Bed Bath and Beyond Kicks Off Earnings Season with a Disappointment

Bed Bath & Beyond

Retailer Bed Bath and Beyond has put in a nice rally so far in 2019, after being on a huge slide the last 4 years. Things don’t look quite as promising as we had hoped though.

Bed Bath and Beyond has simply been a horrible stock over the last 4 years. For the first half of the current bull market with stocks, Bed Bath and Beyond performed very well, and even outperformed the broader market as it rose from a low of $17.54 in November 2008 to trading over $80 five years later.

Things went wrong from there though and it seems no one told Bed Bath and Beyond investors that we were still supposed to be in a bull market these last 5 years. In just a 4-year period, the stock lost 86%, and last December it dropped all the way to 10.82, considerably lower than its low during the market crash of 2007-08.

Even after this nice rally of 2019, we’re still actually below where we were before the bull market started 10 years ago, during a time where the broader market more than tripled.

We don’t really want to look at stocks over this long of a time frame without looking at what happened along the way, and Bed Bath and Beyond only really had two stories to tell, the rise and the fall. We’re still in the fall phase now, in spite of it still being well up this year, and the overall direction from a higher-level view still has us in a steep trendline down.

This massive decline in the face of an overall bull market didn’t happen by accident, and we don’t even have to look at how the business conditions have changed with them to see this. Investors just didn’t think that the stock was worth very much, and then just made it all happen.

Things Did Look Like They May Be Improving, But the Numbers Speak

Activist investors have stepped in and this at least breathed a little hope into this stock, and is believed to be the main reason why we’ve moved up as much as we have this year. There’s nothing like an earnings report to get a feel of where the business is actually going though, as well as to get a sense of how the company feels they will do, and the report card is now in.

The actual revenue and earnings numbers were just fine, and earnings actually came in a little higher than expected, $1.20 a share on revenue of $3.31 billion, against expectations of $1.10 earned on $3.33 billion of revenue.

It is actually a little better to have lower revenue when your earnings are higher, as this shows more efficiency, something that is a focus with this company.

Expectations are based upon what is known about the company at the time they are set though, A company can have their business declining, and beating the expectations may therefore only mean that things have gotten worse but not as much as expected.

Same store sales declined by 1.4%, which actually tells a better story of where things are at right now. This is not something that you want to see with a retailer, indicative of things going in the opposite direction that investors hope and even rely on.

How the company sees its performance going forward, particularly in the next quarter where more is known about, matters even more than what has already happened, because this is where most of the focus is from investors.

The company forecasts revenue to drop to $2.6 billion, a significant decline indeed, but not anywhere near as much of one as its expectations of earnings of only 7 to 12 cents a share, in contrast to the consensus of 30 cents. We therefore knew that earnings were going to take a big hit, not a good thing in itself, but if the company thinks it will be considerably worse, that’s bad news indeed.

There Are Reasons to Be Hopeful Longer-Term

At least things are expected to improve in 2020 according to Bed Bath and Beyond’s forecasts, especially in comparison with the consensus of analysts, who are predicting $1.81 per share for fiscal 2020, where the company now believes it will be between $2.11 and $2.20 per share.

This may serve to calm longer-term investors a bit, and these investors have seen much worse over the last few years. If this ends up sending the stock too far down though, more may lose patience with it, as so many have in the past.

The market perception of this earnings report is decidedly negative, as we should expect under the circumstances. While Bed Bath and Beyond will take a hit from this, so far the damage looks to be contained enough that the stock should walk away with still better than market returns for the year to date.

The pressures and circumstances that have caused retail to struggle so much are very much in force, and in particular, the need to better adapt to changing customer expectations. Amazon has really redefined the retail experience, and while this challenges all retailers, Bed Bath and Beyond has been slow to adapt, and will need to.

The forces are in place for them to improve things though, although whether or not this will be enough to make a big enough difference remains unclear. When a stock gets beat down so much, it can actually start to look attractive if the reasons for its fall are addressed enough.

In the meantime, their latest earnings call definitely puts a damper on the excitement that investors have had about this stock lately, but as long as things do move ahead as expected, it may have finally settled into a bottom after a long journey downhill.