Why has Bed Bath & Beyond (BBBY) risen 41.7% since the last earnings report?

A month has passed since the last earnings report from Bed Bath & Beyond (BBBY). Stocks added about 41.7% during this period, outperforming the S&P 500.

Will the recent positive trend continue until its next earnings release, or should Bed Bath & Beyond suffer a setback? Before we dive into the reaction of investors and analysts lately, let’s take a look at the latest earnings report to better understand the important catalysts.

Bed Bath & Beyond misses third quarter earnings and sales estimates

Bed Bath & Beyond released its third quarter fiscal 2020 results, in which both the top and bottom results were below the Zacks consensus estimate. Results were impacted by COVID-related headwinds, including dismal store traffic, significant shipping constraints and increased freight costs. Although the negative effects of COVID-19 weighed on third-quarter store sales in its BABY business, it returned to growth in December.

Additionally, the company posted a second consecutive quarter of comparable sales and profit growth. Solid cash flow and a solid balance sheet remained the main strengths. Encouragingly, management announced that it would relaunch returns to shareholders.

Apart from that, it has taken several measures for the recent festive season, including improved omnichannel facilities – new contactless store and curbside pickup, and same-day delivery services – for which it has received feedback. customer positives. Additionally, demand remained strong during the holiday season. Sticking with those lines, the company noted that the company’s total comparable sales were strong in the first month of the fiscal fourth quarter.

Q3 in detail

Bed Bath & Beyond reported adjusted earnings of 8 cents per share for the fiscal third quarter, missing Zacks’ consensus estimate by 20 cents. However, the figure reflects a marked improvement from a loss of 38 cents recorded in the year-ago quarter. This increase is mainly due to improved margins and lower expenses.

Net sales were $2,618 million, down 5% year-on-year due to the sale of non-core businesses and store closures. Additionally, it was behind Zacks’ consensus estimate of $2.756 million. Additionally, digital sales increased by approximately 75% in the quarter under review. Several omnichannel services, such as Buy-Online-Pick-Up-In-Store and Curbside Pickup, have contributed to the growth in digital sales.

Clearly, BOPIS now accounts for over 16% of total digital sales. Driven by its strong omnichannel capabilities, Bed Bath & Beyond recorded over 2 million new customer acquisitions during the quarter under review. On the other hand, in-store sales fell 17% in the quarter under review.

In the quarter, comparable sales (coms) increased 2% year-over-year, driven by the growth of the Bed Bath & Beyond banner and strong digital competitors. Home organization, kitchen food preparation, bedding, bath and home decor were the top growth categories, with combined sales growth of 11%.

Additionally, these categories collectively accounted for two-thirds of Bed Bath & Beyond’s total unit sales in the quarter under review. Subsequently, the company increased its investments in these key categories to strengthen its position in the domestic space.

During the five-day holiday sales period from Thanksgiving to Cyber ​​​​Monday, the company delivered double-digit year-over-year growth in overall comps for the primary banner US Bed Bath & Beyond, with digital comps up around 69%, which more than offset the in-store commissions down 24%.

Adjusted gross profit rose 4.1% to $926.2 million in the third fiscal quarter. Additionally, adjusted gross margin increased by 310 basis points (bps) to 35.4% driven by positive product mix, higher markdowns, better promotions, as well as higher distribution and fulfillment costs. weak. On the other hand, an unfavorable digital channel mix and high shipping costs acted as a deterrent.

Meanwhile, SG&A spending fell 4.5% to $890.7 million, due to reduced advertising spending and lower payroll.

Additionally, the company incurred an operating loss of $122.8 million, up from a loss of $29.8 million in the year-ago quarter.

Financial situation

Bed Bath & Beyond ended the fiscal third quarter with cash and investments of approximately $1,462.6 billion. Long-term debt totaled $1,190.3 million and total equity was $1,400 million as of November 28, 2020. During the quarter, cash provided by operating activities increased to $43.5 million, as well as nearly $38 million in capital expenditures.

The company reduced its gross debt by about $500 million through a bond offering and the repayment of a loan. That said, management has close to $2.2 billion in liquidity, driven by strong cash flow of $244 million.

As the company intends to reinvigorate returns to shareholders, the total share buyback program has been increased to $825 million from $675 million previously. Additionally, it launched an ASR worth $375 million, which is expected to be completed by February 27, 2021.

Look forward

Although Bed Bath & Beyond has refrained from providing a view of sales and earnings for the fiscal fourth quarter, it expects the positive sales momentum to continue on the digital platform. However, in-store traffic is expected to remain lackluster.

Total business mix for the fourth fiscal quarter is expected to be nearly flat year-over-year, with net sales expected to decline at a double-digit rate. This could be due to store closures and the divestiture of non-essential categories.

In addition, gross margin and adjusted EBITDA are expected to be stable year-over-year. However, Adjusted EBITDA margin is expected to be higher year-over-year in said quarter, driven by better promotions, better product mix, lower distribution and fulfillment costs and to higher markdowns to mitigate rising transportation costs.

For fiscal 2020, adjusted EBITDA guidance has been raised to $500-525 million from $500 million previously. Additionally, the strong sales trend is expected to continue in the digital space and among key growth categories. Other than these, management remains focused on optimizing costs and improving margins.

Next, he noted that his non-core portfolio banner work is nearing completion in the fiscal fourth quarter. These efforts will help fund its transformation plans and position itself well for a strong start to fiscal 2021.

Business developments

Driven by the fact that nearly two-thirds of baby customers made online purchases during the third fiscal quarter, Bed Bath & Beyond upgraded and relaunched its buybuy BABY app in November 2020. Additionally, sales of its mobile application have more than doubled year after year.

Encouragingly, the company introduced same-day delivery services on bedbathbeyond.com and buybuybaby.com during the said quarter. Additionally, it has partnered with Shipt and Instacart to provide same-day delivery services to Bed Bath & Beyond customers and buybuy BABY banners. Furthermore, he stressed that his stores will remain open despite government restrictions.

Store Updates

The company closed four Bed Bath & Beyond stores in the quarter and 75 additional stores in December. It currently remains on track to close 42 additional stores. By the end of fiscal 2021, approximately 200 underperforming Bed Bath & Beyond stores will be closed.

Apart from these, the store renovation program is progressing well, in which proof-of-concept stores will showcase destination categories, bed, bath, kitchen and storage products. The company is now iterating this across 10 stores in Houston, which is expected to be completed by February 2021. This three-year plan will be executed across more than 450 stores representing nearly 60% of its sales.

How have the estimates changed since then?

It turns out that the new estimates have trended lower over the past month. The consensus estimate changed by -55.46% due to these changes.

VGM Scores

Currently, Bed Bath & Beyond has an average growth score of C, although it lags far behind on the Momentum score front with an F. However, the title has been assigned a B rating on the side of value, placing it in the top 40% for this investment strategy.

Overall, the title has an overall VGM score of C. If you’re not focused on a strategy, this score is the one you should be interested in.

Outlook

Estimates have trended lower overall for the stock, and the magnitude of these revisions indicate downward movement. Notably, Bed Bath & Beyond has a Zacks Rank #3 (Hold). We expect the title to return online in the coming months.

Want the latest recommendations from Zacks Investment Research? Today you can download 7 best stocks for the next 30 days. Click to get this free report

Bed Bath & Beyond Inc. (BBBY): Free Stock Analysis Report

To read this article on Zacks.com, click here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.