BBBY Stock: Why Bed Bath & Beyond Just Tanked 27%!
October 05 2021 - 7:19AM
Finscreener.org
Shares of retail giant
Bed Bath and Beyond (NASDAQ:
BBBY) has fallen over 27%
in the last five trading sessions. The company announced its
fiscal second quarter of 2022
results last week and
reported revenue of $1.99 billion and adjusted earnings of $0.52
per share. It missed consensus revenue estimates by $70 million
while Wall Street expected Bed Bath & Beyond’s adjusted
earnings at $0.52 per share in Q2. Further, it also reported a GAAP
net loss of $0.72 per share in the quarter ended in
August.
During its last earnings call in
June, Bed Bath & Beyond has issued a lackluster guidance for
Q2. After adjusting for divestitures, it had estimated total sales
to decline in Q2 compared to the same period in 2019.
Alternatively, the demand for home furnishing products in this
period has seen sales rise by a robust 20% year over year. BBBY had
also initially forecast adjusted Q2 earnings between $0.48 and
$0.55 per share.
While total sales fell 26% year
over year in Q2, around 15 percentage points can be attributed to
divesture of its non-core businesses that includes Christmas Tree
Shops and Cost Plus World Market.
The company’s operating cash flow
was $75 million but its capital expenditures stood at $76 million
which meant free cash flow was neutral.
More pain ahead for BBBY stock?
Bed Bath & Beyond’s sales
were down 6% year over year in fiscal Q1 compared to the same
period in 2019. In Q2, comparable store sales declined by 1% while
its core retail banners experienced a 11% fall in top-line. The
surge in COVID-19 cases in several U.S. states also hit in-store
footfall in the last month of Q2.
Rising freight costs and
supply-chain issues have hurt the company’s profit margins and are
likely to impact the bottom-line going forward. Its adjusted gross
margin of 34% was below management’s midpoint guidance of 35.5% for
Q2. If we include the markdown’s on older inventory its GAAP gross
margin was lower at just 30.3%.
Bed Bath & Beyond management
warned that macro-economic challenges have not abated in September
and explained, “WeU+02019re exercising caution on the near-term
pressures related to rising cost inflation and the ongoing
tightening of supply availability….WeU+02019re still projecting
some sequential increase in freight costs as we go from Q2 to
Q3.”
Bed Bath & Beyond may continue to
underperform
Bed Bath & Beyond like most
other companies claims that GAAP metrics such as re-structuring and
impairments are non-recurring in nature. However, the company has
reported over $1 billion dollars in write-offs and impairments in
the last few years.
In Q3 the company expects sales
between $1.96 billion and $2 billion, compared to prior-year sales
of $2.61 billion. Analysts on the other hand forecast Q3 sales at
$2 billion. Wall Street expects sales to decline by 10.4% year over
year to $8.27 billion in fiscal 2022 and to remain flat year over
year in 2023.
Bed Bath and Beyond is valued at
a market cap of $1.6 billion indicating a forward price to sales
multiple of just 0.17x making it one of the cheapest stocks even
among peers. It
ended the August quarter with $1 billion in cash and $3.14 billion in
debt, which shows it has enough liquidity to tide over the
near-term tailwinds.
But the company will continue to
be negatively impacted as the management team is hoping for a
recovery in the upcoming months to end the quarter in the green.
Bed Bath & Beyond is looking to upgrade its digital
capabilities to drive online sales higher while investing in
several other private brands. It also aims to enhance the customer
experience but continues to stare down the barrel given an
extremely competitive environment.
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