How Will Q4 Results Impact Bed Bath & Beyond’s Stock?

Bed Bath & Beyond (NASDAQ: BBBY) is scheduled to report its fiscal fourth-quarter results on Wednesday, April 14th. We expect the home goods retailer likely to see little movement due to mixed fiscal Q4 results with revenues beating expectations but earnings falling short. Bed Bath & Beyond has shed all of its non-core segments in order to prioritize its survival in the retail market. In fact, the Covid-19 crisis caused the retailer to rely on its e-commerce platform as people used their time at home to spruce up their interiors. This resulted in an exponential 82% growth in digital sales in first nine months of 2020, which more than offset store declines of 37%. We expect this trend to continue in Q4 as well. That said, the company still depends on its massive turnaround strategy as it has been struggling with margin pressure and declining store traffic amid competition from e-commerce and omnichannel competitors in recent years.

Our forecast indicates that Bed Bath & Beyond’s valuation is around $30 a share, which is in line with the current market price. Look at our interactive dashboard analysis on Bed Bath & Beyond’s Pre-Earnings: What To Expect in Fiscal Q4? for more details.

(1) Revenues expected to be ahead of consensus estimates

Trefis estimates Bed Bath & Beyond’s Q4 2020 revenues to be around $2.7 Bil, 3% ahead of the consensus estimate. In the first nine months of fiscal 2020, its revenue declined 18% year-over-year to $6.6 billion. It didn’t disclose its comps growth in the first quarter due to pandemic-related store closures, but its comps rose 6% y-o-y in the Q2, their first gain in four years, and increased another 2% in the Q3. For the full year, we expect Bed Bath & Beyond Revenues to decline 17% y-o-y to $9.3 billion.

Bed Bath & Beyond has shed all of its non-core segments, selling off its tchotchkes outlet PersonalizationMall.com, the online flash sale site One Kings Lane, ancillary home goods businesses Cost Plus World Market, and Christmas Tree Shops. The company is going to focus solely on its namesake stores, baby care chain buybuy baby, and personal care outlet Harmon Face Values.

2) EPS likely to miss the consensus mark

Bed Bath & Beyond’s Q4 2020 earnings per share (EPS) are expected to come in at 27 cents per Trefis analysis, 13% lower than the consensus estimate of 31 cents. The retailer’s efforts to reduce product costs, limit markdowns, and optimize distribution costs started to bear fruit in Q2 itself. In the first nine months of 2020, Bed Bath & Beyond also reduced operating expenses by 17% compared to the prior-year period. This enabled it to post earnings per share of -$1.29, compared to a loss of $4.40 during the same period in the previous year.

It should be noted that the company continues to see margin pressures due to increased digital fulfillment costs. To add to that, the company already faces brutal competition from low-margin online pure-play retailers such as Wayfair and HomeGoods. Overall, cost cuts and improvement in product assortments and pricing can only partially offset the company’s current headwinds. As a result, the company will likely struggle to return to profitability for the full year of 2020. We expect the company’s EPS to come in at a loss of just over $1 for the full year 2020.

(3) Stock price estimate below the current market price

Going by our Bed Bath & Beyond’s Valuation, with a Revenue Per Share (RPS) estimate of around $74.79 and P/S multiple of 0.4x in fiscal 2020, this translates into a price of around $30, almost in line with the current market price.

The home goods retailer also presented a three-year outlook, wherein it intends to boost profitability through better inventory management and debt reduction, ultimately resulting in $500 million to $1 billion in cumulative free cash flow from now through the end of 2023. Although the company seems to have taken steps in the right direction, everything will hinge on its ability to maintain its sales levels over the long term. For now, there are too many potential stumbling blocks.

E-commerce is eating into retail sales, but this might be an investment opportunity. See our theme on E-commerce Stocks for a diverse list of companies that stand to benefit from the big shift.

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