Bed Bath & Beyond's (BBBY) Q1 Earnings Miss; Stock Down

Bed Bath & Beyond Inc. (NASDAQ:BBBY) began fiscal 2016 on a soft note, as its first-quarter results lagged expectations, following which this Zacks Rank #4 (Sell) stock dropped 4.3% in the after-market trading session.

Sources revealed that the company faced fierce competition from online giants like Amazon.com Inc. (NASDAQ:AMZN) , alongside bearing the brunt of sluggish mall traffic. Also, intense sales promotions and a shift from the brick-and-mortar store concept to online, weighed on Bed Bath & Beyond’s margins. Together, these factors hurt its quarterly results.

The company’s quarterly earnings of 80 cents per share plunged nearly 14% year over year and also missed the Zacks Consensus Estimate of 86 cents.

Deeper Insight

The home-furnishing retailer’s net sales remained nearly flat at $2,738.1 million, but fell short of the Zacks Consensus Estimate of $2,775 million. This reflects that the company is back on the dismal sales trend after a brief respite witnessed in the previous quarter, wherein it delivered a sales beat.

Comparable-store sales (comps) for the quarter slipped 0.5%, owing to a fall in transaction count, partly compensated by a rise in average transaction amount. Though comps from customer-facing digital networks soared by more than 20%, that at stores fell at a low-single digit rate.

Further, gross profit dropped 2% to $1,023.6 million in the reported quarter, while the gross profit margin contracted 70 basis points (bps) to 37.4%, mainly due to soft merchandise margins coupled with a rise in coupon costs.

Operating profit plunged 22% to $213 million and the operating profit margin contracted about 220 bps from the prior-year quarter to 7.8%.

Financial Position

Bed Bath & Beyond ended the quarter with cash and cash equivalents of $544.3 million, long-term debt of $1,491.3 million, and total shareholders' equity of $2,529.1 million.

During the quarter, the company generated cash flow of about $207.8 million from operating activities, while deploying $89.5 million toward capital expenditure. Capital expenditure for fiscal 2016 is envisioned in a range of $400–$425 million.

Share Buyback & Dividend

During the first quarter, the company bought back 3.8 million shares for nearly $178 million, under its current buyback plan of $2.5 billion. As of May 28, 2016, Bed Bath & Beyond had shares worth $2.1 billion remaining under its existing program, which is anticipated to conclude in the latter half of fiscal 2019 or through fiscal 2020.

Also, management announced a quarterly cash dividend of 12.5 cents per share, payable on Oct 18, 2016, to shareholders on record as of Sep 16.

Outlook

Management remains hopeful about driving future growth on the back of its strategic investments and omnichannel progress. Following the soft quarter and considering the current trends with the expected impact from the company’s recent acquisition of One Kings Lane, management still anticipates fiscal 2016 earnings per share in the range of $4.50 to a little over $5.00.

However, Bed Bath & Beyond now projects comps growth for fiscal 2016 in the range of flat to a 1% increase, compared with a 1%–2% rise projected earlier. Sales are now anticipated to be 170 bps greater than comps, compared to the previous prediction of a 90 bps increase from comps. The company stated that it will not include One King Lane’s buyout in its comps calculation till one year of completion of the acquisition.

Further, management expects gross margin and selling, general and administrative expense deleverage in fiscal 2016.

Also, Bed, Bath & Beyond plans to introduce 30 new stores, while closing 15 in fiscal 2016.

Stocks to Consider

Some better-ranked stocks in the same industry worth considering are Cabela's Incorporated (NYSE:CAB) and ULTA Salon, Cosmetics & Fragrance, Inc. (NASDAQ:ULTA) , each with a Zacks Rank #2 (Buy).

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