Bed, Bath & Beyond (BBBY, Financial) is a retailer that sells a variety of home furnishing products. Its shares have risen by 15% in the last year. It managed to beat the Street’s estimates in two out of the last four quarters. But frail economic recovery has been a deterrent to its growth. Nonetheless, the company has managed to overcome it to some extent through its various initiatives.
The retailer’s last quarter results were mixed, as its top line came slightly below the consensus, whereas the bottom line was ahead of it. This resulted in a decline in its share price. Let’s dig in deeper.
An overview
Revenue for the quarter increased 4% to $3.34 billion, as compared to the previous year and was below the analysts’ estimate of $3.37 billion. There were a host of factors, including extreme weather conditions, port disruptions and slowdown in the housing market affected sales during the quarter, resulting in lower than expected sales.
However, same store sales growth of 3.7% helped the top line grow, despite unfavorable changes in Canadian currency rate. The same store sales metric was a result of increase in transaction amount and an increase in the number of transactions. Also, Bed, Bath & Beyond opened five new stores during the quarter.
Although bad weather in the U.S. affected revenue, sales at the company’s website and the mobile app is on the rise. This is mainly because customers are finding it easier to shop online with the convenience of getting the products delivered at their doorstep.
However, the gross margins were hurt due to higher promotions made by the company and a shift towards online shopping, where higher discounts are provided. Thus, the margin declined 80 basis points to 39.7% due to a higher coupon expense. However, the bottom line jumped to $1.80 per share as against $1.60 per share in the previous year. This increase was primarily due to share repurchases of 11.8 million shares.
Key hurdles
Along with a slow economic recovery, the retailer has a number of problems. It faces stiff competition from online retailers who offer cheaper products. This has been overcome to some extent by providing online shopping facilities.
The company is also incurring higher costs associated with technology upgrades in order to move towards omni-channel strategy. This will lead to lower profits.
Further, furniture and home furnishing store sales in the U.S. dropped by 1% as the housing market showed unstable recovery.
Benefits
But the company is unmoved by such hurdles and has undertaken a number of initiatives to overcome them and maximize sales. It plans to expand its stores into new regions; it plans to strengthen its e-commerce capabilities. Also, it will be improving customer service which should help attract more customers.
Moreover, the housing market is improving, although at a slow pace, which should lead to higher sales for the company. It has also come with new services such as reserve online and pick up in store facility, which resonated well with the customers.
The summary
Bed, Bath & Beyond managed to register a decent quarter, despite a number of hurdles on the way. But the main reason why investors were unhappy was the outlook. The company expects a bottom line of $0.90 per share to $0.95 per share in the current quarter, whereas the Street was expecting it to be at $1.01 per share. Thus, the outlook is the main concern. However, the retailer’s strategies might be helpful in registering growth. Hence, it is better to keep a close watch at this company.
