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Why Bed Bath & Beyond Missed Analysts’ Estimates in 2Q17

PART:
1 2 3 4 5 6 7 8
Part 5
Why Bed Bath & Beyond Missed Analysts’ Estimates in 2Q17 PART 5 OF 8

Why BBBY’s Net Margins Declined in 2Q17

2Q17 margins

During 2Q17, Bed Bath & Beyond (BBBY) posted a gross margin, EBITDA1 margin, and net margin of 36.4%, 8.3%, and 3.1%, respectively. Comparatively, these margins were at 37.4%, 11.8%, and 5.6%, respectively, in 2Q16.

Why BBBY&#8217;s Net Margins Declined in 2Q17

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Decline in net margins

During 2Q17, BBBY’s gross margins fell 1.0% due to a rise in direct-to-customer shipping expense, lower merchandise margins, and an increase in coupon expense due to higher redemptions. However, some of the declines were offset by the acquisition of PMall, which contributed 0.12% to the company’s growth margins.

The company’s SG&A (selling, general, and administrative) expenses increased from 28% of the total revenues in 2Q16 to 30.6% due rising labor expenses, advertising costs, occupancy expenses, store management restructuring charges, and technology-related expenses. 

The PMall acquisition also increased the company’s SG&A expenses by 0.06%. The company’s effective tax rate stood at 37.0% in 2Q17 compared to 36.3% in 2Q16. The growth in these expenses contributed to the 2.4% fall in BBBY’s net margins.

Peers comparisons

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

Outlook

For the next four quarters, analysts are expecting BBBY to post a gross margin, EBITDA margin, and net margin of 36.4%, 8.7%, and 3.4%, respectively. Comparatively, these margins were 37.0%, 10.3%, and 4.8%, respectively, in the corresponding four quarters of the previous year.

Next, we’ll look at BBBY’s 2Q17 EPS.

  1. earnings before interest, tax, depreciation, and amortization
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