What To Expect From Bed Bath & Beyond’s Q2 Earnings
Bed Bath & Beyond (NASDAQ:BBBY) is scheduled to announce its fiscal second quarter earnings on Tuesday, September 19. The retailer started the year on a weak note, as both its revenues and earnings fell short of consensus estimates in the first quarter. In Q1 2017, the company’s revenue remained flat at $2.74 billion, primarily due to an increase of 2.1% in non-comparable sales including PMall, One Kings Lane, and new stores, largely offset by a 2% decrease in comparable sales. The company also posted diluted earnings of 53 cents per share, which declined 34% y-o-y.
Decline In Store Sales
Bed Bath & Beyond is struggling with stagnant revenues and declining comparable sales growth, mainly because it is still very much brick-and-mortar reliant. Accordingly, the company is working on improving its online initiatives to offset the declining foot traffic, and as a result, reported a more than 20% increase in its comparable sales growth from customer-facing digital channels over the corresponding period in the first quarter. However, this increase was not able to offset the company’s declining foot traffic from its physical stores, which fell in the mid single-digit percentage range in the quarter. We expect this trend to continue into the second quarter as well.
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Margin Pressure To Continue
Bed Bath & Beyond’s gross margins continued to face pressure in the first quarter, declining by around 90 basis points (bps) from 37.4% in Q1 2016 to 36.5% in Q1 2017. The company identified an increase in net direct-to-customer shipping expenses as the primary reason for this decline, which resulted from more promotional shipping activity, as the retailer’s free shipping threshold for this quarter was $29, compared to $49 for about half of the first quarter last year.
Additionally, the company is also grappling with fixed operating store costs while the store traffic continues to decline, leading to further margin pressure. For the same reason, the company is now looking to increase the pace of store closures as leases come up for renewal (if favorable terms are not negotiated) and work on redesigning its existing stores to better execute an integrated retail format. Bed Bath & Beyond is also focusing on cutting down on its promotional activities – as promotions put pressure on margins – in order to reverse these negative trends.
Future Outlook
The company did not publish guidance for the current quarter, but consensus estimates for the fiscal second quarter call for earnings of $0.95 per share and revenues of $3 billion, implying growth of about 1% and (14)%, respectively.
For the full year 2017, Bed Bath & Beyond expects a low to mid single-digit percentage increase in consolidated net sales. The company also expects flat to slightly positive comparable sales for the full year, on the back of continued strong growth in the customer-facing digital channels. However, we expect margin pressure to continue in fiscal 2017, due to an increase in net direct-to-customer shipping expense and coupon expenses.
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