Bed Bath & Beyond Reports Weak Earnings, Will Comparable Sales Push Growth For Full Year?

Bed Bath & Beyond (NASDAQ: BBBY) announced its Q1 2019 (ended May 2019) results on July 10, 2019, followed by a conference call with analysts. The company reported revenue in line with consensus at $2.6 billion in Q1 2019 (ended May 2019), a decrease of 6.6% y-o-y driven by declines in comparable sales. Earnings were reported at $-2.91, down from $0.32 in same period of the previous year. The fall was primarily due to the goodwill impairment cost of $401 million for the quarter.

Bed Bath & Beyond reported $12 billion in Total Revenues in FY 2018. This included 5 revenue streams:

• Bed Bath & Beyond : $7.9 billion in FY 2018 (65.9% of Total Revenues). This includes the revenue earned from the Bed Bath and Beyond Stores.
• Christmas Tree Shops: $1.6 billion in FY 2018 (13.2% of Total Revenues). This includes the revenue earned from the Christmas Tree Shops.
• Harmon & Harmon Face Values: $0.1 billion in FY 2018 (0.9% of Total Revenues). This includes the revenue earned from the Harmon & Harmon Face Values stores.
• buybuy Baby: $1.3 billion in FY 2018 (11.1% of Total Revenues). This includes the revenue earned from the buybuy Baby stores.
• World Market Stores: $1.1 billion in FY 2018 (8.8% of Total Revenues). This includes the revenue earned from the World Market Stores.

We have summarized our key expectations from the earnings announcement in our interactive dashboard – How Have Bed Bath & Beyond’s (BBBY) Revenues & Expenses Trended Recent Quarters, And What Can We Expect For Full-Year 2020? In addition, here is more Consumer Discretionary data.

Key Factors Affecting Earnings:

Revenue expected to falter:

• BBBY’s Net sales for Q4 FY 2018 dropped compared to the same period in FY 2017 due to a decrease in comparable sales and was also impacted by one less week in the year compared to FY 2017. The retailer’s comparable store sales declined in the mid-single-digit percentage range. In Q1 2019 (ended May 2019) Revenue was recorded at $2.6 billion, down by 6.6% y-o-y primarily due to the fall in comparable sales which was at 6.6%.
• Total Revenues for Bed Bath & Beyond changed from $12.3 billion in 2017 to $12 billion in 2018; a decrease of of 2.6%. This was driven primarily by a decline in the company’s store comparable sales. This compares with revenue growth of 1% in 2017 compared to 2016, 3% in 2016 compared to 2015.
• Further, we expect revenue growth to be -3.5% in FY 2019 and -1.6% in FY 2020 driven by an expected decrease in comparable sales to about low/mid-single-digit percentage range, due to low same-store sales, partially offset by anticipated growth in digital channels as well as optimization of its coupon strategy.

Trend in Expenses:

• Cost of Revenue has been consistently around 63-66% of Total Revenue, and we estimate the same to continue.
• Total Expenses saw a big jump in Q4 FY 2018 due to a goodwill and a trade name impairments charge of $509 million which we saw again in Q1 2019 at $401 million, resulting in an overall Net loss for the quarter.
  

Full Year Outlook:

• For the full year, we expect gross revenue to decrease by 3.5% to $11.6 billion in FY 2019 and a decrease of 1.6% in FY 2020, driven primarily by a decrease in comparable sales.
• Gross margin is expected to decrease slightly to 33.6% in FY 2019 and FY 2020.

Trefis has a price estimate of $14 per share for BBBY’s stock. The value is based on the expectation that the company will go through a decline in revenue and gross margins in the near future.

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