Why Bed Bath & Beyond May Miss Its 2016 Estimates

Credit Suisse sees risk to 2016 estimates for Bed Bath & Beyond Inc.

, as consensus includes less gross margin degradation and lower expense growth than in 2015. "On similar or possibly lower top line growth, we believe that will be difficult to achieve. We now project EPS down 2% to $4.92 (vs. consensus at $5.12), based on a net income decline of 9% (vs. decline of 13% in 2015)," analyst Seth Sigman wrote in a note to clients. The analyst, though maintained his Neutral rating, cut the price target on BBBY shares to $46 from $51. Sigman's analysis points to BBBY likely underperforming in Q4. "We estimate comps for Q4 at 0.7%, But, comparing BBBY sales to US Census Retail sales for Home Furnishings (ex-Furniture), which captures store only sales, points to underperformance again in Q4," Sigman noted. According to the analyst, online growth seems to be increasingly less incremental, as store comps have weakened and margin assumptions for 2016 seem too optimistic given the competitive challenges in this category, and assuming some of the recent trends continue into 2016. "We believe additional investments in price, shipping, and IT will be needed," Sigman continued. In addition, the analyst said the company has upped its free shipping offer. The company started offering free shipping again this week on purchases of $25 or more (vs. $49 typical offer). "This is important as shipping has been less of a drag in recent quarters. The full year impact, if sustained, could be -20 bps (vs. the -36 bps total decline in consensus GM for 2016)," Sigman noted. The analyst warned that the BBBY stock coulde see modest downside from here. The stock is up 16% from its recent low and Sigman doesn't think "the challenges in this category will ease materially in 2016." Shares of BBBY were up 0.14 percent at $49.66.