North America

Earnings Preview: Bed Bath & Beyond Q3 2016 (BBBY)

By: Craig Bowles

Overview

Bed Bath and Beyond, Inc. (BBBY) is slated to report 3Q 2016 earnings after the bell on Wednesday, December 21st. The earnings release is expected at approximately 4:15 p.m. ET 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): The Street estimate is $0.99 (range $0.93 to $1.09) (source: Yahoo! Finance). Consensus was $1.01 three months ago. The company normally reports a “clean” number comparable to estimates.
  • Revenues: Analysts expect an increase of 2.0% y/y to $3.01 bln (range $2.97 bln to $3.04 bln).
  • Comparable Store Sales: Company y/y guidance was for 1.0% to 2.0% growth in 2016. Q2 was -1.2%.
  • Earnings Per Share (EPS) Guidance for FY 2016: Company guidance is a range of $4.50 to “just over” $5.00. The current Street estimate is $4.73 (range $4.61 to $4.90). Consensus was $4.83 three months ago and $5.21 six months ago.
  • P/E of 9.8 compares to a 5-year average of 14.9, Price/Book of 2.8 compares to a 5-year average of 3.7, Price/Sales of 0.6 compares to a 5-year average of 1.4, and Price/Cash Flow of 7.0 compares to a 5-year average of 11.4.
  • Analysts view BBBY with 2 Buy, 16 Hold, and 7 Sell ratings (source: MarketBeat.com).
  • Insiders made no trades the last three months and sold a net 1,389,291 shares in the past year (source: NASDAQ.com). September 2015’s $2.5 billion stock buyback compared to 2014’s $2 bln. 2016 launched a $0.125 dividend.
  • Lumber prices have been shown to lead housing-related stocks by one year, indirectly effecting BBBY. Lumber prices suggest better upside potential in 2017, 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 2.18%. Options are pricing in an implied move of 6.34% off earnings.

Recent News

  • 12/12: Bed, Bath & Beyond is being removed from the NASDAQ-100 Index on Dec 19, 2016, according to a post on Zack’s.com.
  • 12/12: Bed Bath & Beyond’s purchase of e-retailer PersonalizationMall.com for $190 million in cash won’t have an effect on the current quarter’s bottom-line profit. PMall.com will operate separately with more details likely to be discussed during the earnings conference call, according to a post on Fool.com.
  • 10/06: Bed Bath & Beyond is piloting a premium membership program to replace coupons. Wedbush Securities thinks this is the best move so far to recapture the retailer’s lost market share with prices that would beat Amazon’s by an average 13%, according to a post on Retaildive.com.

Technical Review

Bed Bath and Beyond had been finding support just above $40 in 2016 before testing below in November. A full retracement of the bull market would return to the low $20s but the hope is that anything housing related shows strength in 2017 suggested by a 1-year lag of lumber prices. In any case, the stock is currently testing above the 2003-2007 range of $35-$45. Point and figure technicians have a tentative bullish target of $66. (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. Insider selling ceased following the spike six months ago. Dividend plans appear to have replaced buybacks. The company missed analyst consensus by 6c and then 5c the last two quarters and has an average beat/miss of 5c the past four quarters. Estimize consensus for the company to earn $0.99 on revenue of $3.02 bln compares to analyst consensus of $0.99 on revenue of $3.01 bln. Guidance will be factored into the market reaction.

 

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