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Why Bed Bath & Beyond Got Slammed

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In general, home-furnishing retailers have had a rather good run over the last year, as increased demand for new homes has naturally increased demand for things to put in them. Bed Bath & Beyond (NASDAQ: BBBY  ) is one of America's biggest home-furnishing chains, and its stock is up handsomely over the last 12 months as a result of strength in the U.S. housing market.

However, its latest earnings report severely disappointed investors, certainly compared to the most recent results presented by competitors such as Macy's (NYSE: M  ) and Williams-Sonoma (NYSE: WSM  ) . Is the sell-off justified?

Earnings miss, outlook lowered
Bed Bath & Beyond reported third-quarter earnings of $1.12, representing a healthy 8.7% increase year over year but missing the analyst consensus of $1.14. Net sales were up 6% but also missed the analyst consensus by a hair. The increase in comp-store sales slowed to 1.3% for the quarter, down from 1.7% in the previous year. However, this is probably not what had the shares sinking 8.3% after-hours on Wednesday and more than 12% on Thursday.

Presumably, the lowered guidance is what caused the extreme market reaction. Fourth-quarter earnings estimates were slashed to $1.60-$1.67 from a previously modeled $1.70-$1.77, coming in well below analyst expectations. The full-year earnings-per-share estimate is now in the range of $4.79-$4.86, down from an earlier projection of $4.88-$5.01. Investors were clearly not pleased with the updated outlook.

To be fair, expectations were highly strung for the home-furnishing retailer, following a decent performance earlier in fiscal 2013. Additionally, comparisons with 2012 are tough, as it was a 53-week year, which has affected EPS models as well as the comp-store sales calendar. The company is still in very solid financial shape though, with no debt on the books. As such, it seems as if the sell-off is somewhat overdone.

What Macy's and Williams-Sonoma are doing
Macy's is a competitor in the home-furnishing space, despite being a more diversified retailer, and recently came out with some very encouraging numbers. Same-store sales were up 3.6% in November 2013 and December 2013, beating a 2.7% industry average as calculated by ShopperTrak.

What really blew investors away was the updated guidance. The company now expects EPS of $4.40-$4.50 for the next fiscal year, smashing an analyst consensus of $3.87. Somewhat surprisingly following these strong numbers, the company announced it would be cutting around 2,500 jobs in an effort to cut costs.

A more specialized competitor is Williams-Sonoma, which posted an excellent third-quarter report. Revenue increased by 11.3%, with comparable-brand revenue growing 8.2%. Earnings per share of $0.58 beat the $0.55 consensus estimate and were up an impressive 18.4% year over year.

By brand, West Elm was easily the best-performing division, with brand revenue up 22.2%. Citing these strong results, as well as the company's faith in strong execution going into the last quarter, the company has raised its full-year guidance.

The bottom line
Bed Bath & Beyond missed on the top and bottom lines for its Q3 report, which had investors unimpressed. However, more worrying was the lowered guidance, which has now come in well below analyst expectations. While Bed Bath & Beyond seems to be underperforming the industry, a sell-off of more than 12% may be overdone, as the company does maintain a very strong cash position and is still growing.

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  • Report this Comment On January 13, 2014, at 10:44 AM, Retailexecutive wrote:

    BBBY looks like a buying opportunity on the bottom confirmation. Street really was looking for too strong a retail season over all in my opinion. Any company that has gains YOY with only a slight miss to estimates presents a buying opportunity on a confirmed bottom. imo.

  • Report this Comment On February 03, 2014, at 5:18 PM, AnsgarJohn wrote:

    Retailexecutive do you have other picks?

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Daniel James

I'm primarily a value and fixed-income investor with a background in cultural anthropology. As a writer for the Fool, I focus mainly on the consumer goods sector, also dabbling in technology occaisionally. When not pouring over the world's stock markets, I like to read, travel and make music.

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Related Tickers

9/3/2015 1:03 PM
BBBY $62.64 Up +0.64 +1.03%
Bed Bath & Beyond CAPS Rating: ***
M $59.62 Up +1.00 +1.71%
Macy's, Inc. CAPS Rating: **
WSM $76.40 Up +0.71 +0.94%
Williams-Sonoma CAPS Rating: ***