Will Bed Bath & Beyond Inc. Earnings Make Shares Look Dirt Cheap?

On Wednesday, Bed Bath & Beyond (BBBY) will release its quarterly report, and investors continue to worry about whether the home-goods retailer can stem the tide of competition to keep growing. Even as store-based peers Container Store (TCS -1.23%) and Restoration Hardware (RH 1.32%) have worked to distinguish themselves from other players in the home-furnishings space and to defend themselves against e-commerce threats, Bed Bath & Beyond has found it much more difficult to compete against online sellers offering the same basic goods at lower prices.

The rebound in the housing market helped Bed Bath & Beyond recover from a difficult time during the financial crisis, as the company managed to outlast a tough stretch that caused one of its major rivals to declare bankruptcy. Yet more favorable housing conditions have given new life to some of Bed Bath & Beyond's rivals, and The Container Store's recent initial public offering along with Restoration Hardware's impressive performance have drawn attention to the more specialized plays in the space. Let's take an early look at what's been happening with Bed Bath & Beyond over the past quarter and what we're likely to see in its report.

Source: Wikimedia Commons, courtesy Coolcaesar.

Stats on Bed Bath & Beyond

Source: Yahoo! Finance.

What's next for Bed Bath & Beyond earnings?
Investors have lost confidence in strong growth for Bed Bath & Beyond earnings, cutting 8% from their estimates for the May quarter and between 5% and 7% for their full-year projections over the next couple of years. The stock has also fallen, giving up 10% since late March.

Much of the decline in Bed Bath & Beyond's stock came after the company's results for the previous quarter showed sluggishness in its core business. Same-store sales only managed to rise 1.7%, as bad weather and some seasonal factors in the holiday shopping season held back its results. But the real negative surprise was that Bed Bath & Beyond expected similarly weak comps of about 1% to 2.5% in the May quarter as well, with guidance holding off on more substantial growth until later in the year. Earnings projections were also below expectations by as much as a dime per share for the quarter.

But Bed Bath & Beyond doesn't expect to go down without a fight. The retailer has recognized the difficulties with its subpar e-commerce channel, making substantial investments to improve the online customer experience in order to compete better against online-retail rivals. Moreover, Bed Bath & Beyond hopes to leverage both its namesake brand and the Cost Plus World Market chain to take advantage of better conditions in the housing market.

Still, what competitors Container Store and Restoration Hardware have done lately show the difficulties that Bed Bath & Beyond will face. Container Store has demonstrated its ability to go beyond the largest metropolitan areas to have great success in mid-sized markets, and it has aligned customer interests with its highest-margin products, enhancing its ability to profit in the long run. Meanwhile, Restoration Hardware managed to post impressive growth in its most recent quarter, defying negative trends in retail and taking full advantage of its reputation for upscale goods. As a store trying to be all things to all people, Bed Bath & Beyond will have trouble inspiring the excitement that these two rivals have seen lately.

In the Bed Bath & Beyond earnings report, watch to see what comments company management makes about the stock's performance and its business opportunities. With further room to make share repurchases, Bed Bath & Beyond has the capacity to make investors see the stock as a dirt cheap bargain -- as long as it can convert with solid earnings results.

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