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Bed Bath & Beyond Q3 Earnings Falls Y/Y, Meets Estimates

Zacks Equity Research
Updated

Bed Bath & Beyond Inc. BBBY posted third-quarter fiscal 2015 results, wherein earnings of $1.09 per share plunged 11.4% year over year, while coming in line with the Zacks Consensus Estimate. Also, the figure was within the company’s updated guidance range of $1.07–$1.10 per share.
 

Bed Bath & Beyond Inc. (BBBY) Street Actual & Estimate EPS - Last 5 Quarters | FindTheCompany

The year-over-year decline in the bottom line was due to reduced tax benefits, the absence of non-recurring credit card fee litigation settlement benefit (which was realized last year), and adverse currency fluctuations. Shares of this Zacks Rank #4 (Sell) stock slipped 1.9% in the after-hours trading session, following the earnings release.

Deeper Insight

The home-furnishing retailer’s net sales inched up 0.3% to $2,952.0 million, but missed the Zacks Consensus Estimate of $2,983.6 million. On a currency-neutral basis, sales rose 0.7%.

As projected, comparable-store sales (comps) for the quarter dipped 0.4% in the quarter, against a 1.7% rise reported last year. On a currency-neutral basis, comps remained flat year over year, as an increase in average transaction amount was offset by lower transaction count. Further, comps from customer-facing digital networks soared by more than 25%, whereas comps at stores fell at a low single-digit rate.

Gross profit climbed 1.2% to $1,115.3 million in the reported quarter, while the gross profit margin contracted 50 basis points (bps) to 37.8%, mainly due to a rise in inventory acquisition expenses, along with higher coupon expenses stemming from higher redemptions and higher coupon count.

Operating profit slumped nearly 17% to $292.9 million and the operating profit margin contracted about 210 bps from the prior-year quarter to 9.9%.

Financial Position

Bed Bath & Beyond ended the quarter with cash and cash equivalents of $490.7 million, long-term debt of $1,500 million, and total shareholders' equity of $2,565.8 million.

During the first nine months of fiscal 2015, the company generated cash flow of about $489.9 million from operating activities, while deploying $244.3 million toward capital expenditure. Looking ahead, Bed Bath & Beyond anticipates incurring capital expenditure of approximately $350 million in fiscal 2015.

Share Buyback Plan

During the third quarter, the company bought back 3.3 million shares for nearly $194 million, as part of its current $2 billion share repurchase program. As of Nov 28, 2015, Bed Bath & Beyond had nearly $110 million remaining under its current buyback program which it intends to complete in the fourth quarter. Thereafter, management plans to start making buybacks under its new program of $2.5 billion, as announced in Sep 2015.

Outlook

Management remains hopeful about driving future growth on the back of its strategic investments and omnichannel progress. However, the company expects the ongoing currency headwinds to linger and impact results in the final quarter as well as fiscal 2015.
 
Bed Bath & Beyond projects comps growth in the range of flat to 2% increase for the fourth quarter of fiscal 2015, while for fiscal 2015, comps are expected to grow in a range of 0.6%–1.1%.

Considering all factors, the company anticipates fourth-quarter earnings per share in the range of $1.72–$1.86, whereas fiscal 2015 earnings are envisioned in a band of $4.91–$5.05 per share.

Also, Bed Bath & Beyond intends to open about 30 new stores in fiscal 2015, while closing 10.

Stocks to Consider

Better-ranked stocks in the same industry include CST Brands, Inc. CST, with a Zacks Rank #1 (Strong Buy), Regis Corp. RGS and ULTA Salon, Cosmetics & Fragrance, Inc. ULTA, each carrying a Zacks Rank #2 (Buy).

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Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
REGIS CORP/MN (RGS): Free Stock Analysis Report
 
ULTA SALON COSM (ULTA): Free Stock Analysis Report
 
BED BATH&BEYOND (BBBY): Free Stock Analysis Report
 
CST BRANDS INC (CST): Free Stock Analysis Report
 
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