Why The Market Is Still Buying Bed Bath & Beyond

After reacting negatively initially in the after hours on Wednesday, the shares recovered shortly after. They continued trading higher in Thursday's regular hours.

By Numbers

The company reported second-quarter earnings per share and revenues that fell year-over-year and missed estimates. Among the other metrics, comparable store sales were down 1.2 percent vs. a 0.7 percent increase in the year-ago quarter.

The company clarified in the call that comps were impacted the reduction in the number of transactions, although average transaction amount increased. Brick-and-mortar operations were a sore point even as digital channel outperformed.

Related Link: A Top- And Bottom-Line Miss For Bed Bath & Beyond; Investments Still Weighing Down Earnings

However, the company's full-year earnings per share guidance of $4.50 to a little over $5 is in line. Comps growth is estimated at 0–1 percent, and sales growth is pitched at 125–140 basis point greater than the comps growth.

Probable Logic

• The broader market strength could have been supportive of the upside. Stocks are solidly higher for the second straight session, as the Fed-induced rally is still having legs to play out.
• As the Fed pointed out in the FOMC statement released yesterday, the economy is vibrant, which is positive for consumer spending and the prospects for the company per se.
• The strong comps growth in digital channel may hold out promise, as the company, which has only a small presence in the online channel, makes further inroads in it. Recently, the company acquired One Kings Lane, a home goods e-commerce site, reportedly for a bargain.

That said, analysts have a word of caution too, as they see margins coming under further pressure heading into the key holiday selling season when retailers normally discount and offer gifts and other incentives to push sales.

At time of publication Friday, Bed Bath & Beyond was up 1.22 percent at $43.96.

Full ratings data available on Benzinga Pro.