Categories Analysis, Retail

Bed Bath & Beyond might suffer from low comps, margin pressure in Q2

Home decor retailer Bed Bath & Beyond (Nasdaq: BBBY) is all set to publish its second-quarter results on Wednesday at 4:15 pm ET. The free-falling market value has been a major concern for the company and its shareholders. Though the management is making efforts to execute its business transformation plan, it doesn’t seem to be progressing as planned. Mary Winston, the company’s interim CEO, in a recent statement called for a fundamental change in the way the reorganization plan is executed.

Bed Bath Beyond (BBBY) comparable store sales-trend

It is very important for the Union, New Jersey-based company to come up with a strategy to revive growth before the upcoming holiday season, or else profitability would be hit by high costs and the weakening comps. Initial estimates indicate that store traffic remained weak so far this year, which points to a further slowdown in margin growth – a perennial challenge for the company.

What to Look for

Analysts’ consensus earnings estimate for the second quarter is $0.29 per share, down from $0.36 per share recorded in the same period of last year. The revenue guidance of $2.75 billion represents a 6% year-over-year decrease.

There is no quick fix for the main problems facing the company – lack of innovation that deprives customers of a pleasant shopping experience both in stores and on the digital platform. Without ramping up the existing infrastructure, the company might not be able to retain customers.

Q1 Outcome

The retailer’s performance in the June-quarter was one of the worst in its history. Total sales dropped to $2.6 billion, hurt by a 7% contraction in comparable-store sales. Consequently, adjusted earnings plunged 68% annually to $0.12 per share. In all of the trailing four quarters, the top-line fell short of the market’s expectations.

Peer Performance

Among others in the home furnishing sector, The Home Depot (HD) reported a 4% growth in earnings to $3.17 per share for its most recent quarter, when revenues rose to about $30 billion.

Related: Bed Bath & Beyond Q1 2019 Earnings Call Transcript

Bed Bath & Beyond has remained one of the worst-performing Wall Street stocks, losing about 87% in the past four years. The losing streak intensified after the dismal first-quarter results. The stock closed the last session below the $10-mark.

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