Bed Bath & Beyond Turns Red with Surprise Loss

Bed Bath & Beyond Inc. (NASDAQ: BBBY), an American chain of domestic merchandise retail stores, has reported a surprise loss in the fourth quarter of Fiscal 2021 (ended February 26), compared with analysts’ earnings expectations. Also, revenues missed estimates. 

Following the results, shares of the company lost 1.17% on Wednesday to close at $17.76. 

According to Mark Tritton, Bed Bath & Beyond’s President and CEO, inventory shortages and supply chain problems impacted sales by about $175 million. Also, high inflation, omicron, and other geopolitical factors acted as headwinds. 

Results in Detail 

Bed Bath & Beyond incurred an adjusted loss of $0.92 per share, compared with the Street’s earnings estimate of $0.03 per share. The company reported earnings of $0.40 per share in the same quarter last year. 

Net sales generated during the quarter declined 22% year-over-year and stood at $2.05 billion, missing the consensus estimate of $2.07 billion. The planned reduction from non-core banner divestitures and a decline of 14% in core sales impacted net sales. 

Additionally, the normalization of demand within ecommerce compared to the last year acted as a headwind for both Bed Bath & Beyond and buybuy BABY. Disappointingly, comparable sales dropped 18% in the digital channel. 

Interestingly, buybuy BABY comparable sales recorded growth in the low-single digits, driven by mid-teens growth in stores. 

Adjusted gross margin stood at 28.8%, down 400 basis points year-over-year. Higher-than-expected supply chain costs negatively impacted margin, including 360 basis points mainly associated with freight and shipping inflation. 

Fiscal 2021 Results 

For the year, Bed Bath & Beyond recorded a loss of $5.64 per share, compared to the loss of $1.24 per share reported in the prior year. Net sales came in at $7.87 billion, down 14.7% year-over-year.  

Tritton added, “Encouragingly, buybuy BABY delivered its sales goal for the quarter which led to $1.4 billion in sales for the full year, growing double digit, at an estimated mid-single digit adjusted EBITDA margin.” 

CEO’s Comments

Looking forward, Tritton said, “While our operational execution may have thwarted our near-term efforts, our focus also remains on our long-term strategy and transformation…As we progress through 2022, the investments we are making in our supply chain and technological foundation are designed to greatly improve our proficiencies, enabling us to overcome the types of challenges we are facing currently.” 

Outlook for Fiscal 2022  

Expecting improved supply chain conditions in the second half of Fiscal 2022, management expects higher sales compared with the first half. Additionally, the adjusted gross margin is expected to expand modestly on a year-over-year basis. 

Wall Street’s Take  

Following the Bed Bath & Beyond earnings report, Goldman Sachs analyst Kate McShane reiterated a Sell rating and a price target of $14 (21.17% downside potential). 

Another analyst, Zachary Fadem from Wells Fargo maintained a Sell rating and a price target of $10 (43.69% downside potential) on the stock. 

Disappointingly, Fadem said, “Considering Year 1 results on BBBY’s multiyear transformation, we believe it’s fair to assume the FY23 EBITDA target of $850 million to $1 billion is now off the table.” 

The rest of the Street is bearish on the stock with a Moderate Sell consensus rating. That’s based on one Buy, two Holds, and four Sells. The average Bed Bath & Beyond price target of $15.33 implies 13.68% downside potential to current levels. Shares have decreased 27.57% over the past year. 

Bottom-Line 

With the ongoing comprehensive transformation of the company and analysts’ bearish stance, along with several headwinds, including supply-chain issues, cost pressure, and other macroeconomic factors, investors should be very cautious before investing in this stock. 

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