Bed Bath & Beyond (BBBY) Q1 Earnings & Sales Lag, Stock Dips

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

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

Financial Position

Bed Bath & Beyond ended the quarter with cash and cash equivalents of about $469.3 million, long-term debt of $1,491.7 million, and total shareholders' equity of roughly $2,672.6 million.

In the first quarter, the company generated cash flow of about $204.6 million from operating activities, while deploying $80.8 million toward capital expenditure.

Share Buyback & Dividend

During the fiscal first quarter, the company bought back 3.3 million shares for nearly $127 million, under the current buyback plan of $2.5 billion. As of May 27, Bed Bath & Beyond had shares worth $1.6 billion remaining under its existing program, which is likely to conclude in fiscal 2020.

Further, the company declared a quarterly cash dividend of 15 cents per share, which is payable on Oct 17 to shareholders on record as of Sep 15.

Store Update

During the first quarter, Bed, Bath & Beyond introduced one Harmon Face Values store, alongside shutting down a namesake store. The company ended the first quarter with 1,546 stores, including 1,022 namesake stores across 50 states, the District of Columbia, Puerto Rico and Canada; 276 stores under the labels – World Market, Cost Plus World Market or Cost Plus; 113 buybuy BABY stores; 80 stores under the labels – Christmas Tree Shops, Christmas Tree Shops andThat! or andThat!; and 55 stores under Harmon, Harmon Face Values or Face Values names.

Looking Ahead

While the first quarter usually records the smallest part of the company's annual sales and earnings, Bed, Bath & Beyond faced excess sluggishness in store transactions, along with greater costs. However, the company remains unsure if these challenges were specific to, or more prominent in this quarter – owing to soft sales and delayed start to the summer selling period. As the company expects better visibility into fiscal 2017 after the second quarter, it kept its previously issued outlook unchanged.

Old Guidance Revisited

In its fourth-quarter fiscal 2016 earnings conference call, the company had stated that fiscal 2017 is likely to benefit from the additional 53rd week in the fiscal. Considering the additional week, Bed Bath & Beyond projects net sales for fiscal 2017 to increase in the low to mid-single digit percentage range. While the company anticipates comps to improve in fiscal 2017, the range is likely to be between relatively flat and slightly positive. Further, the company anticipates the strong comps growth in the customer-facing digital channels to persist.

Moreover, management expects gross margin to decline in fiscal 2017 owing to rise in shipping and coupon expenses. However, the rate of decline in the fiscal is expected to be less than the fiscal 2016 level. Also, selling, general and administrative expense deleverage is anticipated in fiscal 2017 due to payroll and payroll-related expenses as well as technology expenses including depreciation and the impact of current expense structures of One Kings and PMall. Depreciation expense is likely to be in the range of $310–$320 million, while interest expense is anticipated at about $80 million.

Considering all factors, the company envisions fiscal 2017 earnings per share to decline in the range of low-single digits percentage to 10%.

Additionally, the company projected capital expenditure for fiscal 2017 to be relatively flat with fiscal 2016 level, with cash flows expected to remain positive. Management also stated that it targets opening 30 new stores and closing nearly 15 to 20 stores, in fiscal 2017. Its store opening plans pertain to all store concepts, including new formats and new markets.

Key Picks in BBBY's Space

Some better-ranked stocks in the same industry include Big 5 Sporting Goods Corp. BGFV, Build-A-Bear Workshop, Inc. BBW and Office Depot, Inc. ODP.

Big 5 Sporting has a long-term earnings growth rate of 9%, and has a superb earnings surprise history. Further, the company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Build-A-Bear, with a long-term earnings growth rate of 22.5%, currently flaunts a Zacks Rank #1.

Office Depot which carries a Zacks Rank #2 (Buy), has a long-term earnings growth rate of 10.9%.

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