WMT - Bed Bath & Beyond Has Only The Baby Boom Working In Its Favor
On Thursday, the houseware retailer reported disappointing fiscal third-quarter results with earnings and sales falling below analysts’ expectations, prompting Bed Bath & Beyond (NYSE: BBBY) to slash its full year outlook. Despite discouraging guidance, shares closed up nearly 8% despite initially dropping. But including Thursday’s gains, the stock has fallen about 31% from a year ago.
Fiscal third quarter results
For the three-months ended on November 27 th , net loss grew from last year’s $75 million, or 61 cents a share, to $276 million, or $2.78 per share. Excluding one-time items, adjusted loss amounted to 25 cents a share, while Refinitv survey of analysts expected a more optimistic breakeven.
Revenue fell 28% from last year’s comparable quarter to $1.88 billion, missing estimates by $1.95 billion as overall and comparable-store sales also fell below Wall Street forecasts, although a part of the drop is owed to planned store closures that are still underway. 170 Bed Bath locations have been closed since the beginning of the fiscal year, with the figure expected to reach 200 by the end of the year. Systemwide same-store sales, a metric that tracks revenue at stores that were open for at least a year, dropped 7% while StreetAccount survey of analysts anticipated a 0.9% drop. Same-store sales fell 10%. But, a rare bright spot was the baby category including apparel that did well compared to last year, rising at a mid-single digit rate, while sales of bedding and bath items slowed after a pandemic-driven boom. The momentum at Buy Buy Baby is going strong with millennials starting their own families and therefore, driving up sales of baby food, car seats and the many other baby accessories. Back in November, Bank of America reported the “millennial baby boom” could start this year and boost food and baby merchandise sales as birth rates are up, as are sales of pregnancy tests since June 2020, according to data from Nielsen.
What is worrying is the dangerously low cash balance at a time when the company is in need of substantial investments to pull off its turnaround. For now, management’s rough execution is resulting in deteriorating fundamentals.
Turnaround
Chief Executive Officer Mark Tritton has revealed a detailed turnaround plan to revamp stores, add private label products and close underperforming locations. An online marketplace has also been launched to work with third-party sellers and compete with the likes of Amazon.com Inc (NASDAQ: AMZN) and Walmart (NYSE: WMT).
But the home goods retailer is facing significant challenges as it attempts to turnaround its business. Despite strong consumer demand during the holiday season, issues escalated in December both in its stores and online. A lack of inventory due to supply chain bottlenecks costed the company about $100 million, according to Chief Executive Mark Tritton.
Drastically cutting back its promotional mailers has also hurt sales as well as limited paper supply from vendors as the flyers are known to bring people into stores.
Fourth quarter guidance
For the fourth quarter, Bed Bath expects adjusted earnings to breakeven or be as much as 15 cents per share on sales of $2.1 billion with same-store sales expected to drop YoY in high-single digits. Analysts expected a lot more, or more precisely adjusted earnings of 71 cents a share with sales of $2.3 billion.
Guidance
Tritton expects the supply chain headwinds to persist, dragging future results as the company expects an adjusted loss of anywhere between 15 cents per share to breakeven for the full year, with revenue amounting of $7.9 billion. Overall same-store sales rate is expected to grow in high-single-digits. The previous forecast guided for adjusted earnings in the range between 70 cents and $1.10 per share on revenue in the range between $8.1 billion and $8.3 billion. A $1 billion three-year share repurchase plan is expected to be completed by the end of this fiscal year, which is two years ahead of schedule.
The houseware retailer is working with its vendors to target constrained inventory and improve flow to distribution centers and stores, attempting to do better at fulfiling the store demand. But for now, it seems it can only look forward to the ‘millennial baby boom’ working in its favor.
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