Bed Bath & Beyond Stumbled in its Third-Quarter

Bed Bath & Beyond falls short of analysts' estimates for the third quarter, dragging down the company's shares.

Jan 13, 2014 at 3:07PM

The giant in home-goods retail -- Bed Bath & Beyond (NASDAQ:BBBY) -- surprisingly did not beat analysts' estimates for the third quarter of fiscal 2013 ended Nov. 30, 2013. Not only did Bed Bath & Beyond's performance disappoint analysts on Wall Street, but the company took the disappointment one step further, lowering its fourth-quarter and full-year earnings guidance, which as you can imagine did not sit well with investors. 

Immediate reaction
Bed Bath & Beyond released its third-quarter results for fiscal 2013 after market close on Wednesday, Jan. 8. During early morning trading the following day, reactions to the company's third-quarter earnings release were quickly made obvious to the public as the stock price for Bed Bath & Beyond dropped 12.4% from $78.46 the day before to $69.80. The news continued to shake up investors throughout the day, keeping the company's stock price below $70.

Neither wins the prize
Retail competitor in home organization The Container Store Group (NYSE:TCS), which reported its third-quarter earnings one day earlier, stayed neck and neck with Bed Bath & Beyond. Both retailers increased their net sales and same-store sales over the same period a year ago, but results in other categories varied, as seen in the table below.

Company Name

Q3 EPS Estimate

Q3 Actual EPS

Q3 FY 2012 Net Earnings

Q3 FY 2013 Net Earnings

Bed Bath & Beyond

$1.15

$1.12

$232.8 Million

$237.2 Million

The Container Store Group

$0.08

$0.11

$(9.49) Million

$6.86 Million



As you can tell from this table, Bed Bath & Beyond did not exceed analysts' estimates for net earnings per diluted share, earning $0.03 less than expected. On the other hand, The Container Store beat net earnings per diluted share estimates by $0.03, reporting $0.11 for the third quarter of fiscal 2013.

However, The Container Store's net income for the third quarter fell $16.3 million from the third quarter in fiscal 2012, earning the company a net loss of approximately $9.5 million on account of the company's recent IPO-related expenses and shareholder payouts. On the brighter side, Bed Bath & Beyond gained a profit of $4.4 million from the same period one year earlier.

Adding to its stockpile
Bed Bath & Beyond may not have beaten third-quarter earnings estimates, but it still managed to "up" its net earnings per diluted share by $0.09 to $1.12 -- an increase of 8.7% over the same period a year ago. Despite threats from online retailer Amazon.com (NASDAQ:AMZN), net sales also jumped 6% from $2.7 billion in the third quarter of 2012 to nearly $2.9 billion in the third quarter of 2013. This increase in revenue proves once again that despite Bed Bath & Beyond's 20%-off coupons, as well as its affordable products, its sales remain strong and steady. In addition, its same-store sales across its several subsidiaries increased 1.3%, which tells us that customers must be purchasing more than usual due to the company's affordable prices and coupons.

The gross margin, however, was hurt by the company's coupons falling 0.5% to 39.2%. According to one analyst from CNBC, "The worse-than-expected gross margins were due to increased acquisition costs, ongoing increases in coupon redemption and average coupon amount and a shift toward lower-margin products." The margin should recover in time, though. All in all, Bed Bath & Beyond had a decent third quarter that could have been a lot better, causing the company to rethink its performance in the fourth quarter and for the full year.


Having some doubts
Deciding to play it safe, Bed Bath & Beyond lowered both fourth-quarter and full-year earnings guidance. The company is taking a step back, using its third-quarter results as a reference guide to judge how it will perform in the 13 weeks remaining in fiscal year 2013. Uncertain that it will pull off better-than-expected results for the fourth quarter, Bed Bath & Beyond dropped its EPS guidance by $0.10, and is now predicting it will earn between $1.60 and $1.67. In addition, the company lowered its original full-year guidance range for 2013 from $4.88 and $5.01 to $4.79 and 4.86.

Analysts on Wall Street, though, remain confident, and expect Bed Bath & Beyond to report EPS at the high-end of the spectrum. For instance, they estimate Bed Bath & Beyond will earn $1.79 per share in the fourth quarter and $5.02 for the full year. We will find out in March whether analysts were right on the money or out of their mind with their estimates.

Foolish takeaway
Bed Bath & Beyond, simply put, got slightly off track in the third quarter and could have done better. Looking at the brighter picture, it still managed to increase its year-over-year net sales, same-store sales, and net income. Plus, the company has many things playing to its advantage such as its wide assortment of domestic merchandise and home furnishings, competitive pricing, favorable approach to management, excellent customer service within its stores, and a strong market position.

Foolish investors would be wise to keep following Bed Bath & Beyond, and remain optimistic that the company will spring back stronger than expected in the coming quarters.

Another big box retailer is suffering
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Fool contributor Natalie O'Reilly has no position in any stocks mentioned. The Motley Fool recommends Amazon.com, Bed Bath & Beyond, and The Container Store Group. The Motley Fool owns shares of Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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