Bed Bath & Beyond: What Just Happened?

• After the market closed on Thursday, Bed Bath & Beyond Inc. BBBY reported third quarter earnings of $1.09 per share, in line with the Street's consensus and management's guidance, on sales of $2.95 billion, which fell slightly short of estimates.
• Following the earnings call, Deutsche Bank analysts Mike Baker and Adam Sindler shared some comments on the results.

Although Bed Bath & Beyond reported third quarter (fiscal 2015) sales and earnings in line with the management’s pre-announcement and the Street’s estimates, analysts at Deutsche Bank noted that the complexion of the results were worse than their revisions as EBIT dollars declined more than they had anticipated. “A lower tax rate made up the difference,” they explicated.

Moreover, they continued, guidance for the fourth quarter was also lower than consensus at the midpoint.

Driving the poor operating results and guidance was a larger than expected increase in expense dollars as the company goes on to invest in long term projects –- like the development of its web site and distribution capabilities, “even in the face of near team sales pressures.”

The mid-cap home furnishings retailer is “fighting the dual pressures of weak consumer spending this holiday season, which may be a shorter term issue, as well as competitive pressures from online only competitors, who are taking market share, driving down prices, and necessitating more online and distribution investments,” the firm’s research note expounded.

These longer term pressures led Deutsche Bank to reiterate a Hold rating and $45.00 price target on the stock – which currently trades around $46.80.

A few positives should be noticed, however. For instance, comps seem to be stabilizing, even in spite of “tougher comparisons as trends through Christmas were up more than the planned 1%,” and “couponing, while still a drag to gross margins, appears to be having a declining impact,” the report highlighted.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.