Key Takeaways From Bed Bath & Beyond’s Q3 Results
Bed Bath & Beyond (NASDAQ: BBBY) reported better-than-expected fiscal third quarter results on Wednesday, December 20, as both its revenues and earnings came in ahead of consensus estimates. However, the company’s stock jumped 7%, before dropping back to as much as 6% lower after the announcement, as the company also reported a 50% year-over-year (y-o-y) decline in its net profits. Below we highlight some of the most notable items from the earnings release.
- In the third quarter, Bed Bath & Beyond’s revenue remained flat at $2.96 billion, primarily due to a 0.3% decrease in comparable sales, partially offset by an increase in non-comparable sales, including One Kings Lane, PMall, and new stores. This decline in comparable sales reflected a decline in the number of transactions in stores, partially offset by an increase in the average transaction amount.
- Additionally, comparable sales from the company’s customer-facing digital channel continued to see strong growth, while comparable sales from its stores declined in the low-single-digit percentage range.
- On the cost side, Bed Bath & Beyond’s selling, general and administrative (SG&A) expenses increased 6% y-o-y to around $930 million due to payroll and payroll-related items, advertising expenses, restructuring charges, technology-related expenses, and other costs.
- In terms of capital expenditures, the company spent $264 million in the first nine months of 2017, of which more than 40% was spent on technology projects including investments in digital capabilities and the development and deployment of new systems and equipment in stores.
- The retailer also posted diluted earnings of 44 cents per share, which declined 48% y-o-y.
- Bed Bath & Beyond’s gross margins continued to face pressure in the quarter. The company’s gross margin declined by approximately 170 basis points (bps) from 36.9% in Q3 2016 to 35.2% in Q3 2017. The company identified an increase in net direct-to-customer shipping expenses as the primary reason for this decline, which resulted from more promotional shipping activity. In addition, a decrease in merchandise margin and an increase in coupon expense also reduced the company’s gross margins in the quarter.
- For the full-year 2017, Bed Bath & Beyond expects its comparable sales growth to decline in the low single-digit percentage range. The company also expects its net sales to be relatively flat to slightly positive, due to the store management restructuring charges in the second quarter, technology-related expenses including related depreciation and the cost related to Hurricanes Harvey, and Maria. In addition, the company continues to expect net earnings per diluted share for the full-year to be around $3.
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- The company did not publish guidance for the fourth quarter, but consensus estimates for the company’s fiscal fourth quarter call for earnings of $1.43 per share and revenues of $3.7 billion, implying growth of about (-22)% and 5%, respectively.
Our $25 price estimate for Bed Bath & Beyond’s stock is roughly in line with the current market price.
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