[Updated: 10/14/21] BBBY Stock Update
Bed Bath & Beyond (NASDAQ: BBBY) released its Q2 report, wherein revenues came in 4% below our estimates, and earnings per share (EPS) came in negative as compared to our expectations of 52 cents. The company’s revenues declined a large 26% year-over-year (y-o-y) to $2 billion, missing the company’s guidance range of $2.04 billion to $2.08 billion, largely due to comps falling 1%. The retailer reported that traffic slowed significantly during the key month of August and therefore sales did not materialize as anticipated. That said, falling customer traffic amplified the unprecedented supply chain issues and rising cost pressures on the company. Overall, the weak sales figure combined with the spiking costs resulted in a net loss of $73 million (or -$0.72) compared to a $218 million (or $0.04) gain a year ago. The company also faced a challenging environment in the second quarter as the Covid fears re-emerged amid the Delta variant spread.
The only positive takeaway from the Q2 earnings was its strong balance sheet. The company generated $75 million in operating cash flow during the quarter, driven by working capital improvement. Its total liquidity came up to $2 billion – with $1.1 billion in cash and investment and another $1 billion from the asset-based revolving credit facility. As such, it looks like the company can still continue to spend on its turnaround initiatives going forward. However, everything will hinge on its ability to maintain its sales levels while improving profitability over the long term.
For the third quarter, Bed Bath & Beyond expects flat comparable sales, net sales between $1.96 billion to $2 billion, and adjusted EPS to range between even ($0.00) and $0.05. BBBY lowered full-year guidance and now expects earnings to range between $0.70 and $1.10 on net sales of $8.1 billion to $8.3 billion. It also expects an adjusted gross margin between 34% and 35% for the full year. We have updated our model following the fiscal Q2 release. We now forecast BBBY’s Revenues to be $8.1 billion for fiscal 2021, down 11% y-o-y, compared to a prior forecast of a 9% y-o-y decline in revenues. We also expect EPS to come in at $0.83, up from a loss of $1.24 last year, compared to our prior estimate of $1.47. Given the changes to our revenues and earnings forecast, we have revised our BBBY’s Valuation to $18 per share, based on $0.83 expected earnings per share (EPS) and a 22x P/E multiple for fiscal 2021 – 25% higher than the current market price. We believe BBBY stock appears cheap at the current market price of around $14.
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[Updated: 09/29/21] BBBY Q2 Pre-Earnings
Bed Bath & Beyond (NASDAQ: BBBY) is scheduled to report its fiscal second-quarter results on Thursday, September 30th. We expect the home goods retailer’s stock to likely trade higher with revenues and earnings beating market expectations post the second-quarter results. Bed Bath & Beyond has shed all of its non-core segments in order to prioritize its survival in the retail market. In fact, the Covid-19 crisis caused the retailer to rely on its e-commerce platform as people used their time at home to spruce up their interiors. In Q1, the company saw more than 38% of its total sales come from online orders. In addition, the company also partnered with the food delivery platform DoorDash to offer same-day delivery on store items across the U.S. and Canada. We expect this digital sales growth trend to continue into Q2 as well. That said, the company still depends on its massive turnaround strategy as it has been struggling with margin pressure and declining store traffic amid competition from e-commerce and omnichannel competitors in recent years.
While BBBY’s revenues in Q1 increased at existing stores for four consecutive quarters, adding confidence to BBBY’s rebound plan, the company still has a long way to go before it can claim to be on a sustainable growth plan. Our forecast indicates that Bed Bath & Beyond’s valuation is around $29 a share, which is 26% higher than the current market price. Look at our interactive dashboard analysis on Bed Bath & Beyond’s Pre-Earnings: What To Expect in Fiscal Q2? for more details.
(1) Revenues expected to be slightly ahead of consensus estimates
Trefis estimates Bed Bath & Beyond’s Q2 2021 revenues to be around $2.08 Bil, slightly ahead of the consensus estimate. During the first quarter of 2021 (ended May 29), Bed Bath & Beyond’s revenue grew by a strong 49% year-over-year (y-o-y) to $1.95 billion, due to sustained consumer interest across its bedding, bath, indoor decor, kitchen food prep, and home decoration products. While Bed Bath’s Q1 comparable sales growth of 86% saw an easy comparison y-o-y, this metric was up 3% in comparison to Q1 of 2019. The buybuy BABY banner continued to deliver positive sales growth with sales increasing more than 20%, led by 50% growth in its digital channel. Looking ahead, BBBY raised its comparable sales expectations for the coming quarters to the low single-digit growth range compared to prior guidance for flat comparable sales growth. In addition, it anticipates sales to range between $8.2 billion to $8.4 billion for the full year vs a prior range forecast of $8 billion to $8.4 billion. Trefis estimates Bed Bath & Beyond Revenues to decline 12% y-o-y to $8.1 billion for the full year.
2) EPS likely to beat the consensus mark
Bed Bath & Beyond’s Q2 2021 earnings per share (EPS) are expected to come in at 54 cents per Trefis analysis, 4% higher than the consensus estimate of 52 cents. In Q1 2021, the company reduced its SG&A expenses by 9% compared to the prior-year period. This enabled it to post earnings per share of -$0.48, compared to a loss of $2.44 during the same period in the previous year. On an adjusted basis, it squeezed out a razor-thin profit of $0.05 per share.
It should be noted that the company continues to see margin pressures due to increased digital fulfillment costs. To add to that, the company already faces brutal competition from low-margin online pure-play retailers such as Wayfair and HomeGoods.
(3) Stock price estimate above the current market price
Going by our Bed Bath & Beyond’s Valuation, with an earnings per share estimate of around $1.47 and P/E multiple of 19.6x in fiscal 2021, this translates into a price of around $29, almost 26% higher than the current market price.
The home goods retailer also presented a three-year outlook, wherein it intends to boost profitability through better inventory management and debt reduction, ultimately resulting in $500 million to $1 billion in cumulative free cash flow from now through the end of 2023. Although the company seems to have taken steps in the right direction, everything will hinge on its ability to maintain its sales levels over the long term. For now, there are too many potential stumbling blocks.
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