Bed Bath & Beyond (BBBY) Reports Earnings That Went “Beyond” Our Expectations — But On The Downside
3:23 pm Thursday, January 06th, 2022
Bed Bath & Beyond’s (NASDAQ:BBBY) earnings report went “Beyond” our expectations — but on the downside. In our preview of the Q3 (Nov) earnings report yesterday, we cautioned that there was real potential for another miss, and that did indeed materialize. Despite the company’s poor report and guidance, its stock is trading higher today. While not much in the report excites us, it is possible that BBBY is again picking up interest with retail investors as a “meme” stock, so there may be caveats to the upside today.
BBBY reported an adjusted loss for the quarter of $(0.25), well below prior guidance of $0.00-0.05. Revenue fell 28.3% yr/yr to $1.88 bln, and was light of expectations. BBBY also provided weak EPS guidance for Q4 (Feb) at just $0.00-0.15, which was well below analyst expectations, a real letdown for the holiday period.
Not surprisingly, same store sales were also weak at just -7% vs prior guidance for a flat result. Comps were even worse at its Bed Bath & Beyond banner, falling -10%. Helping to prop up comps was the buybuy BABY banner, which posted mid-teens positive comps. Unfortunately, BBBY is guiding to a high-single digit comp decline in Q4.
The slight silver lining is that comps improved sequentially within the quarter, particularly for the Bed Bath & Beyond banner. After a slower start in September and October, the comp decline improved in November, particularly in stores. Unfortunately, sales remained under pressure despite customer demand due to a lack of inventory and supply chain stresses, the impact of which was even higher in December. Hence, the weak Q4 guidance.
The other slight silver lining was that adjusted gross margin grew 50bps yr/yr to 35.9%, which was above internal expectations. BBBY increased prices, reduced promotions, and pulled back on coupons to offset inflation and pervasive freight and supply chain cost pressures.
Bottom line, this set of quarterly results and guidance for BBBY was rough. We would not read too much into the higher stock price today. Our main criticism with BBBY is that a home retailer should be booming as people spend more time at home, so recent results have been discouraging. While a turnaround plan is under way, we would not go value shopping on the stock down here; more bad news seems likely.
On a final note, we do commend the company for aggressively buying back shares. It repurchased 5 mln shares in Q3 for $120 mln, or about 8% of shares outstanding. Its repurchase activity with the current authorization has taken BBBY’s total share count from 127 mln shares to 96 mln shares, a more than 24% reduction. BBBY is putting its money where its mouth is. However, we do shudder to think where the stock price would be without the repurchase activity.
