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Bed Bath & Beyond Inc.'s Q3 Earnings Fail to Reinvigorate Investor Interest

By Daniel Sparks - Jan 8, 2016 at 2:30PM

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Third-quarter results did little to reverse the stock's poor track record. Here's what investors need to know.

The last 12 months have been unfortunate for Bed Bath & Beyond (BBBY 11.77%). Shares have plummeted 37%. While this decline has been steady during this entire period, the negative sentiment toward the stock was magnified by the company's poor preliminary third-quarter results, which were released ahead of this weeks' earnings release. And Bed Bath & Beyond's Q3 release, which was posted on Thursday, didn't offer any items to reinvigorate investor interest.

Image source: Bed Bath & Beyond.

Bed Bath & Beyond results: The raw numbers

 

Q3 2015 Actuals

Q1 2014 Actuals

Growth (YOY)

Sales

$2.95 billion

$2.94 billion

0.3%

Operating income

$293 million

$353 million

(17%)

Adjusted EPS

$1.09

$1.23

(11.4%)

What happened with Bed Bath & Beyond this quarter?
During Q3 -- a quarter that included Black Friday and the following day -- Bed Bath & Beyond's results were far worse than management was initially anticipating. When it reported second-quarter results, the company expected third-quarter sales to increase anywhere between 1.8% to 5% from the year-ago quarter. But with revenue only rising 0.3% from the year-ago quarter, actual results paled in comparison to these initial expectations for the quarter.

Earnings per share fared even worse, declining 11.4% compared to the year-ago quarter.

Comparable sales were also weaker than expected, decreasing 0.4%. This compares to management's initial expectations for comparable sales to increase 1% to 3% during the quarter.

What management had to say

  • Management attributed the weak quarter to "softer in-store transaction accounts," which management is careful to note reflects "the overall softness reported in the macro-retail environment during the quarter."
  • On a constant currency basis, sales were actually up 0.7% from the year-ago quarter -- still well behind Bed Bath & Beyond's initial guidance for sales to increase 1.8% to 5%.
  • Comparable sales from customer facing digital channels increased "in excess of 25%" during the quarter, the company said.
  • Management noted that gross profit margin continued to contract, decreasing 60 basis points from the year-ago quarter.
  • The company repurchased about $194 million of its common stock during the quarter, or about 3.3 million shares.
  • Management said it anticipates it will exhaust the remaining authorized cash from its $2 billion share repurchase program during the fourth quarter and then proceed to initiate repurchases from its September-approved $2.5 billion repurchase program.

Looking forward
Bed Bath & Beyond expects comparable sales to be "between relatively flat and an increase of approximately 2%, including an unfavorable foreign currency rate impact of approximately 30 basis points," management said during the company's third-quarter earnings call on Thursday. Net sales are expected to increase between 0.7% and 2.7%, and management anticipates Q4 EPS will be in the range of a 0.04% decrease to a 3.3% increase compared to the year-ago quarter.

Daniel Sparks has no position in any stocks mentioned. The Motley Fool recommends Bed Bath & Beyond. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Bed Bath & Beyond Inc. Stock Quote
Bed Bath & Beyond Inc.
BBBY
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