The housing industry is slowing, according to the Federal Housing Finance Agency. House prices have increased 4.4% only, the slowest increase since 2012. Also, people are unwilling to spend as consumer spending also declined in July. Thus, slower sales for the housing industry players are obvious. Bed, Bath & Beyond (BBBY, Financial) is one such home goods retailer which was witnessing weak store traffic for quite some time.
However, the retailer finally seems to recover from the same as its second-quarter results indicate. The results were reported recently, and the numbers were surprisingly beyond the analysts’ expectations, enabling its share prices to surge. Let’s take a look.
Snapshot of the quarter
Revenue jumped 4.3% to $2.94 billion, over last year’s quarter. Analysts were expecting it to be at $2.89 billion. The company managed to sell more home goods mainly because of its key initiatives undertaken during the quarter. For instance, its coupons encouraged people to visit its stores so they could avail the offer and save every penny possible. Also, it is trying to boost its e-commerce operations since customers are largely attracted to online shopping. Online shopping provides the ease of purchasing goods at the click of a mouse and getting it delivered at the doorstep. Thus, customers don’t want to make the effort of traveling to the stores.
These factors resulted in comparable store sales of 3.4%, much higher than the consensus of 1.5%. The bottom line too was better than analysts’ expectations at $1.17 per share as compared to $1.16 per share in the prior year. However, earnings had actually fallen to $224 million from $249 million, a year ago. But higher share repurchases led to an increase in the earnings per share of the company.
Analyzing further
One of the primary reasons for the decline in net income was higher expenses. Since customers redeemed more and more coupons during the quarter, the company incurred higher costs. Also, it affected the margins, which shrank to 38.5% from 39.4% last year.
Further, higher e-commerce sales was also one of the reasons why Bed, Bath & Beyond incurred higher expenses. Online sales resulted in free shipping of many goods. Thus, it led to higher shipping costs for the company. Moreover, the retailer’s increased investments in technology weighed on the bottom line.
Strength in valuation
Currently, the home retailer’s P/E is at 14.00, which is lower than the industry average of 20.47. Thus, this company looks like an attractive investment bet. Also, its forward P/E is lower than the current one and stands at 12.35. This shows that the company will have higher earnings in the future. Also, analysts expect the company to grow at the CAGR of 8.45% for the next five years. These numbers make Bed, Bath & Beyond look attractive.
The takeaway
Despite all the prevailing difficulties, the home goods retailer managed to show up in its recent quarter. Its efforts to attract customers through coupons and expansion of online operations look interesting. However, this has affected its margins and the bottom line. Thus, the company needs to take care of its costs in order to register sound results. Nonetheless, share repurchases, bright outlook for the year and strong valuation numbers make this retailer an impressive pick. Investors should take note of this growing company.
