What To Expect From Bed Bath & Beyond’s Fiscal Q3

Bed Bath & Beyond (NASDAQ: BBBY) is scheduled to announce its fiscal third quarter results on Wednesday, January 9. In the first half of the fiscal year, the retailer’s revenue came in flat year-over-year (y-o-y), 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 $182 million in the first half of fiscal 2018, of which about 70% 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 68 cents per share, which declined 45% y-o-y. Further, the retailer has also trimmed its guidance for the rest of the year.

We have also created an interactive dashboard on Expect A Weak Fiscal 2018 For Bed Bath & Beyond, which outlines our forecasts for the company’s Q3 and full year results. You can change the expected revenue, operating margins and net margin figures for the company to gauge how it will impact its earnings. 

Margin Pressures To Continue In Q3

Bed Bath & Beyond’s gross margins declined by approximately 270 basis points (bps), from 36.4% in Q2 2017 to 33.7% in Q2 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 slightly to around $910 million. Going forward, we expect this margin pressure to continue into Q3 as well. We expect the company to report third-quarter revenues of around $3 billion (flat y-o-y) and earnings of 22 cents per share (50% decline y-o-y).

Fiscal 2018 Outlook

For full-year 2018, Bed Bath & Beyond now expects its comparable sales growth to be relatively flat, including continued strong growth in its customer-facing digital channels, compared to a previous outlook of growth in the low single-digit percentage range. We also expect margin pressure to continue through 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, including the impact from BEYOND+ and College Savings Pass programs, 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 (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. The retailer also expects its net diluted earnings per share to be around $2 for fiscal 2018, compared to prior guidance in the low- to mid-$2 range.

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