What To Make Of Bed Bath & Beyond's Q4 Earnings

Analysts were mostly bearish on Bed Bath & Beyond Inc. BBBY despite reporting better-than-expected quarterly results and declaring its first-ever quarterly dividend. Wall Street, while enthused by the results, appears concerned on margin pressures.

The retailer's earnings of $1.85 per share came in $0.04 ahead of estimates, while revenue of $3.42 billion beat consensus by $30 million. The firm declared its first-ever quarterly dividend; shareholders of record on June 17 will receive $0.125 per share.

Oppenheimer: Perform

Oppenheimer, which has a Perform rating on Bed Bath & Beyond shares, said it is "most surprised" by the company's decision to institute a regular quarterly dividend. The brokerage said the dividend is small, with a current annual payout of $0.50/share and a yield of just 1 percent.

Quarterly gross margins declined 110 bps to 38.6 percent, hurt by lower merchandise margins, higher shipping costs, and greater markdowns. This compares with declines of 60 bps in the third quarter and 40 bps in the second quarter.

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SunTrust: Neutral, $55 PT

SunTrust commented, "We concede the stock's relatively inexpensive valuation (9x versus the group's 15x) and believe the elevated spend will ultimately drive improved prowess in all facets of the business. However, we'd like greater fundamental evidence that the investments are indeed bearing fruit before taking a more constructive stance."

Credit Suisse: Neutral, $46 PT

Credit Suisse, which has a Neutral rating and $46 price target, asked when or how the declines will end.

"We believe BBBY continues to face an uphill battle in this increasingly challenging home furnishings category. While the company is adapting and the pace of change may be accelerating internally, the cost of staying relevant and delivering even just modest top line growth (as guidance suggests) is just much higher than in the past," analyst Seth Sigman wrote in a note to clients.

"That continues to cause significant declines in profitability and cash flow, with no visibility on that ending."

Baird: Neutral, $51 PT

Baird, which maintained its Neutral rating, noted that the comp improvement comes at the expense of margin. Although gross margin pressure is expected to moderate, investments will keep expense growth elevated, the brokerage said. Baird raised its price target by $3 to $51.

Citi: Sell, $40 PT

Citi maintained its Sell rating saying, "1) BBBY's guidance for comp growth of just 1 percent – 2 percent in 2016 despite the benefit of various initiatives. 2) The still-unprofitable status of its e-commerce operations despite continued DD growth. 3) The company's heavy reliance on couponing to drive sales and the resulting pressure on merchandise margins, a problem for which we have yet to hear a solution. 4) Our expectation for ongoing tech- and workforce-based investments, driving SG&A higher. 5) BBBY's revised approach to cash distribution, as the combination of lower share repurchases and the payment of a modest dividend will return less cash to SH annually and will impact EPS growth."

However, Citi raised its price target by $3 to $40.

Bed Bath & Beyond closed Thursday's regular trading session at $48.97.

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