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 Wednesday, September 26. The company reported better-than-expected fiscal first quarter results, as its earnings came in ahead of consensus estimates while revenues were about in line. However, the company’s same-store sales fell 0.6% compared to expectations of positive 0.2% growth. In Q1, the retailer’s revenue grew marginally to $2.8 billion, as it witnessed strong sales growth from customer-facing digital channels and a mid-single digit percentage decline in sales from its stores. 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.

Our $18 price estimate for Bed Bath & Beyond’s stock is marginally below the current market price. We have created an interactive dashboard on what to expect from Bed Bath & Beyond’s fiscal Q2 and fiscal 2018, which outlines our forecasts for the company. You can modify our forecasts to see the impact any changes would have on the company’s earnings and valuation.

Overview of Performance

Bed Bath & Beyond saw its stock fall nearly 50% in 2017, and the company’s stock price has further declined around 15% over the course of 2018. The retailer continues to struggle with margin pressure and declining store traffic amid competition from e-commerce and omni-channel competitors. Bed Bath & Beyond’s gross margins continued to face pressure in the first quarter, and declined 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. Going forward, we expect this margin pressure to continue in Q2 as well. In addition, 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).

Fiscal 2018 Outlook

For full-year 2018, Bed Bath & Beyond continues to expect relatively flat or a 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.

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