How Is Bed Bath & Beyond Likely To Grow In The Next Two Years?

Bed Bath & Beyond‘s (NASDAQ: BBBY) stock is now trading almost 40% lower than its price at the beginning of the year, as it struggles with margin pressure and declining store traffic amid competition from e-commerce and omni-channel competitors. Much of this year’s stock decline came after its disappointing fiscal 2018 guidance. In addition, the company’s profits have also declined in recent quarters, in large part due to extensive coupon usage. Going forward, we expect the declining trend in Bed Bath & Beyond’s profitability to continue in the near term. This is because the company is trying to remodel both its online and offline store formats at the same time –  including redesigning stores, spending on its loyalty program, revamping its supply chain and increasing its shipping costs in order to catch up with other online retailers – which could result in a further decline in margins in fiscal 2018.

Going forward, we expect Bed Bath & Beyond’s revenue to decline marginally through fiscal 2019. To arrive at our fiscal 2019 net revenue estimates for the company, we have broken down the revenue streams and estimated separately. We have also created an interactive dashboard for Bed Bath & Beyond which provides a detailed analysis of how to arrive at this growth number. You can make changes to these variables to arrive at your own revenue estimates for the company. We recently revised our price estimate for Bed Bath & Beyond downwards to $16, which is roughly 10% ahead of the current market price, on account of lower expected gross profit and operating profit estimates.

We expect Bed Bath & Beyond to generate around $12.3 billion (relatively flat year-over-year) in revenues in 2018, and earnings of almost $300 million. Of the total expected revenues in 2018, we estimate $8 billion in the Bed Bath & Beyond business, almost $1.7 billion for the Christmas Tree Shops business, nearly $1.4 billion for the buybuy Baby business, and close to $1.1 billion in World Market business. It should be noted that fiscal 2018 has 52 weeks as compared to 53 weeks in fiscal 2017. Bed Bath & Beyond also expects its comparable sales growth to be relatively flat in fiscal 2018, including continued strong growth in its customer-facing digital channels. The retailer plans to open 20 new stores (with the majority being buybuy Baby and Cost Plus World Market stores) and close approximately 40 stores (with the majority being Bed Bath & Beyond stores) in 2018.

We also expect Bed Bath & Beyond’s revenues to decline slightly y-o-y to $12.3 billion in fiscal 2019. Moreover, we have calculated the retailer’s divisional revenues by estimating the number of stores, square footage per store and revenue per square footage. We expect Bed Bath & Beyond’s 2019 store count in the U.S. to be just over 980, with an average square footage per store of 34k and revenue per square foot of $233, translating into $7.9 billion (-2% y-o-y) in Bed Bath & Beyond stores revenues in fiscal 2019. Further, we expect Bed Bath & Beyond’s margin pressure to continue through fiscal 2019, 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, including the impact from BEYOND+ and College Savings Pass programs, as well as the ongoing shift to its digital channels.

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