A Closer Look At Bed Bath & Beyond After Its Q1 Earnings

Bed Bath & Beyond (NASDAQ: BBBY) reported better-than-expected fiscal first quarter results on Wednesday, June 27, as its earnings came in ahead of consensus estimates while revenues were about in line. However, the company’s stock tumbled nearly 6% in after-hours trading, as its same-store sales fell 0.6% compared to expectations of positive 0.2% growth. Below we highlight some of the most notable items from the earnings release. We have also created an interactive dashboard for Bed Bath & Beyond which outlines our expectations for the company’s fiscal Q2 and full year results. You can change expected revenue, operating margins and net margin figures for the company to gauge how it will impact its earnings. 

Marginal Growth In Revenues, Decline In Earnings

In the first quarter, Bed Bath & Beyond’s revenue grew marginally to $2.8 billion, as a 0.6% decrease in comparable sales was partially offset by an increase in non-comparable sales, including One Kings Lane, PMall, and new stores. The retailer saw strong sales growth from customer-facing digital channels, and a mid-single digit percentage decline in sales from its stores. The overall decline in comparable sales reflected a decline in the number of transactions in stores, partially offset by an increase in the average transaction amount. In terms of capital expenditures, the company spent $98 million in the first quarter of 2018, of which more than 80% was spent on technology projects, including investments in digital capabilities and the development and deployment of new systems and equipment in stores. The retailer also posted diluted earnings of 32 cents per share, which declined 40% y-o-y.

Margin Pressures Continue In Q1

Bed Bath & Beyond’s gross margins continued to face pressure in the first quarter as well. The company’s gross margin declined by approximately 150 basis points (bps), from 36.5% in Q1 2017 to 35% in Q1 2018. 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. On the cost side, Bed Bath & Beyond’s selling, general and administrative (SG&A) expenses increased 4% y-o-y to around $884 million.

Future Outlook

Going forward, we expect the company to report second quarter revenues of around $2.9 billion (flat y-o-y) and earnings of 51 cents per share (25% decline y-o-y).

For full-year 2018, Bed Bath & Beyond continues to expect a relatively flat to slightly positive increase in consolidated net sales. The company also expects comparable sales growth in the low single-digit percentage range on the back of continued strong growth in customer-facing digital channels. However, we expect margin pressure to continue in fiscal 2018, due to an increase in net direct-to-customer shipping expense, growth in coupon expense, and continued investment in the company’s customer value proposition, as well as the ongoing shift to its digital channels.

In addition, the company expects its full-year capital expenditures to range between $375 million and $425 million. Bed Bath & Beyond plans to open 20 new stores and close approximately 40 stores in 2018. The retailer also expects its net diluted earnings per share to range in the low to mid $2 range for fiscal 2018.

For CFOs and Finance Teams | Product, R&D, and Marketing Teams

More Trefis Research

Like our charts? Explore example interactive dashboards and create your own