Bed Bath & Beyond’s Q3 Earnings Might Not Be Impressive

Bed Bath & Beyond (BBBY) will report earnings for the third quarter of fiscal 2019 after the markets close on Wednesday. We think that the company’s revenues and earnings could continue to stay low in the third quarter.

What to expect from Bed Bath & Beyond

Notably, the company’s revenues are under pressure due to heightened competitive activity. Bed Bath & Beyond is struggling to lift its sales. Target (TGT) and Walmart (WMT) have ramped up their digital offerings significantly. Their fast shipping and value pricing impact Bed Bath & Beyond’s traffic. Also, Amazon (AMZN) continues to gain market share.

For the third quarter, we think that Bed Bath & Beyond’s revenues will likely take a hit due to tough comparisons. More competition could also impact the company. The calendar shift during holidays might still be a drag. Last year, Bed Bath & Beyond’s third quarter benefited from Thanksgiving, Black Friday, and Cyber Monday. However, this year, the third quarter only includes Thanksgiving and Black Friday.

We think that Bed Bath & Beyond’s margins could benefit from margin-saving initiatives including lower coupon expenses and direct-to-customer shipping expenses. However, lower merchandise margins could remain a drag.

We think that Bed Bath & Beyond’s earnings could take a hit due to lower sales and the higher adjusted tax rate.

However, the lower outstanding share count and lower interest expenses could support the bottom line.

Analysts’ consensus estimates

Analysts expect Bed Bath & Beyond to post revenues of $2.85 billion in the third quarter. The consensus estimate reflects a YoY (year-over-year) decrease of about 6%. Lower comp sales, which reflect a continued decline in the number of transactions, will likely drag the revenues down. However, the average transaction amount could support the company’s sales.

Analysts expect Bed Bath & Beyond to post an EPS of $0.03 in the third quarter, which is above management’s guidance. Management expects the third-quarter earnings to stay flat at $0.02.

Recent performance

Bed Bath & Beyond’s top and bottom-line performances haven’t been impressive over the past several quarters. The company’s revenues and EPS have declined over the past several quarters.

Bed Bath & Beyond’s revenues fell by low-single-digit in fiscal 2018. Meanwhile, the company’s top line decreased at a mid-single-digit rate in the first two quarters of fiscal 2019.

During the last reported quarter, the company’s net sales fell by 7.3% to $2.72 billion. The revenues fell short of analysts’ expectations.

Bed Bath & Beyond posted an adjusted EPS of $0.34, which beat analysts’ estimates. However, the adjusted EPS fell by about 11% YoY.

Bed Bath & Beyond’s stock performance

Shares of Bed Bath & Beyond rose nearly 53% in 2019 despite lower sales. The stock rose by about 39% in one year. Notably, the stock got a significant boost from the appointment of Mark Tritton as its CEO. His appointment rekindled hopes of a turnaround among investors. Previously, Tritton was the chief merchandising officer at Target.

Analysts have a target price of $14.75 on Bed Bath & Beyond stock, which implies a downside of about 11% based on its closing price of $16.56 on Monday. Meanwhile, most of the analysts remain on the sidelines on the stock.