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Bed Bath & Beyond (BBBY) Q2 Earnings In Line, Sales Miss

Bed Bath & Beyond Inc. 's BBBY second-quarter fiscal 2015 earnings of $1.21 per share rose 3.4% year over year and came in line with the Zacks Consensus Estimate. Also, the figure was within the company's guidance range of $1.18-$1.23 per share.

Bed Bath & Beyond Inc. - Earnings Surprise | FindTheBest

Deeper Insight

The home-furnishing retailer's net sales advanced 1.7% year over year to $2,995.5 million, but missed the Zacks Consensus Estimate of $3,033 million. On a currency-neutral basis, sales jumped 2.2%.

The year-over-year improvement in the top line was driven by an increase in comparable-store sales (comps) which contributed nearly 41% to growth, along with new store openings.

Comps for the quarter inched up 0.7% against a 3.4% rise reported last year and were much lower than the company's expectations due to unfavorable currency movements. On a currency-neutral basis, comps improved 1.1%, backed by an increase in average transaction amount, partly offset by lower transaction count.

The company stated that comps exclude Linen Holdings and will continue to do so as this business represents non-retail activity.

Gross profit improved to $1,044.1 million in the reported quarter, representing a marginal rise of 0.6% from the comparable year-ago period. However, gross profit margin contracted 40 basis points (bps) to 38.1%, mainly due to a rise in coupon expenses stemming from higher redemptions and higher coupon count; order of magnitude; a hike in inventory acquisition expenses, and higher net direct-to-customer shipping expense.

Selling, general and administrative (SG&A) expenses increased 40 bps to 26.4% of sales, owing to greater technology and depreciation expenses.

Consequently, operating margin contracted about 80 bps to 11.7% from the prior-year quarter.

Financial Position

Bed Bath & Beyond ended the quarter with cash and cash equivalents of $667.6 million, long-term debt of $1,500 million, and total shareholders' equity of $2,568.3 million.

During the first half of fiscal 2015, the company generated cash flow of about $409.3 million from operating activities while deploying nearly $161 million toward capital expenditure. Looking ahead, Bed Bath & Beyond continues to anticipate incurring capital expenditure of approximately $375-$400 million in fiscal 2015.

Share Buyback Plan

During the second quarter, the company bought back 2.9 million shares for nearly $194 million, as part of its current $2 billion share repurchase program. As of Aug 29, 2015, Bed Bath & Beyond had nearly $305 million remaining under its current buyback program which it intends to complete by early fiscal 2016.

Since its first authorization made in Dec 2004, Bed Bath & Beyond has returned over $9.1 billion to its stockholders via buyback of roughly 170 million shares as of Aug 29, 2015. This reflects the company's commitment toward its shareholders.

Going forward, management remains confident of its financial outlook, cash-flow generating capacity and long-term growth potential. Based on this upbeat outlook, the company announced a new share buyback program of $2.5 billion. This will be initiated only after the conclusion of the current program.

Store Update

Year-to-date, Bed Bath & Beyond has introduced 12 stores and intends to open a total of 30 new stores in fiscal 2015.

Outlook

Management remains hopeful about driving future growth on the back of its strategic investments and omnichannel progress. However, the company expects the ongoing currency headwinds to linger and impact results in the remaining half of the year.

Bed Bath & Beyond projects comps growth in the range of 1%-3% for the third and fourth quarters of fiscal 2015. Further, the company expects net sales to grow by 1.8%-4% in the remaining two quarters. While the third-quarter comps guidance includes nearly 40-50 bps impact from the ongoing currency fluctuations in Canada, the fourth-quarter guidance includes 20-30 bps impact from the same.

The company expects gross margin to deleverage in the second half of fiscal 2015, primarily due to higher coupon expense and net direct-to-customer shipping expense. SG&A expenses are also projected to deleverage over the same period due to a rise in technology expenses, and higher investments in compensation and benefits.

Considering all factors, the company anticipates third-quarter earnings per share in the range of $1.14-$1.21. Further, it continues to project earnings per share growth rate for fiscal 2015 to remain relatively flat or increase in a mid single-digit percentage.

Zacks Rank

Bed Bath & Beyond currently has a Zacks Rank #4 (Sell). Better-ranked stocks in the same industry include Build-A-Bear Workshop Inc. BBW , with a Zacks Rank #1 (Strong Buy), Tractor Supply Company TSCO and ULTA Salon, Cosmetics & Fragrance, Inc. ULTA , each carrying a Zacks Rank #2 (Buy).

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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 Nasdaq, Inc.


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

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