Bed Bath & Beyond Crashes 22% on Disappointing Q2 Results

Omnichannel merchandise retailer Bed Bath & Beyond, Inc. (BBBY) reported disappointing second-quarter results, with both revenue and earnings missing expectations. Results were impacted by the COVID-19 Delta variant in the last leg of the quarter, as well as ongoing supply-chain constraints and inflationary pressures. Shares plunged 22.2% on the news, closing at $17.27 on September 30.

The company reported adjusted earnings of $0.04 per share, down 92% year-over-year, and significantly lower than analysts’ estimates of $0.52 per share. (See Bed Bath & Beyond stock charts on TipRanks)

To add to that, net sales declined 26% year-over-year to $1.99 billion, and also failed to meet the consensus estimate of $2.06 billion. The decline in net sales included a 15% planned reduction due to the divestiture of non-core banners related to the company’s store fleet optimization activity. Notably, comparable sales fell 1% compared to the year-ago period.

BBBY mentioned that customer demand slowed towards the end of the quarter due to unexpected external factors, such as the re-emergence of the COVID-19 virus, rising prices, and industry-wide supply-chain issues, which the company failed to mitigate. Having said that, the company is positive about the progress of its three-year transformational strategy, with its remodeled store openings and buybuy BABY banner continuing to gain momentum.

Commenting on the results, Mark Tritton, President, and CEO of the company, said, “As a group, we continued to leverage our enhanced digital channel, with significant growth above 2019 at nearly double the proportion of sales. Operationally, we entered the next phase of our supply chain modernization through our partnership with Ryder which is instrumental to our strategy. We are committed to executing over the short, mid, and long term, especially during these early stages of our multi-year plan.”

Tritton added, “We are well-positioned to continue our planned investments in our business and pave the way towards a more profitable future. We have the plan, the team, and the resources to unlock our potential.”

Based on the current economic environment and the company’s performance to date, BBBY guided for third-quarter net sales and adjusted earnings to fall in the range of $1.96 – $2.0 billion and $0.00 – $0.05 per share, respectively. Consensus estimates for net sales and earnings are pegged at $2.02 billion and $0.28 per share, respectively.

The company also revised its full-year 2021 outlook and now forecasts net sales to be in the range of $8.1 – $8.3 billion, compared to the consensus estimate of $8.31 billion. Additionally, FY21 earnings are projected to fall in the range of $0.70 – $1.10 per share, compared to the consensus estimate of $1.51 per share.

In response to the company’s poor financial performance, Wells Fargo analyst Zachary Fadem drastically lowered the price target on the stock to $14 (19% downside potential) from $28 while maintaining a Sell rating.

Fadem said, “We believe Q2’s hiccup undeniably casts doubt on BBBY’s ability to deliver on its aggressive multi-year turnaround plans. And considering a more challenging environment featuring low supply chain visibility and enhanced execution risk, we’re taking the under, lowering estimates and reducing our price target.”

The analyst went on to state that despite the encouraging new leadership and a thoughtful multi-year transformational plan (FY21-23), he views BBBY as a structurally challenged asset with low visibility and a bumpy path ahead.

Overall, the stock commands a Hold consensus rating based on 3 Buys, 6 Holds, and 3 Sells. The average Bed Bath & Beyond price target of $29.10 implies 68.5% upside potential to current levels. Shares have lost 7.9% over the past year.