Don’t Dismiss BBBY Stock After Earnings
Bed Bath & Beyond Inc. (NASDAQ:BBBY) has dropped some six percent on Wall Street in Wednesday trading. BBBY stock has failed to recover after the preliminary third-quarter earnings release, despite the fact that the company announced approximately $3.0 billion in projected revenues, 0.3% higher in year-over-year sales. The problem is that same-store sales, an important indicator in the retail sector, are estimated to be 0.4% lower. Earnings per share are now expected between $1.07 and $1.10 over the period, which ended on November 28, against a previous range of $1.14 to $1.21. (Source: “Why Bed Bath & Beyond Sales Are Down,” Fortune, December 23, 2015.)
Like other retail stocks, BBBY stock has suffered from tougher competition from online retailers such as Amazon.com. Evidently, BBBY investors should not drop their guard, as it seems that Bed Bath & Beyond has failed to recover its pre-financial crisis market weight. Even its main competitor, Linens N Things, was liquidated in 2008. Indeed, the financial crisis hurt Bed Bath & Beyond and other housewares retailers because of the slowdown in the housing market.
Now, the retailer will have to counter the onslaught of competition from online shopping giants like Amazon by finding new ways of staying relevant. The increased competition can benefit Bed Bath & Beyond if the company improves its online platform in order to regain buyers, who are forever seeking lower prices.
Costs are also of concern. Bed Bath & Beyond often asks its suppliers to supply the stores directly, rather than sending their products through distribution centers. This technique allows the group to grow faster, but it is more difficult for it to reduce its supply costs and compete effectively with Wal-Mart and Target in terms of price. There are additional bullish factors that should push BBBY stock back toward a healthier $70.00 zone.
Credit Suisse analysts have set a $53.00 target on BBBY stock in a research note published on December 18. The 18 analysts covering BBBY had a wide range of price targets, but none rated the stock a “Sell.” While the lowest target was $49.00, the highest was $85.00, leaving a mean analyst target of $64.83, about 30% higher than the current share price. (Source: “To Target, Credit Suisse Reiterates ‘Neutral’ Rating On Bed Bath & Beyond Inc (NASDAQ:BBBY) Shares Today,” IR.Net, December 18, 2015.)
Bed Bath & Beyond Addressing Big Issues
BBBY stock has suffered because Bed Bath & Beyond’s web site has been slow to take off in its early stages. The group is certainly one of the largest U.S. distributors, but its online sales account for a small percentage of revenue.
BBBY stock can also count on institutional investors, such as McDonald Capital Investors Inc, which owns 653,133 shares, and more famously Leonard Green Partners, which has 990,000 shares, or 3.81% of their U.S. portfolio. The Leonard Green & Partners ownership of BBBY is an additional bullish sign, given that the company has a reputation for holding companies in its portfolio for 10 years or more. (Source: “Could Bed Bath & Beyond Inc. Increase After Today’s Tip From Option Traders?” ArticleBasis web site, December 15, 2015.)
Bed Bath & Beyond, meanwhile, has a reputation for its strong cashflow-generating ability; its business is still solid, even if it suffers from the impact of outside forces, given its strong presence (over 1,500 stores in all 50 U.S. states, Canada, and Puerto Rico).
Currency fluctuations in Canada have undermined growth and contributed to the lower comparable sales this past quarter. However, the fact that despite the obstacles, revenue is increasing suggests BBBY stock still has potential and the retailer has some strength left, especially for long-term-focused investors, albeit now available at a much cheaper price.
BBBY understands the challenge of online retail and it is improving its digital channel sales. However, physical stores still have some fight to give; they can enhance and exploit their in-store customer experience, complementing it with the online: “buy online and pick up in-store, buy online and return to store, and online appointment scheduling that encourage customers to visit stores.” (Source: “Despite Negative Comps, Physical Stores Are Vital To Bed Bath & Beyond’s Growth,” Forbes, October 14, 2015.)
In other words, the retailer can use its online channel to attract shoppers to the physical store.