Bed Bath & Beyond Falls on Lackluster Q4 Earnings - Analyst Blog

Shares of the home-furnishing retailer, Bed Bath & Beyond Inc. BBBY fell nearly 5.7% in yesterday's after-hour trading session, after the company announced weak fourth-quarter and fiscal 2013 results and provided an unfavorable fiscal 2014 guidance that lags estimates.

The company's fourth-quarter earnings decreased approximately 4.8% year over year to $1.60 per share. The year-over-year decline in bottom line was primarily due to weak sales. However, quarterly earnings were in line with the Zacks Consensus Estimate.

Bed Bath & Beyond's net sales for the quarter declined 5.8% to $3,203.3 million and missed the Zacks Consensus Estimate of $3,223.0 million. The company's top-line performance suffered due to a severe winter in January and February.

Bed Bath & Beyond reported comparable-store sales (comps) growth of 1.7% for the quarter, which was below the company's forecast of 2.0%–4.0%. Bed Bath & Beyond revealed that its performance in the fiscal fourth quarter comprising the months of December, January and February, was adversely affected by the ice storms that forced several stores to remain closed for full-day or partial day. The company held the bad weather responsible for dragging comps by 2.0%–2.5% and reducing earnings per share by 6–7 cents.

Gross profit came in at $1,121.7 million, down nearly 7.0% from the comparable year-ago level. Consequently, gross profit margin for the quarter declined 50 basis points (bps) to 40.5% from 41.0% in fourth-quarter fiscal 2012. Margins suffered a downside mainly due to a rise in coupons stemming from higher redemptions and average coupon amount and mix shift in products sold to lower margin categories.

Selling, general and administrative (SG&A) expenses decreased 3.3% year over year to $770.4 million. However, as a percentage of sales, SG&A rose 60 bps to 24.0%. The rise in SG&A expense as a percentage of sales was due to higher technology and depreciation expenses, along with increased payroll and payroll-related costs as a percentage of net sales.

Consequently, operating margin contracted about 110 bps to 16.5% from the prior-year quarter. Operating profit, in dollar terms, for the quarter decreased 11.9% to $527.1 million.

Fiscal 2013 performance – A Synopsis

Bed Bath & Beyond's fiscal 2013 performance was also disappointing as the company's top and bottom lines missed the Zacks Consensus Estimate. The company's earnings and net sales of $4.79 per share and $11,504.0 million, respectively, fell short of the Zacks Consensus Estimate of $4.80 and $11,525.0 million. However, on a year over year basis Bed Bath & Beyond's earnings and net sales registered growth of 5.0% and 5.4%, respectively.

Financial Position

Bed Bath & Beyond ended the fiscal with cash and cash equivalents of $366.5 million compared with $565.0 million at the end of the fiscal 2012. Moreover, shareholders' equity as of Mar 1, 2014, stood at $3,941.3 million versus $4,079.7 million as of Mar 2, 2013.

Further, during the fiscal, the company generated a cash flow of $1,383.2 million from operating activities while deploying $317.2 million toward capital expenditure. Looking ahead, Bed Bath & Beyond plans to make capital expenditure of approximately $350.0 million in fiscal 2014.

During the quarter, the company repurchased nearly 7.5 million of its outstanding shares, valued at about $532.0 million. Therefore, at the quarter-end, Bed Bath & Beyond had nearly $1.1 billion remaining under its share repurchase program of $2.5 billion, authorized in Dec 2012.

Store Update

In the fourth quarter, Bed Bath & Beyond inaugurated 3 Bed Bath & Beyond stores, 1 Christmas Tree Shops or andThat! Store, 1 harmon Face Value store and 4 buybuy Baby stores. During the quarter, the company also closed 4 cost Plus World Market stores. As of Mar 1, 2014, the company operated 1,014 Bed Bath & Beyond stores in all 50 states, the District of Columbia, Puerto Rico and Canada; 265 World Market or Cost Plus World Market stores; 77 Christmas Tree Shop or andThat! stores; 90 buybuy BABY stores and 50 stores under the names Harmon or Harmon Face Values, thereby bringing the total store count to 1,496.

Additionally, in a joint venture, Bed Bath & Beyond operates 4 stores in Mexico City under its namesake brand. For fiscal 2014, the company intends to open 30 stores.

Outlook

The company anticipates sales to increase in the range of 2%–3.5% for the first quarter while a rise of 4% is projected for fiscal 2014. Comps for the first quarter is expected to rise 1%–2.5% while for the fiscal, it will increase by nearly 3%.

Gross profit is expected to decline in fiscal 2014 due to anticipation a rise in coupons due to higher redemptions and average coupon amount and mix shift in products sold to lower margin categories. SG&A expenses are also projected to increase due to rise in technology and depreciation expenses resulting from investments.

Further, the company is projecting earnings in the range of 92–96 cents per share in the first quarter, which is way below than the Zacks Consensus Estimate of $1.03. For fiscal 2014, the company projects earnings to grow in the mid single digit range.

Other Stocks to Consider

Bed Bath Beyond currently has a Zacks Rank #4 (Sell). Better-ranked stocks in the retail space include Barnes & Noble Inc. BKS, Macy's Inc. M and Tractor Supply Company TSCO. Of these, Barnes & Noble sports a Zacks Rank #1 (Strong Buy) while Macy's and Tractor Supply have a Zacks Rank #2 (Buy).