Relentless Weather And Housing Recovery Slowdown Can Freeze Bed Bath & Beyond’s Q4 Results

Home goods retailer Bed Bath & Beyond (NASDAQ:BBBY) lowered its EPS outlook by a dime during its Q3 fiscal 2013 earnings release on account of slower-than-expected growth, substantial decline in holiday traffic and its inability to attract sufficient web traffic. ^[1] On March 7, the company further dragged its guidance down to $1.57-$1.61 from $1.60-$1.67, citing adverse weather as the primary reason. ^[2] Bed Bath & Beyond stated that it witnessed a number of full-day and partial store closures, which weighed heavily on its comparable store sales growth. Moreover, housing recovery slowdown in recent months might have also had a negative impact on the company’s sales. While Bed Bath & Beyond’s Q4 fiscal 2013 results will likely remain weak, it will be interesting to see the retailer’s updates on its long term strategic plans when it comes out with its earnings on April 9.

Our price estimate for Bed Bath & Beyond stands at $78.80, implying a premium of about 10% to the market price.

See our complete analysis for Bed Bath & Beyond

Bad Weather Resulted In Low Store Traffic And Store Closures

In a recent business update, Bed Bath & Beyond stated that the relentless weather in the U.S. led to 464 days of full-day store closures and 1,923 partial closures. This resulted in a negative impact of 2.o-2.5 percentage points on its comparable store sales growth, with a corresponding hit of $0.06-$0.07 on its EPS. The retailer now expects its comparable sales growth to remain low at 1.7%,  as opposed to its previous guidance of 2%-4%. Bed Bath & Beyond also dragged its EPS guidance down to $1.57-$1.61 from $1.60-$1.67. ^[2]

Apart from store closures, a substantial fall in foot traffic also contributed to the retailer’s weak sales. As persistent cold in the U.S. prevented buyers from completing their store shopping, U.S. foot traffic declined by 17.7% in December. ^[3] This trend continued in January as overall retail sales fell by o.4% from a month earlier. ^[4]

Housing Recovery Slowdown Didn’t Help Either

After showing some promising signs last year, the U.S. housing recovery appears to have stalled in the recent months. According to the Standard & Poor’s Case-Shiller index released towards the end of February, monthly home prices in December 2013 in 20 cities increased by just 13.4% following 13.7% rise in November. ^[5] The figure decelerated for the first time since June 2013 on account of rising mortgage rates and harsh winters. Lately, sales of new and existing homes have also come down and they are likely to continue this way for some time owing to the uncertain economic environment. ^[6]

Although the housing market continues to recover, it has lost some of its momentum. This, along with the consistently falling consumer confidence is likely to discourage U.S. buyers from spending freely on home related goods. The Thompson Reuters/University of Michigan’s consumer sentiment index fell to 81.2 in January from 82.5 in the previous month. ^[7] In February, consumer confidence continued falling and turned out to be lower than expected. ^[5] This is not a good sign for Bed Bath & Beyond as its sales largely depend on the state of the economy and the housing market.

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1. Bed Bath & Beyond’s Q3 fiscal 2013 earnings transcript, Jan 8 2014 [↩]
2. Bed Bath & Beyond Inc. Provides Fourth Quarter Update, Bed Bath & Beyond, Mar 7 2014 [↩] [↩]
3. Retailing Today: December 2013, ShopperTrak, Jan 8 2014 [↩]
4. Retail Sales in U.S. Unexpectedly Fell 0.4% in January, Bloomberg, Feb 14 2014 [↩]
5. Home Prices in 20 U.S. Cities Increase at Slower Pace, Bloomberg, Feb 25 2014 [↩] [↩]
6. US Housing Recovery Sees Slowdown: S&P Case-Shiller Home Prices, International Business Times, Feb 25 2014 [↩]
7. U.S. retailers’ sales chilled by weather, and low consumer confidence, Reuters, Feb 6 2014 [↩]