Wedbush Sees Sluggishness In Bed Bath & Beyond Likely Persisting

Wedbush’s Seth Basham expects Bed Bath & Beyond Inc. BBBY to report “another sluggish quarter” when the company reports its 1Q16 results on June 22.

Basham maintained a Neutral rating on the company, with a price target of $46.

The analyst prefers to remain on the sidelines despite low expectations and incremental efforts by Bed Bath & Beyond to adapt to a changing environment, as well as enhancing investor accessibility.

Related Link: Barclay's Positive On Bed Bath & Beyond's New Acquisition

Light Comps

Basham expects the company to report its 1Q16 comps and gross margins below the consensus expectations, with an in line EPS in line, driven by lower SG&A.

“Increased promotion in the form of coupons, manufacturer savings events for bigger-ticket items, clearance events and a lower free shipping threshold likely helped boost sales, but BBBY faces its toughest comp comparison of the year in 1Q15,” the analyst mentioned.

In addition, Bed Bath & Beyond is expected to be impacted by the deceleration in industry sales growth, intense competitive promotional activity and decline in traffic growth on its website.

Pressure on Gross Margins

“We believe increasing coupon redemption rates, increased delivery costs from a lower free shipping threshold and higher e-commerce channel sales mix, lower merchandise margins and increased clearance activity drove y/y gross margin declines,” Basham stated.

The persisting intense competition is expected to have pressured the company’s margins in 1Q.