On Wednesday, Bed Bath & Beyond (NASDAQ:BBBY) reported that sales surged 49% to $1.95 billion last quarter, beating analysts' estimates. Adjusting for Bed Bath & Beyond's decision to sell off its non-core retail banners last year, sales jumped 73% year over year.

Following this strong recovery from the COVID-19 pandemic, Bed Bath & Beyond raised its guidance for fiscal 2021. CEO Mark Tritton said: "We have started the year in a position of strength and are clearly on track to accomplish our goals." As a result, Bed Bath & Beyond stock jumped as much as 31% on Wednesday and ended the day with an 11% gain.

Chart showing BBBY's rising stock performance since July 2020.

Bed Bath & Beyond stock performance. Data by YCharts.

However, Bed Bath & Beyond's results were not nearly as good as management would have investors believe. Let's take a look.

Revenue bounces back, mostly

While Bed Bath & Beyond's sales skyrocketed on a year-over-year basis last quarter, most of the company's stores had been closed for the majority of the prior-year period. Investors need to look at the comparison to the first quarter of fiscal 2019 for a clearer view. Moreover, it's important to adjust for Bed Bath & Beyond's sale of several non-core businesses over the past year, including Christmas Tree Shops and Cost Plus World Market.

In April, Bed Bath & Beyond reported that sales for its core go-forward business totaled $2.08 billion in Q1 2019. Thus, with sales of $1.95 billion last quarter, it has almost -- but not quite -- gotten back to its pre-pandemic sales volume. Similarly, while the company raised its full-year sales forecast to a range of $8.2 billion to $8.4 billion, that compares unfavorably to its core go-forward sales of $9 billion two years ago.

On a comparable basis, which excludes stores that have opened or closed over the past two years, Bed Bath & Beyond says that sales increased 3% compared to the first quarter of fiscal 2019.

Adjusted gross margin beat management's expectations at 34.9%. However, this figure excluded significant markdown costs related to Bed Bath & Beyond's changing merchandise strategy. Under generally accepted accounting principles (GAAP), gross margin came in at 32.4%, down from 34.5% two years ago, which was already low by historical standards.

BBBY Gross Profit Margin (Quarterly) Chart showing downward trend since 2012.

Bed Bath & Beyond gross margin (quarterly). Data by YCharts.

As a result, Bed Bath & Beyond posted a GAAP net loss of $0.48 per share in the first quarter. On an adjusted basis, it eked out a razor-thin profit of $0.05 per share.

Still losing market share

In his earnings report commentary, Tritton said that Bed Bath & Beyond is "recapturing market share." Literally speaking, that's true. According to Census Bureau data, sales in the furniture and home furnishings category rose 88% year over year in the three-month period ending in May (roughly corresponding to Bed Bath & Beyond's fiscal first quarter). Meanwhile, sales rose 96% for Bed Bath & Beyond's namesake chain.

However, comparing to the first quarter of 2019, it's clear that Bed Bath & Beyond has lost a huge amount of market share since the pandemic began. Bed Bath & Beyond's sales have decreased compared to two years ago, despite 20%-plus growth for the overall furniture and home furnishings category.

This market share loss is particularly notable given that bankruptcies of other home furnishings retailers -- most notably, Pier 1 Imports -- have put a lot of market share up for grabs since early 2019.

Person in kitchen cooking food in frying pan.

Image source: Bed Bath & Beyond.

By contrast, first-quarter sales for TJX Companies' HomeGoods unit jumped 53% compared to two years ago. Home department sales rose 47% at Target and 11% at Kohl's over the same period. Even Macy's -- which was still struggling with a slow recovery in mall traffic last quarter -- managed to post modest growth in its home department compared to Q1 2019.

What turnaround?

Bed Bath & Beyond's new management team has a reasonable plan for getting the iconic retailer back to health. The company's investments in new private brands and more attractive stores are especially promising.

Thus, Bed Bath & Beyond certainly has turnaround potential. But management does investors a disservice by overstating the retailer's progress. As home-related spending normalizes following the surge that began last spring, Bed Bath & Beyond's sales will go into reverse unless it can start making durable market share gains.

With Bed Bath & Beyond shares trading for more than 20 times forward earnings, investors should steer clear of this turnaround stock until it shows clearer signs of progress.

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.