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Will Bed Bath & Beyond (BBBY) Disappoint in Q3 Earnings?

Bed Bath & Beyond Inc.BBBY is slated to release third-quarter fiscal 2017 results on Dec 20. The question lingering in investors' minds is whether this home furnishings retailer will be able to deliver a positive earnings surprise in the quarter to be reported.

The company posted a negative earnings surprise of 21.1% in the last reported quarter. Further, the company lagged the Zacks Consensus Estimate by an average of 11.1% in the trailing four quarters. Let's see how things are shaping up prior to this announcement.

What to Expect?

The current Zacks Consensus Estimate for the quarter under review is 37 cents, reflecting a year-over-year decline of 57.1%. We note that the Zacks Consensus Estimate has been stable in the past 30 days. Further, analysts polled by Zacks expect revenues of $2.90 billion, down 1.9% from the year-ago quarter.

Bed Bath & Beyond Inc. Price, Consensus and EPS Surprise

Bed Bath & Beyond Inc. Price, Consensus and EPS Surprise | Bed Bath & Beyond Inc. Quote

Notably, Bed Bath & Beyond has underperformed the broader industry in the last three months, reflecting negative investor sentiment ahead of earnings. The company's shares have plunged 19.7%, against the industry 's growth of 0.8%.

Factors at Play

Bed Bath & Beyond is not immune to the troubles of the retail sector characterized by soft traffic at stores due to growth of e-commerce, as well as currency headwinds and other macroeconomic concerns. This has led the company to put up a disappointing show in the last several quarters. Notably, the company has posted negative earnings and sales surprises in five of the trailing six quarters.

Additionally, Bed Bath & Beyond has been grappling with soft margins for five quarters now. Gross margin in the fiscal second quarter was hampered by higher direct-to-customer shipping expenses, lower merchandise margin and a rise in coupon expense on account of increased redemptions. This along with a rise in selling, general and administrative (SG&A) expenses caused operating margin to decline for the fifth straight quarter.

The dismal first half, the estimated impact from Hurricane Harvey, higher costs related to the company's new transformation plans and expectations that these trends will persist compelled management to trim forecasts for fiscal 2017. The company now projects net sales growth rate to be flat for fiscal 2017 (which includes a 53rd week), compared with the previous guidance of a low to mid-single digit percentage increase.

Further, it envisions earnings per share of nearly $3.00, down 30% from the year-ago period. Earlier, the company projected earnings per share to decline in the range of a low-single digits percentage to 10%.

Moreover, the company continues to anticipate gross margin to decline in fiscal 2017. It also expects SG&A deleverage on account of higher payroll and payroll-related costs; costs related to technology and buyouts of One Kings and PMall; restructuring charges associated with store management and expenses related to Hurricane Harvey.

Nevertheless, the company's transformation plan is on track to deliver a seamless customer experience. Its capital initiatives and constant shareholder-friendly moves also bode well.

Though Bed Bath & Beyond is striving hard to spark a turnaround, the current dismal trends cannot simply be overlooked. So, let's see what is in store for the company in the upcoming release.

What the Zacks Model Unveils?

Our proven model does not conclusively show that Bed Bath & Beyond is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Bed Bath & Beyond has an Earnings ESP of -1.37% as the Most Accurate estimate of 36 cents is pegged below the Zacks Consensus Estimate of 37 cents. This combined with the company's Zacks Rank #4 (Sell) makes surprise prediction difficult. Note that we caution against Sell-rated stocks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

Costco Wholesale Corp. COST has an Earnings ESP of +1.64% and a Zacks Rank #3. You can see the complete list of today's Zacks #1 Rank stocks here .

NIKE Inc. NKE has an Earnings ESP of +5.49% and a Zacks Rank #3.

Walgreens Boots Alliance Inc. WBA has an Earnings ESP of +7.24% and a Zacks Rank #3.

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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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