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Why Bed Bath & Beyond May Miss Its 2016 Estimates

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Why Bed Bath & Beyond May Miss Its 2016 Estimates
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Credit Suisse sees risk to Bed Bath & Beyond Inc. (NASDAQ: BBBY)'s 2016 estimates, as consensus includes lower expense growth and less gross margin degradation comparatively to 2015.

"On similar or possibly lower top line growth, we believe that will be difficult to achieve. We now project EPS down 2 percent to $4.92 (vs. consensus at $5.12), based on a net income decline of 9 percent (vs. decline of 13 percent in 2015)," analyst Seth Sigman wrote in a note to clients.

The analyst, despite maintaining his Neutral rating, cut the price target on Bed Bath & Beyond shares by $5, from a previous $51 to $46.

Sigman's analysis points to Bed Bath & Beyond likely underperforming in Q4.

Justifications

"We estimate comps for Q4 at 0.7 percent. But, comparing BBBY sales to US Census Retail sales for Home Furnishings (ex-Furniture), which captures store only sales, points to underperformance again in Q4," Sigman noted.

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According to the analyst, "Online growth seems to be increasingly less incremental, as store comps have weakened [and] margin assumptions for 2016 seem too optimistic given the competitive challenges in this category, and assuming some of the recent trends continue into 2016."

"We believe additional investments in price, shipping, and IT will be needed," Sigman continued.

In addition, the analyst said the company has upped its free shipping offer. The company started offering free shipping again this week on purchases of $25+ compared to the previous $49 threshold.

"This is important as shipping has been less of a drag in recent quarters. The full year impact, if sustained, could be -20 bps (vs. the -36 bps total decline in consensus GM for 2016)," Sigman noted.

The analyst warned that the Bed Bath & Beyond stock could see modest downside from here. The stock is up 16 percent from its recent low and Sigman doesn't think "the challenges in this category will ease materially in 2016."

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Latest Ratings for BBBY

DateFirmActionFromTo
Dec 2016Raymond JamesDowngradesStrong BuyMarket Perform
Dec 2016Loop CapitalInitiates Coverage OnSell
Sep 2016CitigroupMaintainsSell

View More Analyst Ratings for BBBY
View the Latest Analyst Ratings

Posted-In: Credit Suisse Seth SigmanAnalyst Color Long Ideas Price Target Reiteration Analyst Ratings Trading Ideas Best of Benzinga

 

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