Bed Bath & Beyond  (BBBY, Financial) shares have witnessed a severe tumble of around 45% in the past year. Company shares took a major hit late last year following the retailer’s announcement of a downbeat forecast. The company is slated to release its fourth-quarter fiscal 2017 earnings report Wednesday. The key area of focus is same-store sales growth, profitability margins and management’s outlook for fiscal 2018.
Investors would be keen to see how the domestic merchandise retail store chain performs against the estimates. An earnings surprise, either positive or negative, will have a considerable impact on company shares. If Bed Bath & Beyond is able to deliver a positive earnings surprise, the company may see its stock heading north. But a negative surprise element may lead to a decline.
The home furnishing retailer had registered results ahead of estimates in the last quarter. Let’s take a closer look to understand how things are shaping up ahead of the quarterly figure announcement.
What to expect?
Bed Bath & Beyond is expected to generate $1.14 in earnings per share on an average revenue estimate of $3.68 billion. This means analysts are expecting an average year over year EPS decline of 23% and revenue improvement of 4%. For the entire fiscal, revenue is expected to come in around $12.3 billion, as projected by 21 analysts.
It should be noted, Bed Bath & Beyond has outpaced the larger retail industry over the past quarter. This has lifted investor sentiments. Company shares were up 0.3% compared with the industry’s average decline of 9.8%.
The company is not expected to see huge growth in the top line in the next three years. This is owing to the competitive pricing pressure that Bed Bath & Beyond is experiencing, largely coming from e-commence giant Amazon (AMZN, Financial).
Area of concern
As far as comparable same-store sales is concerned, the company saw negative comps in seven out of the last eight quarters. The primary business of Bed Bath & Beyond has been suffering for a reasonable time, and the old couponing isn’t helping in maintaining healthy store traffic. The dismal comparable store sales trend is expected to continue in the fourth-quarter results with estimates of a low-single-digit fall.
The company is also witnessing some pressure on its gross and operating margins that have been dwindling almost every quarter in the last five years. Management anticipates the margins to remain soft in the fourth quarter as shipping, coupon and other expenses have risen.
Turnaround efforts
Bed Bath & Beyond is working on a transformation plan to improve customer experience. The key areas of focus include improving operational efficiency by refurbishing IT and streamlining business processes. The company also plans to implement customer-centric plans, such as enhancing product assortment and augmenting services.
For this, Bed Bath & Beyond has devised a new model that will help in understanding and prioritizing technology-related requirements. The New Jerse-based retailer has also formed a strategic portfolio management office to assign resources in profitable areas so that it can see improvement in gross margins, identify the correct inventory level, improve supply chain efficiency, and enhance customer service.
The company is also looking at expanding its stores in strategic locations, while working on the merchandise at its current outlets to match customer preferences. These efforts bode well for the company’s long term strategy and should bear results in the future. Bed Bath & Beyond is putting in great effort to spark a turnaround. But the ongoing rough patch is having a bearing on the results. For now, let’s stay tuned to see what the company releases in the forthcoming results.
Disclosure: I do not hold any position in the stocks mentioned in this article.
