North America

Earnings Preview: Bed Bath and Beyond Q3 2015 (BBBY)

By: Craig Bowles

Overview:

Bed Bath and Beyond, Inc. (BBBY) is slated to report 3Q 2015 earnings after the bell on Thursday, January 7th. The earnings release is expected at approximately 4:15 p.m. EST followed by a 5:00 p.m. conference call available at Bed Bath and Beyond Investor Relations. The home furnishing and retail company operates close to 1500 stores and is an index component of the Standard and Poor’s 500 and NASDAQ-100.

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Outliers & Strategy

Key measures:

  • Earnings Per Share (EPS): On December 22, the company reduced guidance to $1.07 to $1.10 from $1.14 to $1.21. The Street estimate is $1.09 (range $1.08 to $1.21) (source: Yahoo! Finance). Consensus was $1.18 three months ago. The company normally reports a “clean” number comparable to estimates.
  • Revenues: Guidance was reduced to approximately $3.0 bln or 0.3% y/y growth from 1.8% to 4.0%. Analysts expect an increase of 1.1% y/y to $2.98 bln (range $2.95 bln to $3.04 bln).
  • Comparable Store Sales: Company guidance is for a y/y decline of 0.4%, reduced from 1.0% to 3.0% growth.
  • Earnings Per Share (EPS) Guidance for 4Q 2015: The current Street estimate is $1.86 (range $1.71 to $1.97).
  • Comparable Store Sales Guidance for 4Q 2015: From the beginning of the fiscal fourth quarter through Christmas, the company anticipates an increase of approximately 1.0%.
  • P/E of 9.4 compares to a 5-year average of 15.7, Price/Book of 3.2 compares to a 5-year average of 3.5, Price/Sales of 0.7 compares to a 5-year average of 1.4, and Price/Cash Flow of 8.2 compares to a 5-year average of 12.1.
  • Analysts view BBBY with 4 (down from 7) Buy, 16 Hold, and 3 Sell ratings (source: MarketBeat.com).
  • Insiders have not traded the last three months but sold a net 1,096,050 shares in the past year (source: NASDAQ.com). September’s $2.5 billion stock buyback compares to 2014’s $2 bln.
  • Lumber prices have been shown to lead housing-related stocks by one year, indirectly effecting BBBY. Lumber prices suggest no letup in the headwind during the first half of 2015, shown by RandomLengths.com.
  • Bed Bath and Beyond results are compared to other home furnishing retailers, such as Sears (SHLD), Williams-Sonoma (WSM), Pier 1 Imports (PIR), Lowe’s (LOW), and Home Depot (HD). Wal-Mart (WMT) and Target (TGT) have a presence in this area, as well.
  • Bed Bath and Beyond shares have a 1-day average price change on earnings of 5.98%. Options are pricing in an implied move of 5.80% off earnings.

Recent News

  • 12/23 BBBY has lost $1.7 billion buying back Its own stock in the past 5 years, according to a post on ZeroHedge.com.
  • 12/23: Following reduced guidance by Bed Bath & Beyond, Citigroup and Wedbush reiterated Neutral ratings. Consumers shifting their shopping from stores to digital channels and a reliance on aggressive couponing will drive gross margin contraction over the next 2.5 years, according to a post on Barron’s.com.
  • 12/22: SunTrust favors Bed Bath & Beyond arguing that fears of a 2016 recession and online competition have been exaggerated, according to a post on Barron’s.com.

Technical Review

Bed Bath and Beyond’s massive head-and-shoulders topping formation had the first shoulder was completed at the end of 2012 and the second in May 2014. A full retracement of the bull market would return to the low $20s. Point and figure technicians have a downside target of $35 and a rally up to $65 would remain below their downtrend line and the 200-day moving average. (Chart courtesy of StockCharts.com).

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Summary

Bed Bath and Beyond is dealing with margin pressure due to competition with online retailers as well as the company’s investment in online retail. Some analysts see value and others see a secular change. Dispensing coupons for 20% off almost any item has helped reduce more than margin as the company reduced guidance just before Christmas. The company has missed by 1c or reported in-line over the past four quarters. Estimize consensus for the company to earn $1.16 on revenue of $3.013 bln compares to analyst consensus of $1.09 on revenue of $2.98 bln. Guidance for the following quarter will compare to a range around consensus expectations of $1.83 to $1.89.

 

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