Of late, Bed Bath & Beyond Inc. BBBY has been struggling with its performance. Stock price of this operator of domestic merchandise and home furnishing stores has nosedived 36.2% year to date. The plunge in the share price is enough to put an ardent investor on the back foot. So what suddenly went wrong with the company? Is the stock devoid of any catalyst? These are the obvious questions that demand answers. Let’s find out.
Hurdles to Combat
Bed Bath & Beyond has been facing waning sales for a while now, as is evident from the fact that it posted negative sales surprises in seven out of the past eight quarters.
In the recently reported second-quarter fiscal 2015 results, the company’s top line was significantly impacted by adverse currency movements in Canada. Consequently, net sales of $2,995.5 million missed the Zacks Consensus Estimate of $3,033 million, while on a currency-neutral basis, sales rose 2.2%.
Also, Bed Bath & Beyond recently lowered its earnings and sales projections for the third quarter of fiscal 2015. The company expects net sales for the third quarter to increase nearly 0.3% year over year to $3 billion, sharply lower than its previous estimate of increase in the range of nearly 1.8% to 4%. Comps are now expected to decrease 0.4% in comparison to the company’s previous estimate of increase in the range of 1% to 3%.
Consequently, the company lowered its earnings estimates for the third-quarter and now envisions net earnings per share in the range of $1.07 to $1.10, well below its previous estimate of around $1.14 to $1.21.
Reduced estimates primarily resulted from weaker in-store transaction counts as well as overall softness in the retail sector in the third quarter. Further, management continues to expect currency headwinds to weigh upon the company’s performance.
Notably, shares of the company have dropped 4.6% since the announcement. Also, investors seem to have become less constructive on the stock as over the last 7 days, its Zacks Consensus Estimate has declined 7.6% to $1.09 per share and 1.9% to $5.10 per share for the third quarter and fiscal 2015, respectively.
Hidden Catalysts
However, on the brighter side, we note that despite soft sales, the bottom line managed to meet expectations after underperforming the Zacks Consensus Estimate twice in a row. Evidently, Bed Bath & Beyond’s second-quarter earnings of $1.21 per share rose 3.4% year over year and came in line with the Zacks Consensus Estimate. Also, the figure was within the company’s guidance range of $1.18–$1.23 per share.
Also, alongside its preliminary results, the company stated that its online sales witnessed robust growth of over 25% in the third quarter. Further, management provided an update on expected comparable store sales (comps) growth from the fourth quarter beginning through Christmas, of roughly 1%.
Another driving factor for the company is its store expansion plan, enhancement of product and brand offerings as well as building operational infrastructure. Additionally, the company remains committed to return value to stockholders through share repurchases.
Further, Bed Bath & Beyond is intently focused on strategically expanding its store base. A strong countrywide network, coupled with strategic efforts to align merchandise with regional climate and demographics, offers the company a competitive advantage, while strengthening its well-established position in the market.
Moreover, the company’s policy of avoiding dependence on a single supplier helps it enjoy superior bargaining power over its peers. Hence, despite the lowered guidance, we cannot ignore this Zacks Rank #3 (Hold) company’s strategic initiatives that may act as growth drivers in the future.
Stocks to Consider
Better-ranked stocks in this sector worth considering include Regis Corp. RGS, CST Brands, Inc. CST and ULTA Salon, Cosmetics & Fragrance, Inc. ULTA. Regis sports a Zacks Rank #1 (Strong Buy), while CST Brands and ULTA Salon, Cosmetics & Fragrance hold a Zacks Rank #2 (Buy) each.
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