Bed Bath & Beyond: Where Will Profit Erosion Stop?

Bed Bath & Beyond Inc. BBBY delivered a 1Q16 EPS miss, with all margin metrics down y/y. JPMorgan’s Christopher Horvers maintained a Neutral rating for the company, while reducing the price target from $51 to $47. The analyst commented that it was “hard to find a silver lining with key metrics under duress.”

Bed Bath & Beyond missed the 1Q16 EPS consensus expectations by 7 percent. The company’s comps continue to lag the market growth, gross margin remain under pressure and investment spending continues to adversely impact SG&A.

Looking Ahead

Bed Bath & Beyond reduced its comp guidance for FY16 to 0-1 percent, from 1-2 percent. “FY16 is the peak investment year (~40 cents of wage and IT expenses and capex guided at $400-425MM vs. $328MM in FY15), but there is likely a lag impact on depreciation and the company was hesitant to inform how steep or gradual the spending slowdown will be,” analyst Christopher Horvers wrote.

Horvers added that although investments in technology and systems would be positive in the longer term, Bed Bath & Beyond was losing share and gross margin was contracting “with no end in sight.”