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Why Bed Bath & Beyond Stock Was Falling Today

By Jeremy Bowman - Jan 7, 2021 at 1:47PM

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Shares of the home furnishings retailer pulled back after it missed estimates in its earnings report.

What happened

Shares of Bed Bath & Beyond ( BBBY -1.71% ) were pulling back today after the home goods retailer posted disappointing results, missing estimates on both the top and bottom lines.

As of 12:22 p.m. EST on Thursday, the stock was down 9.8%.

A woman looking at a pillow in a store

Image source: Getty Images.

So what

Bed Bath & Beyond managed to grow comparable-store sales in a difficult environment, but the results still weren't enough to please the market. Comps in the overall company, which also includes banners like Buy Buy Baby, rose 2%, while comps at the Bed Bath & Beyond brand were up 5%. Digital sales jumped 94% at Bed Bath & Beyond and 77% in the overall business, showing a demand shift to e-commerce during the pandemic.

Revenue was still down as the company has closed stores and sold off smaller chains like Christmas Tree Shops. Overall revenue fell 5.1% in the period to $2.62 billion, which missed estimates at $2.75 billion.

Adjusted gross margin increased 310 basis points to 35.4% due to fewer product markdowns, a favorable product mix, and leverage in distribution and fulfillment costs. That led to a sharp improvement in the bottom line, with an adjusted per-share profit of $0.08, compared to a loss of $0.38 a year ago, but the profit was also short of expectations at $0.19.

CEO Mark Tritton said: "The consistent execution of our growth strategy is unlocking improved financial performance, and we delivered a second consecutive quarter of comparable sales and profit growth. Additionally, we drove strong cash flow generation and balance sheet improvements in the third quarter and have reinitiated capital return to shareholders."

Now what

Bed Bath & Beyond has recovered faster from the pandemic than most other brick-and-mortar retailers thanks to its positioning in home furnishings, a category that has surged during the crisis as Americans work and learn from home. But that recovery and the business' broader turnaround may already be priced into the stock. Shares are up 16% over the past year, even with today's decline, and have jumped more than 400% from the bottom last March.

Looking ahead to the current quarter, which includes the holiday season, the company projected flat comps, citing headwinds from the resurgence in COVID-19 cases as well as supply chain constraints.

While Bed Bath & Beyond's recovery has been impressive, the road ahead will get tougher from here as the business was struggling before the pandemic and will eventually lose the tailwinds in home goods demand.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis – even one of our own – helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

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