Bed Bath And Beyond Shows Online Sales Are Crucial

Bed Bath & Beyond Inc. BBBY was downgraded by Standpoint Research from a Buy to a Hold Monday, December 22. Despite the news, the stock gained about 2 percent on Monday.

Bed Bath & Beyond Inc. BBBY

Over the fourth quarter, the company also received a Neutral rating from Credit Suisse, accompanied by a $70 price target (in October, when the stock traded near $65), meaning that much of the upside potential was already fulfilled.

However, in a December 20 article, Barron’s writer Alexander Eule said that “after years of neglecting online sales, the retailer is ramping up its Internet presence [and] payoff looks huge.” Although online sales still account for a small percentage (5 percent – 6 percent) of the 1,500-store chain’s total revenue, online sales augmented by 50 percent over the last reported quarter. Despite this, Eule explains, the market values the stock like “that of a fading retailer.”

Williams-Sonoma, Inc. WSM

As a comparative point, Williams-Sonoma -- another option in the specialty retail industry -- is doing great in the online space.

This $7 billion market-cap, specialty retailer has been subject of quite some discussion. Wall Street research firms can’t seem to agree on it, and ratings from the second half of November go from Wells Fargo’s Outperform and Citigroup’s Buy (accompanied by an $86 price target), to Deutsche Bank’s Hold ($69). Overall, analysts seem to think that the stock is fairly valued.

Related Link:Analysts Say Williams-Sonoma Is Fairly Valued

However, Williams-Sonoma was singled out in Morgan Stanley's Home Furnishing Survey as an “online winner” with 29 percent of respondents shopping through the retailer online -- more than any other Hardline retailer.

Barclays’ Rifkin went even further and called it the “poster child” for retail’s evolution, noting (in discrepancy with Morgan Stanley) that half of its sales come from the web and “the operating margin online is 13 percentage points better than in the stores.”

To make the stock even more attractive, Williams-Sonoma’s Board of Directors declared a quarterly cash dividend of $0.33 per common share, payable on February 24, 2015 to stockholders of record as of the close of business on January 26, 2015. The forward, annualized, yield now stands at 1.76 percent of the stock price.