Bed Bath & Beyond Misses Estimates in Q2, Lowers Full-Year Guidance

Bed Bath & Beyond (NASDAQ: BBBY) reported weak fiscal second-quarter results on Tuesday, September 19, as both its revenues and earnings fell short of consensus estimates, and as a result, the company’s stock fell slightly after reaching a 52-week intraday low.

• In the second quarter, the company’s revenue declined 2% year-over-year (y-o-y) to $2.93 billion, primarily due to an increase of 0.9% in non-comparable sales including PMall, One Kings Lane, and new stores, largely offset by a 2.6% decrease in comparable sales. This decline in comparable sales reflected a decrease in the number of transactions in stores, partially offset by an increase in the average transaction amount.

• Additionally, comparable sales from the company’s customer-facing digital channel continued to have strong growth in excess of 20%, while comparable sales from its stores declined in the mid-single digit percentage range. Online sales represented roughly 15% of the company’s total sales in this quarter.
• On the cost side, Bed Bath & Beyond’s selling, general and administrative (SG&A) expenses increased 8% year-over-year (y-o-y) to around $900 million due to payroll and payroll-related items, advertising expenses, restructuring charges, technology-related expenses, and other costs.
• In terms of capital expenditures, the company spent $96 million in the quarter, of which more than 40% was spent on technology projects including investments in digital capabilities and the development and deployment of new systems and equipment in the stores.
• The retailer also posted diluted earnings of 67 cents per share, which declined 40% y-o-y.
• Bed Bath & Beyond’s gross margins continued to face pressure in the quarter. The company’s gross margin declined by approximately 100 basis points (bps) from 37.4% in Q2 2016 to 36.4% in Q2 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. In addition, a decrease in merchandise margin and an increase in coupon expense also reduced the company’s gross margins in the quarter.
• Bed Bath & Beyond revised its full-year guidance after the weaker-than-expected fiscal first half of 2017. Accordingly, it now expects net sales to be relatively flat, as it plans to spend on organizational changes and transformational initiatives going forward. The company also expects comparable sales to decline compared to the slightly positive previous guidance. In addition, the company expects net earnings per diluted share for the full-year to be around $3.

• The company did not publish guidance for the current quarter, but consensus estimates for the company’s fiscal third quarter call for earnings of 71 cents per share and revenues of $3 billion, implying growth of about (-16)% and 1%, respectively.

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