Wedbush Lays Out Bed Bath & Beyond Concerns

Wedbush remains Neutral-rated on Bed Bath & Beyond Inc. BBBY, as it believes it would be challenging for the domestic merchandise and home furnishing retailer to meaningfully grow comps and EPS in 2017.

Lower-Than-Expected Q3 Print

The comments come after the company reported lower-than-expected third-quarter results amid secular shift in consumer shopping behavior and sluggish environment.

“The company is working to differentiate its offering, accelerate growth online and match competitors on price, but these initiatives are being overwhelmed by declines in store traffic,” analyst Seth Basham wrote in a note.

Bed Bath & Beyond’s quarterly comps fell 1.4 percent versus Street view of 0.5 percent growth as store traffic slowed and transaction volume continued to decline.

Higher shipping costs and increasing couponing expenses pressured gross margin, which declined 80 bps to 37 percent versus consensus’ 37.2 percent.

On the positive side, improving trends at the end of the third quarter led to the company to only slightly reduce comp expectations for the fourth quarter. This now imply a meaningful 200+ bps acceleration on a one-year basis and 400+ bps improvement on a two-year basis.

A Difficult Road Ahead

That said, given heavy investments and the continued secular shift in consumer shopping behavior, the road only looks tougher for Bed Bath & Beyond.

As such, Basham cut his EPS estimates for 2016/2017 to $4.48/$4.61 from $4.71/$4.77. Street estimates call for EPS of $4.72 and $4.89, respectively.

Basham has a price target of $42 on the stock, which closed Wednesday’s trading at $45.56. In the pre-market hours Thursday, they fell 3.86 percent to $43.80.