Market Overview

Analyst: Toys R Us Closures Could Be Positive Catalyst For Bed Bath & Beyond

Share:
Analyst: Toys R Us Closures Could Be Positive Catalyst For Bed Bath & Beyond
Related BBBY
51 Biggest Movers From Yesterday
Mid-Afternoon Market Update: Bed Bath & Beyond Drops Following Weak Q2 Results; Cameco Shares Surge
Bears Better Beware A Snapback In Bed Bath & Beyond (Seeking Alpha)

Bankrupt toy store Toys R Us is reportedly looking at closing another 200 stores and lowering its headcount after a poor holiday season. If this is the case, Bed Bath & Beyond Inc. (NASDAQ: BBBY)'s children's concept, buybuy BABY, stands to greatly benefit, according to Loop Capital.

The Analyst

Loop Capital Markets' Anthony Chukumba maintains a Hold rating on Bed Bath & Beyond's stock with an unchanged $23 price target.

The Thesis

Toys R Us' ongoing struggles are likely to result in a complete liquidation of the company, including its core stores and Babies R Us concepts, Chukumba said in a Tuesday note.

Over 90 percent of Buy Buy Baby's 118 stores are within a 10-mile radius of a Babies R Us location. It's reasonable to assume that Babies R Us shoppers are "more likely" to shop at Baby's R Us stores than large-format discounters or online channels given the similar store format, merchandise selection and customer service level, the analyst said. 

Even working under the assumption of a 30-percent sales transfer rate and a 20-percent incremental operating margin, the complete closure of Toys R Us would add as many as 200 basis points to Bed Bath & Beyond's comparable sales growth and contribute 25 cents of annual diluted earnings per share, Chukumba said. 

Bed Bath & Beyond does continue to suffer from heightened online competition, which implies that a bullish stance on the stock isn't yet justified, he said.

The eventual closures of Toys R Us cannot be accurately predicted, and the toy store's liquidation sales will pose a temporary headwind to Bed Bath & Beyond, according to Loop Capital Markets. 

Price Action

Shares of Bed Bath & Beyond were trading lower by 0.5 percent Tuesday afternoon.

Related Links:

What Toys R Us Store Closures Could Mean For Mattel, Hasbro

Toys 'R' Us CEO's Turnaround Plan: Become More Of A 'Toy Store,' Less Of A 'Garage Sale'

Latest Ratings for BBBY

DateFirmActionFromTo
Oct 2018ArgusDowngradesBuyHold
Sep 2018Morgan StanleyMaintainsUnderweightUnderweight
Sep 2018Bank of AmericaMaintainsUnderperformUnderperform

View More Analyst Ratings for BBBY
View the Latest Analyst Ratings

Posted-In: Anthony Chukumba Babies R Us buybuy Baby Loop Capital MarketsAnalyst Color Price Target Reiteration Analyst Ratings Best of Benzinga

 

Related Articles (BBBY)

View Comments and Join the Discussion!
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

Meet Brad Parscale, Trump's Newly Announced 2020 Campaign Manager

FibroGen Q4 Earnings Outlook