Will Bed Bath & Beyond (BBBY) Keep Going Amid Cost Headwinds?

This story originally appeared on Zacks

Bed Bath & Beyond Inc. BBBY has seen mixed stock trends, with its transformation plan, digital momentum and efforts to streamline business keeping the company going. The company is on track with the planned introduction of owned brands as part of its three-year transformation plan.
However, ongoing supply chain challenges, cost inflation, and a decline in store traffic due to rising COVID-19 delta cases have hurt sentiment. The challenges weighed on the company’s sales and earnings in the second quarter of fiscal 2021.
Net sales were down 26% year over year, missing the Zacks consensus estimate. For the second fiscal quarter, the company’s total comparable revenue (Comps) decreased 1% year over year as traffic slowed in August. Core banner sales were down 11% year-over-year due to the poor performance of the Bed Bath & Beyond banner and the impact of fleet optimization. Adjusted earnings in the second fiscal quarter were 4 cents per share, compared to 50 cents in the same quarter of the previous year due to the gloomy margins due to higher freight costs.
Management expects the headwinds to persist for part of the Christmas season, destroying hopes for a quick economic recovery.
Driven by the monotonous results of the second quarter, management has shortened the outlook for the 2021 financial year. Bed Bath & Beyond expects net sales of $ 8.1 billion to $ 8.3 billion for fiscal 2021, versus the aforementioned $ 8.2 billion to $ 8.4 billion. It is expected that the comps for the remaining quarters will rise unchanged or slightly from the previously communicated low single-digit range. It also expects adjusted earnings of 7-10 cents per share, compared to the previously stated $ 1.40-1.55 for fiscal 2021.
For the third quarter of fiscal 2021, the company expects revenue of $ 1.96 billion to $ 2 billion, including core revenue and the planned revenue reduction as part of its store fleet optimization program. The comps will likely stay the same year after year. Adjusted earnings between break-even and 5 cents for the third fiscal quarter.

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Factors to keep the stock going

As part of its three-year transformation plan, Bed Bath & Beyond is expanding its range. The plan is to introduce at least 10 owned brands over the next two years. The company emphasized that the new private labels would meet consumer needs in all segments such as bed, bathroom, kitchen and dining room, storage and organization, and home decor. The products will be in the company’s key category, which will account for more than 60% of sales.
In the first half of fiscal 2021, Bed launched Bath & Beyond private labels including Nestwell, Haven and Simply Essential, Wild Sage, Our Table and Squared Away. In the third quarter of fiscal year 2021, it launched its seventh and eighth own brands, namely Studio 3B and H for Happy. Studio 3B offers modern home accessories, including decoration, bedding, bathroom and accent furniture. The H for Happy collection includes many affordable products that add a lighthearted and contemporary approach to seasonal and everyday celebrations. The company’s high-margin private labels have exceeded expectations.
Management expects the revenue penetration of owned brands to increase from 10% to 30% in the first three years. The company expects to increase gross margin through strategic cost management and procurement. Another important step in his comprehensive growth strategy is the launch of thousands of products exclusively from Bed Bath & Beyond.
Bed Bath & Beyond continues to benefit from its improved omnichannel capabilities, including online in-store purchase and collection and same-day delivery services. The management continues to rely on the robust digital channel and strives to improve the customer experience. With that, the company has entered the next phase of its supply chain modernization through partnership with Ryder and expanded its same-day delivery facility through a partnership with Roadie. It previously partnered with DoorDash to expand its same-day delivery services in the United States and Canada. The company is also on track to enable cross-banner browsing through the Bed Bath & Beyond, buybuy BABY and Harmon brands.
Bed Bath & Beyond is in the process of strategically expanding the number of its branches and increasing the productivity of existing branches by adapting the breadth and depth of its product range to customer preferences. In 2019, the company announced its store network optimization project, which is expected to save $ 100 million annually. This three-year plan is implemented in more than 450 stores and accounts for nearly 60% of sales. Bed Bath & Beyond converted around 70 branches as part of its store renovation program in the quarter under review and is well on the way to renovating 130 to 150 stores in the 2021 financial year.
Zacks Rank # 3 (Hold) has a market cap of $ 1.9 billion. For the year to date, BBBY is up 7.8% compared to the industry’s 1% growth. It also compares favorably with the retail-wholesale sector’s 8.5% decline.
For the past 30 days, the company’s estimates for earnings per share for fiscal year 2021 were unchanged. The earnings estimates for the 2021 financial year are 84 cents per share, which corresponds to a growth of 183.2% compared to the reporting period of the previous year.

Stocks in mind

We highlighted some better-rated stocks from the broader industry, viz Build-A-Bear Workshop BBW, Tractor Supply Co. TSCO and MarineMax HZO.
Build-A-Bear Workshop is currently ranked # 1 in Zacks (Strong Buy). The company has posted an average earnings surprise of 261.4% for the past four quarters. BBW’s shares are up 412% since the start of the year.
You can see the full list of current Zacks # 1 Rank stocks here.
Zacks’ consensus estimate for current Build-A-Bear workshop sales suggests growth of 54.1%. The same earnings per share show a growth of 298.1% compared to the reported value for the same quarter of the previous year.
Tractor Supply, a Zacks Rank 1 stock, has an average earnings surprise of 22.8% for the past four quarters. The TSCO share has gained 66% in the year to date.
Zacks’ consensus estimate for Tractor Supply’s revenue and earnings per share for the current fiscal year indicates growth of 19% and 23.9%, respectively, over the published figures for the same period last year. TSCO has an expected long-term earnings growth rate of 10.2%.
MarineMax is currently Zacks # 2 (Buy). The company has posted an average earnings surprise of 61.2% for the past four quarters. The company’s shares have gained 60.1% over the year to date.
Zacks’ consensus estimate for MarineMax’s revenue and earnings per share for the current fiscal year indicates growth of 6.4% and 9.6%, respectively, over the same period last year.

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