Bed Bath and Beyond Earnings Preview: Costs to dent profits in Q3

Things don’t look promising for the home décor retailer Bed Bath and Beyond (BBBY) which is scheduled to report its third-quarter earnings results on Wednesday after the bell. The bottom line results are likely to be impacted by the continuing squeeze on margins from cost escalation while the top line could rise on higher sales from the customer-facing digital channels.

The company had been experiencing a dent in its margins in the past nine quarters due to higher net direct-to-customer shipping expenses as well as higher coupon expenses and a decline in merchandise margin. Also, the operating margin was hurt by an increase in selling, general and administrative expenses. Investors fear this could continue to take a scoop out of the profits in the third quarter.

In addition, the growth in e-commerce channel has hindered in the customer traffic at the stores of Bed Bath and Beyond. Rivals such as Walmart (WMT), Amazon (AMZN) and Wayfair (W) have gained on the growth in e-commerce channel trends and making customers be lazy by shopping online instead of the store visit.

The company has taken baby steps in e-commerce and retaining the store footfall remained very important to regain the past glory. There are certain positive factors that enable the company to recover from the losses such as favorable inventory position, economic growth, and tax reform benefits. But, the company has a long road to reach the recovery stage and turn profitable.

Analysts, on average, predict the retailer to report earnings of $0.17 per share on revenue of $3.04 billion for the third quarter. In comparison, during the previous year quarter, the company posted a profit of $0.44 per share on revenue of $2.95 billion. Majority of the analysts recommended a “hold” rating while expecting the stock to reach $14.20 in the next 52 weeks.

Bed Bath and Beyond sinks on weak comps, earnings miss

For the second quarter, the company disappointed investors as it reported dismal results with a surprise fall in same-store sales. The results, weakened by cost escalation and pricing issues, missed Wall Street estimates. Comparable store sales fell 0.6% as the effects of higher sales from the customer-facing digital channels were more than offset by lower store sales elsewhere.

Recently on December 24, the company’s stock sinks to a new five-year low of $10.46 due to concerns on its e-commerce expansion and holiday season sale. The retailer has predicted moderate declines in the bottom line for fiscal 2018 and 2019, in line with the market expectations.

Shares of Bed Bath and Beyond opened lower on Monday and is trading in the red territory. The stock has fallen over 44% in the past year and over 15% in the past three months.

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