts are expecting the company’s D&A (depreciation and amortization) expenses to rise. Also, the effective tax rate is projected to increase from 36.3% to 37.1%, which could lower BBBY’s net margins.

Peer comparisons

During the same period, Williams-Sonoma (WSM), Lowe’s (LOW), and Home Depot (HD) have posted a net margin of 4.4%, 6.8%, and 9.5%, respectively.

Outlook

For the next four quarters, analysts are expecting BBBY to post gross margin, EBITDA margin, and net margin of 36.6%, 10.0%, and 4.3%, respectively. The margins were at 37.3%, 11.2%, and 5.3%, respectively in the corresponding four quarters of the previous year.

Next, we’ll look at analysts’ EPS estimate for 2Q17.

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