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Why Analysts Expect Bed Bath & Beyond’s Earnings to Fall in 4Q17

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Apr. 6 2018, Updated 5:20 p.m. ET

4Q17 EPS expectations

Analysts are expecting Bed Bath & Beyond (BBBY) to post EPS (earnings per share) of $1.40 in 4Q17, which represents a fall of 23.9% from $1.84 in 4Q16. The decline in its EBIT (earnings before interest and tax) margin and a higher effective tax rate are expected to offset the positive effects of revenue growth and share repurchases to lower the company’s EPS in 4Q17.

Analysts are expecting Bed Bath & Beyond’s EBIT margin to be 8.5% compared to 12.2% in 4Q16. It’s expected to fall due to lower gross margins, an increase in SG&A (selling, general, and administrative) expenses, and D&A (depreciation and amortization) costs. The gross margin is expected to fall due to a decline in merchandise margins and an increase in shipping and coupon expenses. SG&A expenses are expected to rise due to increases in payroll-related and advertising expenses. D&A expenses are expected to rise due to technology-related investments. For 4Q17, analysts are expecting the effective tax rate to be 35.6% compared to 35% in 4Q16.

Since the beginning of 2017, BBBY has repurchased 6 million shares for $207.3 million. By the end of 3Q17, the company had $1.5 billion available under its share repurchase program. Share repurchases drive the company’s EPS by lowering the number of shares outstanding.

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Peer comparisons

In 4Q17, Williams-Sonoma (WSM), Lowe’s (LOW), and Home Depot (HD) posted EPS of 8.4%, -14%, and 17.4%, respectively.

Outlook

For the next four quarters, analysts are expecting BBBY to post EPS of $2.82, which represents a fall of 22.3% from $3.63 in the corresponding four quarters of the previous year.

Next, let’s look at BBBY’s valuation multiple.

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