April 6, 2017
Today, shareholders of Bed Bath & Beyond (BBBY) are breathing a sigh of relief. It turns out that it didn't do quite as badly as analysts were fearing last quarter. Shares of BBBY rallied after the home goods retailer beat expectations for the fourth quarter. Bed Bath & Beyond has lost half of its value over the past two years; could it be ready for a big comeback? Let's take a look.
As a refresher, Bed Bath & Beyond is a home goods and furnishing retailer that operates more than 1,500 stores across North America. Bed Bath & Beyond specializes in selling home furnishings as well as food, giftware, beauty care items as well as baby merchandise. The company also operates a number of other store chains, including Christmas Tree Shops, Harmon, World Market and buybuy Baby.
For much of 2015 and 2016, Best Bath & Beyond was stuck in a rut. The retailer struggled to live up to analysts' expectations, so the stock was downgraded left and right. While Bed Bath & Beyond used to be a fixture in the home furnishings market, it hasn't been able to fend off competition from online retailers like Amazon.com (AMZN) and Wayfair Inc. (W). It also doesn't help that overall mall traffic has fallen dramatically in recent years.
Unfortunately, this latest earnings report is a case of too little, too late. Net sales increased just 3.4% to $3.5 billion, in line with analysts' estimates. Sales at stores open a year or longer ticked up 0.4%. Meanwhile, earnings per share fell 3.7% to $1.84. This did beat the $1.77 consensus EPS estimate by 4.0%.
However, the fact remains that Bed Bath & Beyond is expected to see shrinking earnings over the next few quarters. The consensus estimate is for a 6.3% earnings decline this quarter and a 3.6% decline next quarter. That's not the kind of results that I'd expect from a big comeback story.
And, if you plug BBBY into Portfolio Grader, you can see just how weak this company's fundamentals are. Of the eight fundamental metrics I graded BBBY on, it outright failed on five: Sales growth, operating margin growth, earnings growth, earnings momentum and earnings surprises. It barely squeaked by with Cs on analyst earnings revisions and cash flow.
Couple this with an F-rated Quantitative Grade, and it's easy to see why BBBY is an outright sell. While BBBY did a little better than expected, I do not see much upside potential from here.