Bed Bath & Beyond Earnings: Another Disaster

A year ago, many investors believed that Bed bath in addition (NASDAQ: BBBY) was on the way to regain importance in trade. Fiscal year 2021 started off quite well as the company posted a small profit in a seasonally weak quarter.

Unfortunately, the sales and earnings performance of Bed Bath & Beyond deteriorated again over the course of the year. On Thursday, the interior specialist published another terrible report on results.

The turn stops turning

Bed Bath & Beyond ended the 2020 financial year on a good note. Like-for-like sales rose 4% for the fourth fiscal quarter ended February 27, 2021. Adjusted earnings per share (EPS), meanwhile, increased 5% to $ 0.40. The first quarter of the 2021 financial year was also quite successful. Like-for-like sales increased 3% compared to fiscal 2019, gross margin increased, and the company generated adjusted earnings per share of $ 0.05.

Following this performance, management forecast that the company would achieve adjusted earnings per share of between $ 0.48 and $ 0.56 for the second quarter with revenues of $ 2.04 billion to $ 2.08 billion. Bed Bath & Beyond also raised its full-year revenue forecast to $ 200 million to $ 8.2 billion to $ 8.4 billion, and increased its full-year adjusted EBITDA forecast to a range of $ 520 million $ 540 million. Finally, an adjusted EPS outlook for the full year of $ 1.40 to $ 1.55 was introduced.

The exterior of a Bed Bath & Beyond store.

Image source: Bed Bath & Beyond.

However, a sales slowdown that began in August caused Bed Bath & Beyond to miss its sales forecast for the second quarter. Quarterly sales were $ 1.99 billion. Rising freight costs and other supply chain issues also weighed on the company’s profitability, causing adjusted earnings per share to plummet 92% year-over-year to just $ 0.04, well below management projections.

The poor performance in the second quarter forced Bed Bath & Beyond to lower its guidance for the full year. Revenue guidance was lowered by $ 100 million and the retailer lowered its adjusted EBITDA outlook to a range of $ 425 million to $ 465 million and its EPS forecast to $ 0.70 to $ 1.10 Dollar.

A big step back

Even that updated forecast seemed overly optimistic at the time, based on a quick rebound from November onwards. In reality, sales trends continued to deteriorate in October and barely recovered in November. For the entire third quarter, like-for-like sales declined 7% and sales plummeted 14% year-over-year to $ 1.88 billion, missing the midpoint of Bed Bath & Beyond’s forecast by about $ 100 million.

This loss of sales had a heavy impact on profitability. As a result, the company posted an adjusted loss of $ 0.25 per share while expecting a small profit.

Given the ongoing challenges in the freight and supply chain and the impact of the Omicron variant on sales, Bed Bath & Beyond does not expect much improvement this quarter. For the full fiscal year, management now expects break-even results, negative free cash flow and adjusted EBITDA of between EUR 290 million at best.

A person cooking on a stove with various cooking utensils hanging in the background.

Image source: Bed Bath & Beyond.

Avoid this dangerous stock

Despite the terrible third quarter earnings report, Bed Bath & Beyond shares rose 9% on Thursday. Perhaps shareholders were pleased with management’s apologies for poor quarterly performance (such as inventory shortages and supply chain issues that affected the distribution of printed ads). Perhaps a return of meme stock traders has lifted the stock. Or maybe investors were just encouraged that Bed Bath & Beyond still plans to complete its $ 1 billion share buyback program by the end of fiscal 2021.

Still, Bed Bath & Beyond stock looks less attractive today than ever. To be clear, business is falling rapidly as Bed Bath & Beyond has the bleeding market share. While management takes reasonable steps to achieve better sales and earnings results, the company faces fierce competition and turnaround efforts may fail.

Since earnings and free cash flow will be balanced or negative in fiscal 2021, share buybacks will only undermine the company’s future financial flexibility. Until Bed Bath & Beyond’s turnaround efforts show much more noticeable progress, investors should put their money elsewhere.

This article represents the opinion of the author who may disagree with the “official” referral position of a premium advisory service from the Motley Fool. We are colorful! Questioning an investment thesis – even one of our own – helps us all reflect critically about investing and make decisions that will help us get smarter, happier, and richer.

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