Deutsche Bank Highlights Change Of Wording, Comps Forecast In Bed Bath & Beyond Guidance

Bed Bath & Beyond Inc. BBBY reported its 1Q16 sales and EPS short of expectations. Deutsche Bank’s Mike Baker maintained a Hold rating for the company, while reducing the price target from $45 to $42.

Bed Bath & Beyond’s comps declined 0.5 percent, while EPS at $0.80 missed the consensus expectation of $0.86. Both retail and online suffered sales declines, with store comps contracting about 2 percent and online decelerating from +25 percent to +20 percent. Gross margins contracted 70bps y/y, while SG&A was worse off by 145 bps y/y due to wage increases and multiple technology investments.

Guidance Not What It Seems

While Bed Bath & Beyond’s press release seemed to indicate that the FY16 guidance remained unchanged, “we believe there are some subtle and not so subtle changes to guidance,” analyst Mike Baker said. He added that the most significant was the comp guidance, which now stands at 0-1 percent, down from 1-2 percent.

Baker noted a change in the language on EPS from “the high end of a $4.50 to just over $5 range,” to “comfortably within the $4.50 to just over $5 range.” He commented, “We believe this is more a matter of perspective as we believe management is less concerned with perhaps 100 basis points of near term comp and a few cents to EPS relative to the longer-term health of the company which requires a series of investments.”

The analyst expects 2016 to be a peak year of investment, intended to boost sales and restore positive comps.