Baird Comments On Bed Bath & Beyond's First Quarter

Bed Bath & Beyond Inc. BBBY reported its 1Q results, with the gross margin in line with expectations.

Baird’s Peter S. Benedict maintains a Neutral rating on the company, while lowering the price target from $51 to $45.

What The Results Imply

Benedict mentioned that softer comps led to the EPS missing the consensus expectations, “underscoring the difficult balancing act between sales/margin BBBY continues to face.”

The analyst continues to believes strategic investments by management in data analytics, IT, merchandising and fulfillment will eventually improve Bed Bath & Beyond’s longer-term competitive positioning.

“Looking ahead, easier compares and a modest benefit from the Memorial Day shift should support acceleration in 2Q, though it sounds as if sales remain sluggish to-date,” Benedict stated.

Future Outlook

The company continues to focus on differentiating its merchandise mix, upgrading its omnichannel platform and improving its direct marketing and personalization capabilities. However, the furniture and home furnishings segments continue to see intense competition.

“While management is testing different (lower) free shipping thresholds, guidance still assumes less GM pressure vs. last year. That said, with SG&A growth elevated, the pace of EBIT margin contraction is unlikely to slow vs. last year,” according to the Baird report.

The company guided to flat to 1 percent comps for FY16, with EPS within the range seen in recent years of $4.50 to just over $5.00.

The EPS estimates for FY16 and FY17 have been lowered to reflect softer comps and slight dilution from the One Kings Lane acquisition.

At time of writing, the stock was down 1.64 percent at $43.10.