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Bed Bath & Beyond Stock Sinks on Weak Q3

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Bed Bath & Beyond (NASDAQ:BBBY) stock fell nearly 10% after hours following its weaker-than-expected third-quarter earnings results yesterday. As I had forecast, Bed Bath & Beyond’s third-quarter top and bottom lines failed to impress.

Bed Bath & Beyond missed Wall Street’s expectation by a wide margin. Meanwhile, it reported a loss per share, which is likely to hurt its stock.

Bed Bath & Beyond is struggling to hold ground amid fierce competition from big-box retailers and Amazon (NASDAQ:AMZN), primarily on the digital front. I’ve highlighted the fact that Bed Bath & Beyond lacks Target’s (NYSE:TGT) and Walmart’s (NYSE:WMT) omnichannel offerings, which is taking a toll on its traffic. Furthermore, the company’s pricing isn’t as competitive as Walmart’s, Amazon’s, or Target’s.

Management, during the company’s third-quarter conference call, said that poor inventory management, non-competitive pricing, and a lack of convenient shopping options dragged down its third-quarter performance.

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Target and Walmart continue to expand their digital fulfillment options, including same-day delivery and online pickup options. The seamless offering of buying online and picking up in-store pinched Bed Bath & Beyond in the third quarter. The calendar shift of the Thanksgiving holiday added to its pain.

Bed Bath & Beyond’s Q3 in detail

Bed Bath & Beyond posted revenue of $2.76 billion, reflecting a year-over-year decline of about 9%. Meanwhile, its revenue missed analysts’ estimate of $2.85 billion. Lower comparable sales dragged down its net sales.

Bed Bath & Beyond’s comparable sales decreased by 8.3%, reflecting lower traffic. However, higher transaction amounts supported its comps.

BBBY’s adjusted gross margin contracted by 80 basis points to 32.3%, reflecting lower merchandise margins. Furthermore, the company’s BEYOND+ membership program continued to affect its gross margins.

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The company’s selling, general, and administrative expenses as a percentage of sales increased by 140 basis points, reflecting lower sales and higher advertising expenses. Lower sales and narrower margins took a toll on BBBY’s bottom line. BBBY posted a loss per share of $0.38, compared with EPS of $0.02 in the prior-year period. Analysts expected BBBY to post adjusted EPS of $0.02.

BBBY stock could remain pressured

Bed Bath & Beyond stock surged nearly 53% in 2019 despite the company’s weak financial performance. The appointment of Mark Tritton as its CEO and hopes of a turnaround drove Bed Bath & Beyond stock higher.

However, the company’s sluggish third-quarter performance and lower fourth-quarter outlook could weigh on BBBY stock. Management expects fourth-quarter sales and profitability to stay low. Analysts’ target price of $15.04 for BBBY stock implies a 9.7% downside based on its January 8 closing price of $16.65.

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