11 Jul

How Did Bed Bath & Beyond Fare in Q1?

WRITTEN BY Rajiv Nanjapla

First-quarter performance

Bed Bath & Beyond (BBBY) reported its first-quarter earnings after the market closed on Wednesday. For the quarter ending on June 1, the company reported an adjusted EPS of $0.12, which beat analysts’ estimate of $0.08. However, Bed Bath & Beyond’s revenues of $2.57 billion were marginally short of analysts’ expectation of $2.58 billion. The company’s same-store sales fell 6.6% compared to analysts’ forecast of a fall of 5.6%.

How Did Bed Bath & Beyond Fare in Q1?

Lower revenues

In the first quarter, Bed Bath & Beyond’s revenues fell 6.6% from $2.75 billion in the first quarter of 2018. Less same-store sales and the falling store count lowered the company’s revenues in the first quarter. At the end of the first quarter, Bed Bath & Beyond operated 1,536 stores—21 stores less than the number at the end of the first quarter of 2018.

In the first quarter, Bed Bath & Beyond reported a decline of 6.6% in its same-store sales. Fewer transactions lowered the company’s same-store sales. The higher average ticket size partially offset the decline. The company’s same-store sales at the stores fell in the high single-digits, while the same-store sales of the customer-facing digital channel were slightly positive. Easter was later in the first quarter compared to the first quarter of 2018. Lower advertising expenses and the company’s strategy to prioritize profitability over near-term sales growth led to the removal of less profitable SKUs. The company’s plan to shift some of its advertising spend to the fourth quarter lowered its advertising expenses during the first quarter.

How Did Bed Bath & Beyond Fare in Q1?

Bed Bath & Beyond’s net margins

During the first quarter, Bed Bath & Beyond’s gross margin fell from 35.0% in the first quarter of 2018 to 34.5%. The lower merchandise margin and the unfavorable impact from the BEYOND+ membership program lowered the company’s gross margin during the first quarter. However, lower coupon expenses and fewer net direct-to-customer shipping expenses offset some of the declines in the gross margins.

Bed Bath & Beyond’s SG&A (selling, general, and administrative) expenses increased from 31.7% of the total sales in the first quarter of 2018 to 32.9%. Increased technology-related investments and higher depreciation and occupancy expenses raised the company’s SG&A expenses. For the first quarter, Bed Bath & Beyond’s effective tax rate was 38.7%—compared to 30.5% in the first quarter of 2018.

How Did Bed Bath & Beyond Fare in Q1?

Lower EPS

Bed Bath & Beyond reported a net loss of $371.1 million or $2.91 per share in the first quarter. The net loss included the unfavorable impact of non-cash impairment of goodwill and other intangible assets of $401.3 million. However, removing the unusual items, the company’s adjusted EPS for the first quarter was $0.12—a fall of 63.6% from $0.33 in the first quarter of 2018. The lower revenues, lower EBIT margin, and higher effective tax rate caused the company’s EPS to fall during the quarter. However, some of the declines were offset by a lower weighted average number of shares outstanding due to share repurchases.

For the first quarter, the weighted average number of shares outstanding were 127.6 million—compared to 136.6 million in the first quarter of 2018. In the last four quarters, Bed Bath & Beyond repurchased 13.2 million shares for $207 million. The total includes repurchasing 5.3 million shares for $81 million in the first quarter.

Dividends

On Monday, Bed Bath & Beyond’s board announced quarterly dividends of $0.17 per share. The dividends will be paid on October 15 to shareholders on record as of September 13. The declared dividends represent an annualized payout of $0.68 per share. On Wednesday, the company’s dividend yield was 5.9%. Bed Bath & Beyond’s stock price was trading at $11.52. On the same day, Williams-Sonoma’s (WSM) dividend yield was 3.04%. To learn more, read Impressive Q1 Earnings Boost Williams-Sonoma’s Valuation Multiple.

Stock performance

Although Bed Bath & Beyond outperformed analysts’ adjusted EPS expectations, its SSSG and revenues were lower than analysts’ expectations. Following the first-quarter performance, the company’s management stated that they expect the EPS and revenues for fiscal 2019 to be closer to the lower end of the previously provided guidance range.

After Bed Bath & Beyond reported its first-quarter earnings, Jefferies and J.P. Morgan lowered their target prices. Jefferies cut its target price from $17 to $13. J.P. Morgan cut its target price from $20 to $13.50. The lower-than-expected first-quarter SSSG, management’s lower guidance, and analysts’ target price revisions caused Bed Bath & Beyond’s stock price to fall. The company was trading in the red in the pre-market hours of trading on Thursday.

In 2019, Bed Bath & Beyond has underperformed the broader equity market. The company has returned 1.8% YTD (year-to-date). The S&P 500 Index and the SPDR S&P Homebuilders ETF (XHB) have returned 19.4% and 28.5% YTD, respectively. XHB has invested more than 24.0% of its holdings in home improvement and furnishing companies. During the same period, Williams-Sonoma has returned 25.2%, while RH’s (RH) returns have been flat YTD. To learn more, read RH Stock Surges after Impressive First-Quarter Results.

Outlook

For 2019, Bed Bath & Beyond’s management expects its revenues to be at the lower end of its earlier announced range of $11.4 billion–$11.7 billion. The company’s same-store sales are still under pressure. The company’s management is working towards achieving its four near-term priorities:

  • stabilizing its sales and driving top-line growth
  • resetting its cost structure
  • reviewing and optimizing the company’s asset base
  • defining the organization’s structure

Bed Bath & Beyond’s management expects its EPS for fiscal 2019 to be at the lower end of its earlier announced range of $2.11–$2.20.

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