Investors are bracing for plenty of bad news when Bed Bath & Beyond (NASDAQ:BBBY) announces its latest earnings results on Wednesday, July 8. The specialty retailer's last quarterly report provided just a few hints about how the business was dealing with sales pressures from pandemic closures. And those challenges were massive.

The upcoming announcement covers the selling months of March, April, and May, and so it will capture the greatest impact from social distancing efforts to date, along with some likely positive trends around e-commerce shopping, cash savings, and consumer interest in home supplies and furnishings.

Let's take a closer look.

A woman carrying shopping bags on an escalator

Image source: Getty Images.

A brutal sales period

Bed Bath & Beyond was struggling with poor sales trends before COVID-19 struck North America. Sales fell 6% in the previous quarter that ran through late February, but that figure will surely balloon in this week's report.

Most investors who follow the stock are expecting sales to decline by nearly 50% thanks to the temporary store closures that kept most of its retail locations off-limits for customer browsing through the quarter. The key question is how successful the chain was at shifting some of that demand to its online channels. Many of its stores offered curbside service and management noted surging interest in April for a wide range of products that reflected people's increasing time spent at home.

We'll find out on Wednesday whether soaring digital demand for things like bread machines, coffeemakers, and air purifiers allowed the chain to maintain its relationship with many of its shoppers over the past few months.

Cash updates

A multimonth pause in store access would put even the most profitable retailer in jeopardy of a cash crunch. That's why investors will be closely watching metrics like cash outflow on Wednesday.

Bed Bath & Beyond in mid-April said it used new debt to push its cash holdings up to $1.4 billion by early March, or 39% higher year over year. It took on additional loans since then, including an additional $850 million credit facility in late June.

But the chain's balance sheet is still likely to take a big hit this week from the fixed costs associated with its store base, and from its shift toward digital selling. Investors may also get unwelcome surprises in the form of inventory writedown charges for products that missed their seasonal selling windows over the spring months.

Looking forward

Bed Bath & Beyond's latest rebound strategy envisions its entire store base being in operation by the end of July. In addition to that broad sales lift, CEO Mark Tritton and his team might have several positive things to say about the home supplies industry, which has seen soaring demand that lifted sales results for companies ranging from Target to Wayfair. The chain's ability to capitalize on that surge might be the difference between a brutal fiscal 2021 and one that shows a clear path toward recovery.

Bed Bath & Beyond has also made some aggressive moves toward becoming a multichannel retailer, and those competencies could be major assets going forward. It is planning to keep curbside service at most locations, for example, after the COVID-19 threat fades.

Bigger rivals like Target, Home Depot, and Walmart have demonstrated the power of a deeply integrated selling model that uses stores as touchpoints for both in-person shopping and online fulfillment. Bed Bath & Beyond's future might depend on its ability to compete in that space. In any case, it may be entering that fight with some baggage, including poor cash flow trends and a potentially bloated inventory position.

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