BBBY Shares Dip on Dismal Earnings - Analyst Blog

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Disappointment surrounded third-quarter fiscal 2013 results of the home-furnishing retailer, Bed Bath & Beyond Inc. ( BBBY ), which sent the stock rolling down by 8.4% in the afterhours trading session yesterday. Factors that impacted the reaction of the market include lower-than-expected top and bottom line performances, along with an unfavorable fourth-quarter and fiscal-2013 guidance.

The company's after market results depicted a 3 cents miss as earnings of $1.12 per share for third-quarter fiscal 2013 compared to the Zacks Consensus Estimate of $1.15. Top line of $2,864.8 million also skidded from the Zacks Consensus Estimate of $2,885.0 million.

Further deterring market sentiments, the company lowered its fourth quarter and fiscal year forecasts for almost every component of the income statement. Management now projects a sales decline of 3.9% to 5.7% in the fourth quarter compared to its prior expectations of a 2% to 4% decline. On a 13-weeks comparable basis, excluding the effect of the additional 14th week in fiscal 2012, net sales are now expected to range between a 0.3% decline to 1.6% increase, while the company had earlier expected a 1% to 3% rise.

Net sales for fiscal 2013 are expected to rise 5.4% to 6.0%, while on a 52-weeks comparable basis it should register about 7.2% to 7.8% growth.

Comparable store sales (comps) for the upcoming quarter are expected to reflect 2% - 4% growth compared to growth of 3.5% to 5.5% projected earlier. Comps projections for the second half of fiscal 2013 are lowered to about 1.7% to 2.7% growth compared to the previous forecast of 2% - 4% rise.  For fiscal 2013, comps are expected to increase in the 2.5% to 3.1% range.

On the cost side, the company retained its forecast for depreciation in fiscal 2013 at $220.0 million. However, the company altered its operating profit margin forecast, expecting it to deleverage for both the fourth quarter and fiscal year. Earlier, the company had projected flat operating margin for the fourth quarter with only marginal deleverage in fiscal 2013.

Net interest expense for the fourth quarter is expected to include about $2.2 million in World Market net interest expense, mainly due to the addition of sale-leaseback obligations in connection to its distribution facilities. Further, tax provisions for the fourth quarter and full year are now projected to be in the mid to high 30% range, compared to 37% guided earlier.

As a result, Bed Bath & Beyond now expects to deliver fourth-quarter fiscal 2013 earnings per share between $1.60 and $1.67 compared to $1.70 to $1.77 projected earlier. Moreover, the company trimmed its fiscal 2013 earnings forecast to $4.79 to $4.86 compared to $4.88 from $5.01 projected earlier.

Additionally, Bed Bath & Beyond slightly tweaked its capital spending forecast, including that of World Market and Linen Holdings, to $340 million for fiscal 2013 versus the prior guidance of about $350 million. Capital expenditures for the year are mainly slated for new outlets and existing store renovation, information technology advancement and other important future projects.

Quarter in Detail

Though top and bottom line results for the quarter remained below expectations, they surpassed prior-year quarter results with earnings rising 8.7% and sales growing 6.0% on a year-over-year basis. The year-over-year rise in sales was primarily driven by the inclusion of World Market and Linen Holdings, an increase in comparable-store sales (comps) and new store openings.

Comps rose 1.3%, primarily driven by an increase in average transaction amount, slightly offset by a decline in the number of transactions.

Gross profit came in at $1,121.7 million, up 4.4% from the comparable year-ago level. However, gross profit margin for the quarter declined 60 basis points (bps) to 39.2% from 39.8% in third-quarter fiscal 2012. Margins suffered a downside mainly driven by higher inventory acquisition costs, a rise in coupons due to higher redemptions and average coupon amount, and mix shift in products sold to lower margin categories, offset by lower markdowns.

Selling, general and administrative (SG&A) expenses increased 4.9% year over year to $747.0 million and as a percentage of sales it contracted 30 bps to 26.1%. The contraction in SG&A expense as a percentage of sales was due to lower occupancy & payroll and payroll-related costs, partially offset by higher other store expenses, including depreciation as a percentage of net sales.

Consequently, operating margin contracted about 30 bps to 13.1% from the prior-year quarter. However, in dollar terms, operating profit increased 3.6% to $374.6 million.

Financial Position

Bed Bath & Beyond ended the third quarter with cash and cash equivalents of $471.1 million compared with $672.3 million at the end of the prior-year quarter. Moreover, shareholders' equity as of Nov 30, 2013, stood at $4,129.8 million versus $3,977.1 million as of Nov 24, 2012.

During the quarter, the company repurchased nearly 2.3 million of its outstanding shares, valued at about $171.0 million. Therefore, as of third-quarter end, the company had nearly $1.7 billion remaining under its share repurchase program of $2.5 billion, authorized in Dec 2012.

Store Update

In the third quarter, Bed Bath & Beyond inaugurated 5 Bed Bath & Beyond stores, 2 Christmas Tree Shops or andThat! stores and 3 World Market stores. As of Nov 30, 2013, the company operated 1,011 Bed Bath & Beyond stores in all 50 states, the District of Columbia, Puerto Rico and Canada; 269 World Market or Cost Plus World Market stores; 76 Christmas Tree Shop or andThat! stores; 86 buybuy BABY stores and 49 stores under the names Harmon or Harmon Face Values, thereby bringing the total store count to 1,491.

Additionally, Bed Bath & Beyond is in a joint venture operating 4 stores in Mexico City under its namesake brand, including 1 store opened so far in the fourth quarter of fiscal 2013.

Taking into account the 24 stores opened so far in fiscal 2013, the company anticipates its total store openings for the year to be nearly 33. Additionally, the company continues to renovate and relocate its stores across all concepts.

Other Stocks to Consider

Bed Bath Beyond currently holds a Zacks Rank #4 (Sell). Better-ranked stocks in the retail - Miscellaneous space include Barnes & Noble Inc. ( BKS ), Big Five Sporting Goods Corp. ( BGFV ) and Tractor Supply Company ( TSCO ). Of these, Barnes & Noble carries a Zacks Rank #1 (Strong Buy), while Big Five and Tractor Supply have a Zacks Rank #2 (Buy).



BED BATH&BEYOND (BBBY): Free Stock Analysis Report

BIG 5 SPORTING (BGFV): Free Stock Analysis Report

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TRACTOR SUPPLY (TSCO): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: BBBY , BGFV , BKS , TSCO

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