What happened
Shares of Bed Bath & Beyond (BBBY -2.83%) rose on Monday after the retailer received an analyst upgrade. The stock was up about 7.1% at 12:15 p.m. EDT.
So what
Analysts at Raymond James raised their rating on the stock to market perform from a previous rating of underperform. Their view is that an improved consumer spending environment should help the company's sales.
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Bed Bath & Beyond stock has been tumbling since 2015, down around 75% from its peak. The retailer's margins have been deteriorating since 2011, hurt by online competition and an increasing reliance on coupons to drive sales. For the trailing 12-month period, the company managed a gross margin of 35.7% and an operating margin of 5.6%. Those are down from 41.4% and 16.5% in fiscal 2012.
Still, other retailers are benefiting from strong consumer spending. Target posted blockbuster results last month, and even circling-the-drain Sears Holdings is seeing its sales trends improve. Bed Bath & Beyond could see a sales boost when it reports its second-quarter results on Sept. 26.
Now what
Even if Bed Bath & Beyond benefits from strong consumer spending, it might only be temporary. The company is facing competition from discount retailers, Amazon, Wayfair, and others, forcing it to compete on price. It will be tough for Bed Bath & Beyond to boost its margins given the intense competition.
Its stock appears cheap, trading for just 8.5 times the average analyst estimate for 2018 earnings. Good results could certainly send the stock soaring, but earnings have plummeted in the past couple of years, and that trend has shown no signs of reversing.
