Nothing very refreshing about Bed Bath and Beyond ahead of Q2 results

For a long time now, investors have been waiting for the good news from Bed Bath and Beyond (BBBY). Of late, operating profit has come under severe pressure from cost escalation and pricing issues, which continue to offset the company’s stable revenue performance.

A clear picture of the underlying squeeze on profitability will emerge only when the management breaks its silence on the matter. Had comparable store sales maintained sufficient momentum in the recent past, margins would have stabilized.

A noticeable positive change is an uptick in inventory position, thanks to the steady demand. If the trend is sustained in the forthcoming quarters, working capital will benefit from the improvement in cash flow.

A clear picture of the underlying squeeze on profitability will emerge only when the management breaks its silence on the matter

Things don’t look promising for the company ahead of its second-quarter earnings release, scheduled for Wednesday at 4:15 PM. The consensus estimate is for a 35% fall in earnings to $0.50 per share on revenues of $2.96 billion, which is slightly below the year-ago number. Taking a cue from the mounting competition the sector is facing, market watchers see the ongoing softness in top-line growth extending to the second quarter.

Unlike most of its peers in the sector, New Jersey-based Bed Bath and Beyond is taking baby steps in e-commerce. So, regaining the past glory will mostly depend on retaining store footfall. Meanwhile, factors that helped the other retailer in putting up a good show this year, mainly the government’s tax reform and the economic growth, apply to the company also.

In the first quarter, its sales were broadly flat, which followed a strong rebound in the preceding quarter.  Earnings plunged 42% year-over-year to $43.5 million during the quarter when an unimpressive comparable sales performance and lower store traffic added to the cost-related headwinds.

The company’s performance at the bourses over the past five years is reflective of the challenges the sector is currently facing. The shares have been in free fall since 2013, losing about 75% without registering any meaningful recovery during the period. After staying in the positive territory last week, the stock traded lower in the early part of Wednesday’s session.

Bed Bath & Beyond Q1 comps dip, reports in line earnings