Bed Bath & Beyond shares collapse 22% on wiping out earnings

Back in June, Bed bath and beyond (NASDAQ: BBBY) released what appeared to be a lowball forecast for the second quarter of its 2021 fiscal year. The iconic retailer requested sales (adjusted for disposals) to be slightly below 2019 levels, despite single-digit sales growth single digit.

Meanwhile, US home furnishings demand jumped more than 20% during this period. Bed Bath & Beyond also estimated that it would generate adjusted earnings per share (EPS) between $ 0.48 and $ 0.55.

On Thursday, the furniture specialist announced that the second quarter results fell short of its modest expectations. As a result, Bed Bath & Beyond’s inventory plunged 22% – and for good reason: the retailer’s turnaround plan seems too small, too late.

Bed Bath & Beyond share performance, given by YCharts.

Worse and worse

Three months ago, Bed Bath & Beyond described its first quarter results as “strong”, but that was clearly an exaggeration. The total revenue from continuing operations of the company is approximately 6% lower than its result for the first quarter of fiscal 2019. In addition, Bed Bath & Beyond recorded a significant net loss according to generally accepted accounting principles. recognized (GAAP) and posted a meager adjusted earnings of $ 0.05 per share.

If anything, its second quarter results were even worse. Revenue rose to $ 1.99 billion, missing the company’s forecast range of $ 2.04 billion to $ 2.08 billion. Comparable sales fell 1% and total sales for Bed Bath & Beyond’s major retail chains fell 11% year-on-year. Store traffic slowed significantly in August, likely due to the increase in COVID-19 cases associated with the Delta variant.

Additionally, Bed Bath & Beyond reported an adjusted gross margin of 34% in the second quarter, missing its forecast by 35% to 36%. Management blamed rising freight costs and supply chain issues on failure.

Additionally, Bed Bath & Beyond continues to exclude many markdowns on older merchandise from its adjusted gross margin on the assumption that they are related to a one-time change in the company’s merchandise strategy. The GAAP gross margin was only 30.3%.

Net income was a GAAP loss of $ 73 million ($ 0.72 per share) and adjusted small earnings of $ 4 million ($ 0.04 per share), down from adjusted EPS of 0. $ 50 a year ago.

No more wishful thinking?

Management said trade trends remained poor in September. For the third quarter – which ends at the end of November – he expects sales to fall to between $ 1.96 and $ 2 billion on stable comparable sales. The adjusted gross margin is expected to be between 34% and 35%, allowing the company to post adjusted EPS between breakeven and $ 0.05.

The exterior of a Bed Bath & Beyond store.

Image source: author.

Bed Bath & Beyond has also cut its annual forecast. He now expects adjusted EPS of between $ 0.70 and $ 1.10 on net sales of $ 8.1 billion to $ 8.3 billion and adjusted gross margin between 34% and 35%.

However, these expectations could still prove to be unduly optimistic. Bed Bath & Beyond expects a recovery in November to break even this quarter. And his forecast for the full year implies a massive recovery in fourth quarter earnings.

A story show me

New CEO Mark Tritton implements much-needed changes at Bed Bath & Beyond. The company is renovating hundreds of stores to provide a less crowded shopping experience, investing in new private brands, and improving its digital and omnichannel capabilities.

However, a large number of former Bed Bath & Beyond clients have already moved on. Winning them back will be extremely difficult, given the intense level of competition in the retail sector. While Bed Bath & Beyond is still in the early stages of its turnaround attempt, it is telling that the brand has continued to lose market share this year.

Indeed, Bed Bath & Beyond cannot match the cost structure of most of its major rivals in the domestic market. The need to offer competitive prices will therefore weigh on its profitability. So while Bed Bath & Beyond stock may look cheap after its sharp drop on Thursday, investors shouldn’t be tempted to invest in this struggling retailer.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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