As home goods retailer Bed Bath & Beyond (BBBY +0.00%) searches for a permanent CEO, the business continues to deteriorate. Revenue tumbled in the fiscal first quarter, falling short of analyst estimates, and the company posted a massive loss thanks to a non cash impairment charge. The company did maintain its full-year guidance ranges, but it now expects its results to be near the low end.
A rough quarter
Bed Bath & Beyond produced first-quarter revenue of $2.57 billion, down 6.6% year over year and $10 million shy of the average analyst estimate. Overall comparable sales were also down 6.6% in the quarter, with comparable sales from the stores down a high single-digit percentage. A decrease in the number of transactions was partially offset by an increase in the average transaction amount. One silver lining was a small increase in comparable sales from the digital channel.
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On a generally accepted accounting principle (GAAP) basis, Bed Bath & Beyond reported a net loss of $371.1 million, or $2.91 per share. This includes a goodwill and intangible asset impairment charge of $3.03 per share, as well as severance and shareholder activity costs. On a non-GAAP basis, the company reported net income of $15.5 million, or $0.12 per share. That was $0.04 ahead of analyst expectations, but down 68% year over year.
Gross margin fell half a percentage point to 34.5%, driven by lower merchandise margin. That was partially offset by a reduction in coupon expense and direct-to-customer shipping expense. The company sent out fewer coupons to its customers, and customers redeemed coupons at a lower rate. The company's BEYOND+ membership program also hurt margins, since the membership fees are realized as revenue over the course of a year.
A conservative outlook
Bed Bath & Beyond had previously provided full-year guidance calling for revenue between $11.4 billion and $11.7 billion, and adjusted earnings per share between $2.11 and $2.20. The company kept those guidance ranges following its first-quarter report, but it now expects both revenue and earnings to come in at the low end of those ranges.
Bed Bath & Beyond has set four key priorities as part of its plan to turn itself around: Stabilizing and driving revenue growth, resetting the cost structure to better reflect the current level of sales, reviewing and optimizing the asset base, and refining its organization structure. This likely means that the company will be closing stores and renegotiating leases, continuing to reduce costs at the store level, potentially selling off some of its retail brands, and cutting out layers of management.
"We remain confident in the underlying business and our ability to leverage the strengths of the Bed Bath & Beyond brand and our lasting connection with customers to deliver on our near-term priority and transform the company," said interim CEO Mary Winston during the first-quarter earnings call.
Retail turnarounds are hard
Losing customers is easy, while winning back lost customers is hard. For a retailer to successfully turn itself around, it needs to take drastic action early enough, before the customer exodus picks up steam. Best Buy is a rare example of a retailer that acted early and was able to make a comeback. Sears and J.C. Penney are two examples of retailers that couldn't get the job done, despite many years of trying.
With comparable-store sales now falling at a high single-digit rate, thanks in part to Bed Bath & Beyond trying to lower its dependence on coupons, a comeback will be tough to pull off. The company is competing against online retailers like Amazon and Wayfair, as well as big-box stores like Target that have succeeded in growing both in-store and online sales. The retail environment may be challenging, but among winners and losers, Bed Bath & Beyond is looking like a loser.
