Baird Stays Neutral On Bed Bath & Beyond Ahead Of Earnings

Bed Bath & Beyond Inc. BBBY is scheduled to report its Q2 earnings on September 21, after market close. There is downward bias to the expectations for the quarter, given weaker trends at home furnishings and furniture peers, Baird’s Peter S. Benedict said in a report. He maintained a Neutral rating on the company, with a price target of $45.

There is downside to the Baird and Street EPS expectations of $1.19 and $1.16, respectively, due to softer comps and higher GM pressure, analyst Benedict mentioned.

Sluggish Comps

Bed Bath & Beyond reduced its FY16 comp plan from 1-2 percent to 0-1 percent, following more sluggish Q1 results, with comps down 0.5 percent. “While easier compares and a modest benefit from the Memorial Day shift could support a sequential uptick in 2Q, sector sales growth remained stable sequentially (+2.8% vs. 1Q's +2.6%),” Benedict wrote.

However, home furnishings and furniture peers have reported weak trends for the quarter and this puts potential risk to the Baird and Street comp estimate, both of which are at 0.5 percent.

Persisting Margin Pressure

Competition intensified during the quarter. Bed Bath & Beyond’s free shipping threshold remained at $29 for most of Q2, versus $49 last year, which may have added margin pressure.

“When combined with payroll (new DC, wage pressure) and IT-related investments (as BBBY continues to elevate its omni-channel platform/experience), our model assumes EBIT dollars decline 12% y/y (with EBIT margins down ~160bps),” the analyst stated.

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