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Bear of the Day: Bed Bath & Beyond Inc. (BBBY)

Zacks

Shares of Bed Bath & Beyond Inc. (BBBY) have fallen steadily since 2015. Now, amid an activist investor push, which led to its CEO Steven Temares stepping down in mid-May, the company’s earnings and revenues appear to be headed in the wrong direction.

Recent News & Overview

Bed Bath & Beyond on May 13 announced that it appointed Mary Winston interim CEO as its former chief executive walked away amid pressure from three activists—Legion Partners, Macellum Advisors, and Ancora Advisors. Then, at the end of May, the company named four new independent directors to its board in a settlement with activist investors who had pressured BBBY to make changes amid a shifting retail landscape. Investors should note that 12 of the company’s 13 directors have joined the board within the last two years.

The need for a change might have been cemented after Bed Bath & Beyond in early April reported its first annual loss and sales decline in its nearly 30 years as a public firm. BBBY saw its full-year fiscal 2018 revenue fall 2.6% to $12.03 billion. Meanwhile, the home-goods retailer posted a GAAP net loss of $1.02 per share, which included a non-cash goodwill and tradename impairments charge.


With all that said, Bed Bath & Beyond has clearly faced a hard time adjusting to an Amazon (AMZN)-obsessed retail age, or at least found it difficult to convince Wall Street and investors it can based on its price chart. Shares of BBBY have tumbled 80% over the last five years, compared to its industry’s 96% climb. After some initial 2019 success, Bed Bath & Beyond has seen its stock price fall 19% in the past month. BBBY stock closed regular trading hours Thursday at $12.29 per share. Plus, BBBY stock is pretty heavily shorted at the moment.

Outlook & Earnings Trends

Before we jump into what to expect from Bed Bath & Beyond in the near-term, let’s quickly look at the retail landscape as a whole. As of Wednesday, we had first-quarter results from 38 of the 39 retailers in the S&P 500. Total earnings for these companies were are up +12.2% from the same period last year on +7.9%. Despite that overall strength, department store firms from Macy’s (M) to Nordstrom (JWN) have failed to impress (also read: Taking Stock of the Earnings Picture).

Meanwhile, Bed Bath & Beyond’s first quarter fiscal 2019 revenue—which is due out on July 10—is projected to fall 6.3% to $2.58 billion, based on our current Zacks Consensus Estimate. Looking further ahead, the company’s full-year revenue is expected to sink 4.4%. Plus, the company’s 2020 revenue is expected to fall over 1% below our current-year projection in a sign of continued negativity.

Moving to the bottom end of the income statement, the company’s adjusted Q1 2019 earnings are projected to plummet 75% to $0.08 per share. Meanwhile, Bed Bath & Beyond’s full-year fiscal 2019 EPS figure is projected to slip 3.9% overall. Investors will also notice just how dramatically the company’s Q1 and fiscal 2019 and 2020 earnings estimates have fallen over the last 90 days.


Bottom Line

Bed Bath & Beyond is currently a Zacks Rank #5 (Strong Sell), based, in large part, on its negative earnings estimate revision picture. The company could clearly make a turnaround at some point and it is worth paying attention to any signs of life the change in leadership might bring down the road.

But for now, investors still interested in the general retail space might instead consider stocks such as #1 (Strong Buy)-ranked Hibbett Sports (HIBB) or #2 (Buy)-ranked Lululemon (LULU).

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